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The ACCION CAMEL

The CAMEL methodology was originally adopted by North American bank regulators to evaluate the financial and managerial soundness of U.S. commercial lending institutions. The CAMEL reviews and rates five areas of financial and managerial performance: Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity Management. As microfinance institutions (MFIs) increasingly reach out to formal financial markets to access capital, there is a need for a similar tool to gather and evaluate data on the performance of MFIs. Based on the conceptual framework of the original CAMEL, ACCION developed its own instrument. Although the ACCION CAMEL reviews the same five areas as the original CAMEL, the indicators and ratings used by ACCION reflect the unique challenges and conditions facing the microfinance industry. To date, ACCION has used its CAMEL primarily as an internal assessment tool, which has contributed to setting performance standards both for the ACCION Network and for the microfinance industry as a whole.

The ACCION CAMEL analyzes and rates 21 key indicators, with each indicator given an individual weighting. Eight quantitative indicators account for 47 percent of the rating, and 13 qualitative indicators make up the remaining 53 percent. The final CAMEL composite rating is a number on a scale of zero to five, with five as the measure of excellence. This numerical rating, in turn, corresponds to an alphabetical rating (AAA, AA, A; BBB, BB, B; C; D; and not rated).

This comprehensive guideline clearly explains the purpose and scope of CAMEL and goes into detail about how to apply the procedures necessary to generate the information required. It then discusses the financial statements and adjustments that are needed. Finally the CAMEL scoring system is explained in detail before providing examples and worksheets in the annexes.