Tools & Resources Due Diligence Checklist for Investors

Due Diligence Checklist for Investors

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This Checklist for Investors is the product of collaboration between CGAP, The Smart Campaign, and many investors. It draws on investor practice and experience. This checklist is not designed as a standalone due diligence tool. Instead, it is designed to lower transaction costs by presenting questions to add to common due diligence topics.

The Consultative Group to Assist the Poor (CGAP), a consortium of 33 public and private development agencies working together to expand access to financial services in developing countries, has taken the lead within The Smart Campaign in reaching out to investors and donors, urging them to join together to integrate the Client Protection Principles into their internal systems and processes. This Checklist for Investors is the product of a fruitful collaboration between CGAP, The Smart Campaign, and many investors. It draws heavily on current investor practice and experience.

Many investors are designing, testing, and refining criteria and procedures for incorporating the Client Protection Principles into screening and due diligence. This due diligence checklist draws on peer learning from these initiatives. The checklist is comprised of 12 key questions that can be added to investors’ current due diligence processes. For each question, the checklist provides good practices as well as practices that should signal caution to the investor.  Finally, a substantial Annex answers frequently asked questions from investors, such as “How do you really know about the level of client over-indebtedness until the bubble bursts?” and “What kind of behavior do loan officer incentive bonuses really promote?”

This checklist is not designed as a standalone due diligence tool. Instead, it is designed to lower transaction costs by presenting questions to add to common due diligence topics.  The checklist is primarily for investors and funders of retail financial institutions. But others, such as investors considering participating in microfinance investment vehicles (MIVs) and grant funders of apex organizations, can use this tool to ensure that these funds review client protection practices as part of their own screening procedures. Investors may consider requiring use of the checklist as a condition for their participation in the fund. Investors who outsource their due diligence function can include these topics in the due diligence team’s terms of reference. While developed for microfinance, the checklist is appropriate for those who invest in any retail financial institution, particularly consumer finance companies.

This checklist is a companion to CGAP’s Implementing the Client Protection Principles: A Technical Guide for Investors, 2nd Edition, also available on The Smart Campaign website.

Download the Due Diligence Checklist for Investors »