Three providers of institutional, performance and social ratings of microfinance institutions (MFIs), MicroFinanza Rating of Italy, US-based MicroRate and French Planet Rating, recently signed the Microfinance Rating Agency Code of Conduct. The code was developed in collaboration with the Luxembourg-based nonprofit African Microfinance Transparency, and its implementation will be overseen by an unnamed external party. The highest level of compliance with the code requires “full compliance with best practices” such as not providing technical assistance to MFIs; no ownership ties to companies providing professional or technical services to the microfinance sector; and having an income stream that includes organizations other than MFIs, such as investors, paying for ratings. For the full text of the code of conduct you may visit http://www.microfinanzarating.com/images/stories/Code_of_Conduct_final.pdf
In a related story, it was recently reported that Indian rating agency Micro-Credit Ratings International Limited (M-CRIL) Managing Director Sanjay Sinha argued that commercial rating agencies in India have been “too liberal in the assignment of grades to MFIs” giving commercial banks an overly optimistic picture of the MFI’s creditworthiness thus resulting in excessive lending. Mr Sinha was said to criticize mainstream rating agencies for not understanding the microfinance sector and applying general financial sector parameters to microfinance. Rating agencies Credit Rating and Information Services of India Limited (CRISIL) and Credit Analysis and Research Limited (CARE) have refuted these allegations arguing that they have the required understanding and experience in the microfinance sector and that their ratings reflect the “holistic” strength of MFIs. Global ratings agency Standard and Poor’s holds a 51- percent stake in CRISIL. CARE is majority-held by three Indian banks.
By Nisha Koul, Research Associate
About MicroFinanza Rating: MircoFinanze Rating, established in 2000, is an Italian microfinance rating agency that provides financial and social performance assessment services to microfinance institutions (MFIs), investors, regulators, donors and networks. As of 2011, MicroFinanza Rating has performed about 600 assessments in approximately 60 countries worldwide.
About MicroRate: MicroRate is a microfinance rating agency formally approved by CGAP (Consultative Group to Assist the Poor); the Inter-American Development Bank; and Peru’s Superintendency of Banking, Insurance and Pension Fund Managers (SBS). It was founded in the US in 1997 with the intent to objectively evaluate microfinance institutions (MFIs), thereby increasing transparency and drive additional funding into microfinance. MicroRate has completed approximately 550 ratings of approximately 200 MFIs worldwide and claims to perform its evaluations not through “rigid rating formulas,” but through “evaluation of critical risk.” The private company is based in Washington, DC, with offices in Peru and Morocco.
About Planet Rating: Planet Rating is a microfinance rating agency and member of the France-based PlaNet Finance Group. It originated the GIRAFFE methodology, which it uses to evaluate the performance and institutional risk of MFIs. This includes a 14-page report explaining the rating, a financial and operational analysis, regional and international benchmarking and a categorical rating.
About Micro-Credit Ratings International Ltd (M-CRIL): Micro-Credit Ratings International Limited (M-Cril), which was established in India in 1998 by nonprofit development consulting organization EDA Rural Systems Private Limited (EDA), offers assessments of microfinance institutions’ (MFIs’) financial performance while aiming to highlight the importance of governance and management in running sustainable MFIs.
About Credit Rating and Information Services of India Ltd. (CRISIL): Founded in 1987, CRISIL is an Indian ratings, research, risk and policy advisory company that is based in Bangalore, India. It provides ratings for microfinance institutions (MFIs), including approximately 30 that report to the Microfinance Information Exchange (MIX), the US-based nonprofit microfinance information provider. Its offerings also include research on India’s economy, investment research outsourcing, fund services, risk management and infrastructure advisory services. CRISIL’s majority shareholder is Standard & Poor’s, the US-based credit rating agency.
Sources and Additional Resources:
MicroFinanza Rating, “Press Release,” http://www.microfinanzarating.com/index.php?option=com_content&view=article&id=180:microfinanza-rating-promotes-and-signs-the-code-of-conduct&catid=40:news-home-page&Itemid=58&lang=en
MicroFinanza Rating, Release, http://www.microfinanzarating.com/images/stories/Code_of_Conduct_final.pdf
LiveMint, “Ratings firms liberal with MFIs: M-Cril,” http://www.livemint.com/2011/09/05005235/Ratings-firms-liberal-with-MFI.html?h=B
MicroCapital.org story, August 3, 2011, “MICROCAPITAL BRIEF: MicroRate Latin America Approved as Microfinance Rating Agency in Peru, Celebrates 14th Anniversary,” https://www.microcapital.org/microcapital-brief-microrate-latin-america-approved-as-microfinance-rating-agency-in-peru-celebrates-14th-anniversary/
MicroCapital.org story, May 12, 2011, “MICROCAPITAL BRIEF: Planet Rating Recognized as Microfinance Rating Agency by Philippine Central Bank, Bangko Sentral ng Pilipinas (BSP),” https://www.microcapital.org/microcapital-brief-planet-rating-recognized-as-microfinance-rating-agency-by-philippine-central-bank-bangko-sentral-ng-pilipinas-bsp/
MicroCapital.org story, January 10, 2011, “MICROCAPITAL BRIEF: Daniel Rozas, Vinod Kothari Contrast Microfinance Securities Rating Methodologies Practiced by Rating Agencies CRISIL, Fitch,” https://www.microcapital.org/microcapital-brief-daniel-rozas-vinod-kothari-contrast-microfinance-securities-rating-methodologies-practiced-by-rating-agencies-crisil-fitch/
MicroCapital Universe Profile: MicroRate, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=MicroRate
MicroCapital Universe Profile: Planet Rating, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Planet+Rating
MicroCapital Universe Profile: Micro-Credit Ratings International Ltd (M-CRIL), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Micro-Credit+Ratings+International
MicroCapital Universe Profile: Credit Rating and Information Services of India Limited (CRISIL), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CRISIL
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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