Market Transparency: The Role of Specialised Microfinance Rating Agencies

This presentation makes a case for the use of specialized microfinance rating agencies as against corporate agencies in the rating of MFIs.

The paper states that specialized microfinance rating agencies have:

• Enabled the flow of funds into MFIs;
• Improved operations and the attainment of standards;
• Helped deepen financial markets.

The presentation provides information about the origin of specialized microfinance rating agencies, the methods they use and M-CRIL ratings. It states that ratings are used to:

• Raise funds from investors;
• Facilitate seed capital finance for emerging MFIs;
• Benchmark performance and identify institutional weaknesses;
• Demonstrate the utility of the service to potential investors.

The presentation argues that ratings lead to:

• The determination of investment-worthy MFIs;
• Capacity enhancement of MFIs;
• MFIs serving ever-larger numbers of low-income clients.

It studies the role of specialized raters in the areas of investor confidence and argues that:

• Specialized raters understand the key issues in lending to the poor;
• They are accepted by development investors;
• The strategy of luring traditional corporate raters into microfinance rating is commercially unsound;
• A more appropriate strategy would be to promote awareness of the strengths of key specialized raters.

The presentation concludes that there is increasing convergence between the products of specialized raters and development promotion organizations' need to recognize and promote the role of specialized rating agencies.