Embed Size (px)
DESCRIPTION
Microfinance Institutional Rating
Citation preview
Microfinance Ratings: What use are they to investors? Microfinance Institutional Ratings
2
Ratings, assessments and certification
Characteristics Rating Assessment Certification
Main purpose Compare performance with other actors / decide on investment allocation
Understand weaknesses and improve performance
Recognize compliance with standards
Reference Industry benchmarks and best practices
Best practices Recognized standards
Communication Grade communicated to the market in all cases
Internally or to selected third parties
Certification is public
Focus of the on-sitemission
Systematic review of main risks; cross-verification of opinion
Interactivity, experience sharing
Detailed check-list; verification; detailed documentation
3
Microfinance Institutional Rating
• A Microfinance Institutional Rating provides an opinion on the long-term institutional viability and creditworthiness.
• It measures the probability that an MFI will continue to operate and remain a “going concern”, even if an external shock strikes.
• It can be used by regulated or un-regulated Microfinance Institutions
Microfinance Institutional Rating
• This opinion is provided after a comprehensive assessment of risks and performance on the following categories.
4
Microfinance Institutional
Rating
Governance &
Management
Operations
Financial profile
Responsible practices
Microfinance environment
5
Microfinance Institutional Rating
• Some risks are currently evaluated in the Social Ratings (reputation risk, credit risk derived from irresponsible lending practices with clients)
• Microfinance Institutional Rating methodologies have evolved to formally include risk relevant “social” indicators• Governance & Management
• Responsible decision making• Mission Alignment
• Responsible practices• Client protection principles• Responsible performance
6
Governance &
Management
Corporate governance
Strategy
Management
Responsible decision making
Mission alignment
7
Financial profile
Financial performance
Funding ALM
Solvency
8
Operations &
Organization
Loan portfolio quality
Human resources MIS
Internal Control
and Audit
9
Responsible practices
Client protection
Responsible performance
10
Microfinance environment
Political, economic
and financial environment
Legal & Regulatory
environment
Competitive environment
11
MIR and social ratings
Microfinance Institutional Rating
Social Rating Client Protection (internal &
external) Alignment of governance &
decision-making with stated goals
Social outcomes
Outreach to the poor Appropriateness of
services for the needs of the poor and excluded
Social responsibility to the community
Social responsibility to the environment
Social change (women empowerment, education, etc.)
Universal Standards of Social Performance Management
> Long term viability
> Capacity to achieve social goals
12
MIR and Client Protection Certification
Microfinance Institutional Rating Client Protection
Certification
Assurance that best practices in terms of client protection are
implemented (focus on the client)
Client protection practices that create a
risk for the MFI (focus on the institution)
13
Rating Grade comparability tableCategory Classification Definition M-CRIL MFR MR PR
1 Excellent Excellent performanceLow or well-managed short- medium term risk
α+α
AAAAAA
α+α
A++A+AA-
2 Good Good performance Modest or well-managed short- medium term risk
α-ᵝ+
BBBBB
α-ᵝ+
B++B+BB-
3 Fair Fair performanceModerate to medium-high risk
ᵝᵝ-
B CCC
ᵝᵝ-
C++C+CC-
4 Weak Weak or poor performanceHigh to very-high risk
ᵞ+ᵞ
CCCD
ᵞ+ᵞ
DE
14
MIR and credit ratingStrong weight on external factors that have an influence on the risk of default and severity of potential losses Sovereign risk Transfer and
Convertibility risk Operational
environment (infrastructure, legal system)
> Long term viability
> Risk of default
Microfinance Institutional Rating
Credit Rating
Common elementsDeep field assessment, adapted to the risk pattern of MFIs: Governance &
Management Operational risks Microfinance operations Responsible Practice Analysis of
Financial performance Funding Asset and Liability Management Solvency Credit Risk Risk Management Strategy
