How M-CRIL Supports the Provision of Financial Services to Low-income Clients
The situation of microfinance in Asia is one of information asymmetry between banks that have funds but do not understand microfinance operations, and microfinance institutions (MFIs) that have a high demand for funds but have doubtful records. EDA Rural Systems Private Limited (EDA) attempts to address this gap by developing a MFI rating service called Micro-Credit Ratings International Limited (M-CRIL).
M-CRIL was launched in 1998, and EDA's team of experienced professionals and academics had rated 156 MFIs across Asia till March 2003. It has developed a large client base of government organizations, donors and lenders across ten countries The M-CRIL indicators are broadly classified into governance, management systems and financial strength of the MFI.
M-CRIL differs from formal sector ratings in:
- Data collection and authentication;
- SWOT analysis;
- Financial statements adjustment;
- Ongoing instrument review;
- Regular sharing of best practices.
The case study highlights challenges that MFIs face in increasing coverage:
- Orienting donors vis-a-vis market strengthening;
- Creating an investment climate for microfinance;
- Setting disclosure and accountability standards;
- Establishing internal quality controls.
As per the paper, major policy and donor recommendations are:
- Rigor and discipline in finance;
- Capacity building;
- Recognition to rating agencies;
- Professional rating for accessing funding.
