Davids & Goliaths in International MicroFinance: The Challenge for Specialized Raters

This paper was commissioned by the Microcredit Summit Campaign in 2006.The paper discusses the differences between:

• The approaches and the presentation of traditional rating agencies, and specialized microfinance raters;
• The offerings of M-Cril and those of other rating agencies.

The paper details how M-Cril responded to the demand from international investors by offering:

• Assets-liability matching, and present and projected current ratios of risk for the MFI;
• A desk review product, quarterly reviews and annual rating visits to establish the validity of its ratings.

The paper also discusses the following key challenge for the future of the specialized microfinance rating sector:

• The acceptance by international investors of ratings conducted by specialized raters rather than by the conventional rating industry.

The paper states that:

• Investors and industry observers criticize specialist microfinance raters for their inability to conduct credit ratings and risk assessment.
• However, traditional raters might not want to cover MFIs; whereas leading specialized MFI raters deliver high quality, trustworthy assessments.
• Traditional raters do not have access to the volume of information about microfinance that specialized raters do.

The paper concludes that there is a need to:

• Prepare a matrix that would help international investors compare MFIs;
• Increase the familiarity of investors with specialized microfinance raters who have demonstrated their commitment to microfinance market development.