Microfinance: Taking Root in the Global Capital Markets

This report, from the Microfinance Rating Methodology Working Group, focuses on the need for globally acceptable metrics for MFI credit analysis that can underpin financial instruments and serve as a road map for MFIs to better understand the criteria used by potential investors. Products of various specialized MFI rating agencies use widely varying criteria developed to meet diverse needs. They do not readily correspond to the rating categories that mainstream investors are familiar with. Also, clear information and disclosure benchmarks help MFIs enhance their ability to attract investment. The working group aimed to address these issues. The report provides context for the rating methodology by summarizing the current state of MFI funding. It discusses key issues reviewed in developing the MFI rating methodology, and identifies the minimum information recommended by the working group for producing a rating. The MFI rating methodology incorporates a wide range of quantifiable and non-quantifiable factors such as:

• Economic and industry risk;
• Management and strategy;
• Ownership and governance;
• Accounting and financial reporting;
• Management of operational risk, credit risk and market risk;
• Funding/ liquidity;
• Capital;
• Earnings.