Microfinance Institution (MFI) Grading Criteria

This document describes CRISILs risk assessment and diagnostic services that aim to help MFIs measure, manage and mitigate their business and financial risks. CRISIL uses an MFI evaluation methodology that ensures optimal differentiation for the microfinance industry. CRISILs services include the following features:

• Grading services offered to institutions that meet certain criteria of exposure to microfinance activity and dedication of loan portfolio to microfinance;
• Evaluation process conducted through management meetings, branch and field visits, beginning with a review of the MFIs documentation ;
• CRAMEL methodology for the credit rating of financial entities, suitably modified for MFIs;
• Appropriate adjustments made to financial statements in analyzing an MFIs financial performance for better comparability;
• Regulatory risks that vary with local and national regulatory and legislative policies factored in.

Finally, CRISIL uses the MICROS framework to grade an MFI. MICROS stands for Management, Institutional arrangement, Capital adequacy and asset quality, Resources and asset liability management, Operational effectiveness, Scalability and sustainability.