Microfinance Comes of Age

This paper discusses the need, as well as the advantages, of rating microfinance institutions (MFIs). The authors state that rating agencies put MFIs through rigorous financial analysis and produce standard reports on their operating characteristics.

Ratings help institutions which lend to MFIs, as well as MFI clients, in the following manner:

• Tracking performance of MFIs;
• Generating confidence among depositors in MFIs;
• Assessing investment risk in MFIs.

Ratings also help MFIs to:

• Raise funds on better terms;
• Leverage the existing portfolio;
• Attract deposits and bring down the cost of capital.

The authors finally state that as microfinance evolves, rating will act as a check on excess risks in the loan portfolios of MFIs and micro banks.