Promotion of Ratings in Africa
What is a Microfinance rating?
A performance evaluation, global risk evaluation, or even microfinance rating is the result of an indepth analysis of the performance and risk linked to an MFI's operations. On the one hand, it helps measure its creditworthiness but also its credibility and excellence in microfinance.
The rating report provides an external, reliable and coherent source of information on the current situation of the MFI, basing itself on past data and defining risks to come.
The evaluation mission is undergone by rating agencies which are professional and independent entities, each with their own methodology.
These methodologies analyse both the quantitative and qualitative aspects of the institution, and all have common analysis features.
The benefits of Microfinance ratings
Ratings are aimed at determinining the level of operational and financial performance as well as the management capacities of an executive team.
Thanks to the identification of its strenghts and weaknesses, and of the risk factors in its management, the MFI will be more capable of developing its perennial activities, without being encouraged to turn its activities towards less risky markets at the expense of its current customers.
If an MFI continues to update its evaluations, it will also be able to appropriate a management tool of the identified risk factors and procede to adjusting its strategy according to its internally fixed objectives.
Ratings: a tool which facilitates the MFI's access to external funding
Year after year, the Microfinance sector is gaining in maturity; measuring financial performance of these MFIs is becoming more important for both the investors and the donors. The donors wish that their assistance helps create viable institutions, whereas investors are interested in profitable opportunities for "Social investments".
On the other hand, more and more MFIs are expressing the need to access formal financial markets to raise capital and extend their activities in order respond to a growing demand on behalf of the micro-enterprise sector.
The management of an MFI needs as much rigor as in the traditional financial secotr, and this is why certain investors, banks and other commercial financial sources are reluctant to invest in an institution once they feel that the information offered is not reliable, verifiable and coherent. However, the information in the rating reports respond to these demands.