MICROCAPITAL STORY: ICICI Foundation, IFMR Trust and CRISIL to Develop Rating Standards for Microfinance Institutions (MFIs) in India

The ICICI Foundation, IFMR Trust, and CRISIL have entered into a deal to rate microfinance Institutions (MFIs). The organizations believe that rating evaluations will help MFIs develop into viable commercial entities with increased access to mainstream financial investors. In the agreement, CRISIL will rate the institutions and develop rating criteria to be used by others, IFMR will provide access to enterprises working in microfinance and the ICICI Foundation will assist in the dissemination of new ratings criteria.

In a press release, CRISIL stated that “organizations involved in poverty and rural development have typically been characterized by a lack of adequate structuring, and by inadequate risk management.” They continued by explaining how the new evaluation standards could improve the ability of these companies to “find funding at a reasonable cost” and become more commercially viable. In a seperate article, Roopa Kudva, Crisil’s managing director & CEO explained that CRISIL will focus on “small-sized” MFIs across India which he characterized as “fund starved.” Other organizations, such as Micro Credit Ratings International Ltd (M-Cril) and MicroRate already provide rating services to MFIs.

The agreement will also include ratings for vocational training institutes and Urban Local Bodies (ULBs). UBLs are state-run organizations that implement projects relating to health, sanitation, tax collection, transportation, housing development and other infrastructure projects at the local level. In an opinion piece in The Hindu, Raman Uberoi, a senior director of CRISIL Ratings, contended that “strong credit ratings can help urban local bodies raise funds to meet their infrastructure spending requirements.” CRISIL also believes that vocational training institutes can use ratings to attract more investments and secure better jobs for their graduates.

According to Bindu Ananth, president of IFMR Trust, developing an evaluation framework that identifies and quantifies risks for potential investors “will tremendously accelerate financial markets access for a variety of emergent asset classes including microfinance.” Together, these groups believe that the increased access of MFIs to financial markets will increase the efficiency and scope of microfinance services provided to the global poor.

The ICICI Foundation is the charitable arm of the ICICI Group, an Indian Financial Corporation. Each year the ICICI Group contributes one percent of their profits to the foundation, with the intent of “increasing the incomes of low-income households in a sustainable manner.” According to its fiscal year 2008 annual report (available here), ICICI Group had total assets of Rs 3.4t (USD 80.5b) (pg 53), a return on average equity of 11.1 percent (pg 51) and a debt to equity ratio of 360 (pg 54) as of June 6, 2008.

The IFMR Trust “is a private trust whose mission is to ensure that every individual and every enterprise has complete access to financial services.” The trust’s annual report is not currently available online, but will return be available after its completion.

CRISIL, incorporated in 1987, is an Indian ratings, research, risk and policy advisory firm. According to MIX Market, CRISIL already served as the primary rater for 13 MFIs before the agreement and publishes news and opinion related to microfinance in MICROs, an in-house publication. Standard and Poor’s, an international leader in rating services, is the majority shareholder in CRISIL.

By Greg Casey, Research Assistant

Additional Resources:

Domain-b.com: “CRISIL Signs MoU with ICICI Foundation, IFMR Trust to Rate MFIs, ULBs”

Microfinance Gateway: “New Partnership to Rate More Indian MFIs”

CRISIL: About

CRISIL Press Release: CRISIL, IFMR Trust, ICICI Foundation work together for social betterment

IFMR Trust: Profile

IFMR Press Release: MoU with CRISIL

ICICI Foundation: Home, About Us

ICICI Group: Fiscal Year 2008 Annual Report (available here)

Oanda.com: FX Converter

The Hindu: How Ratings Can Help Urban Local Bodies Raise Funds