In a press release, Standard and Poor’s Ratings Service (S&P) announced that it intends to launch a pilot ratings program for Microfinance Institutions (MFIs) in Latin America and the Caribbean. The Inter-American Development Bank (IDB) will sponsor the pilot program and will work closely with the S&P throughout the process.
The pilot program will rate 10 MFIs throughout Latin America and the Caribbean representing a broad cross-section of the industry in the region. The main criteria in selecting which organizations S&P will rate are institutional transparency and potential to benefit from a widened source of capital. Once the ratings are completed, S&P will finalize the results and publish its rating methodology. Both the S&P and the IDB believe that a globally accepted rating system is likely to accelerate the flow of capital from mainstream investors to MFIs.
Leading up the launch, the S&P has been working with the Microfinance Rating Methodology Working Group (MRMWG) to understand what information will be needed by investors before investing in an MFI. The MRMWG was established in January of 2007 as a collaboration between S&P ratings analysts and microfinance professionals to develop an MFI rating methodology, encourage increased MFI transparency, and to enable MFIs to assess themselves prior to their review.
Standard and Poor’s, a division of the McGraw-Hill Companies, was created in 1941. It specializes in providing a range of financial information, including credit ratings, indices, risk evaluation and investment research. S&P has been increasing it’s involvement in the microfinance sector; In addition to its role in creating the Microfinance Rating Methodology Working Group, S&P’s majority-owned subsidiary, CRISIL of India has worked to provide MFI ratings and assessments. As reported by MicroCapital, S&P recently rated ACLEDA, the largest MFI in Cambodia using traditional rating methodology. The result was B+/B.
The Inter-American Development Bank was established in 1959 to promote development in Latin America. As of 2006, was the largest regional bank in the world with USD 9.53 billion in total assets and a total-equity-to-loan-ratio of 40.8 percent. As reported by MicroCapital earlier this week, the IDB recently granted USD 1.9 million to benefit the development of microfinance in the Caribbean.
By Jacob Keller
Additional Resources:
Forbes: press release
Standard and Poor’s: Home
Inter-American Development Bank: Home, USD 9.53 billion, 40.8 percent
MIX Market: established
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