MICROCAPITAL STORY: SME Rating Agency of India Limited (SMERA) Launches Ratings for Microfinance Institutions

SME Rating Agency of India Limited (SMERA), a joint initiative of the Small Industries Development Bank of India, Dun & Bradstreet Inc., and several public and private sector banks, has launched a rating service for microfinance institutions (MFIs). SMERA-MFI Rating is an independent agency that will assess the financial and social performance of MFIs in India.

SMERA is a ratings agency that focuses primarily on Micro, Small & Medium Enterprises (MSMEs) in order to facilitate flows of credit from the banking sector. Given their experience assessing MSMEs, the growth in the number and relevance of MFIs in the local economy, and the heightened interest of international funds in the microfinance sector, SMERA has launched a new MFI Rating service.

SMERA-MFI Rating is an independent agency that will provide assessments of the risk involved in the underlying portfolio of an MFI, as well as its social impact. SMERA will evaluate the creditworthiness, trustworthiness, operational excellence, quality of loans, internal governance, strategic positioning, and social profile of participating MFIs. The rating process includes submission of data by the applicant, followed by a site visit and interaction with management. The final rating – on a scale from MF1 to MF8 – is undertaken by a Rating Committee.

SMERA is supported by the Small Industries Development Bank of India (SIDBI), which was established in 1990 to promote and finance the development of small-scale industries in India. In 1999, the SIDBI Foundation for Micro Credit (SFMC) was launched as a wholesaler for microfinance in India, providing a range of financial and non-financial services such as loan funds, grants, equity and institution building support to MFIs in order to facilitate their development into financially sustainable entities. SFMC also plays a significant role in advocating appropriate policies and regulations and to act as a platform for exchange of information across the sector. The SFMC has supported previous initiatives to rate MFIs, such as the Capacity Assessment Rating [CAR] to judge risk perception in the microfinance sector, and commissioned ratings of MFIs to Micro-Credit Ratings International Limited (MCRIL) and Credit Rating and Information Services of India Limited (CRISIL).

Dun & Bradstreet (D&B), established in 1841, is a provider of business information for risk management, sales & marketing, and supply management decisions worldwide. D&B’s commercial database contains more than 140 million business records, covering over 190 countries. SMERA-rated MFIs will be allotted a D&B D-U-N-S Number and will be featured in D&B’s Global Database. Such profiling of SMERA’s MFI Ratings is expected to enhance credibility of MFIs within the banking sector, social investing and other similar institutions.

SMERA-MFI Rating is being sold as an important tool for banks, financial institutions and other market participants to undertake investment or funding decisions, validating data submitted to investors and lenders. The rating will also help MFIs to enhance management and internal operations, and achieve better resource and asset allocation. On both sides, the ratings will allow for industry-wide benchmarking.

By Jaclyn Berfond, Research Assistant

Additional Resources:

India PR Wire: SME Rating Agency of India launches Microfinance Institutions Ratings

SMERA: MFI Rating Product Info Sheet

SIDBI: Homepage

D&B: Homepage