Underscoring
the substantial growth in the micro finance industry, Standard & Poor''s Ratings
Services, the leading provider of financial market intelligence, today announced
the release of a special publication, Microfinance: Taking Root In The Global
Capital Markets, to enable micro finance institutions (MFIs) to gain greater access
to global capital markets. The
report, part of an intensive collaborative effort of Standard & Poor''s analysts
and experts in the micro finance sector, provides an important framework for mainstream
investors to make better-informed decisions in micro finance. "The
lack of consistent metrics for analysing MFIs has hindered investment at a time
when micro finance is growing at a significant rate," said Cynthia Stone,
managing director and chair of the Emerging Markets Council, Standard & Poor''s.
"And despite the level of interest, mainstream investors need standard metrics
before they can invest in this particular sector." The
report provides needed recommendations for a rating methodology that can be used
globally and consistently to rate MFIs within countries, across borders, and across
asset classes. "The main challenge facing the microfinance sector today is
how to scale up and facilitate more investment that can translate into more loans
for the 1.5 billion people that are financially underserved," said Stone. "Investors
require transparent and globally acceptable standards for credit analysis and
performance evaluation of MFIs. New metrics are needed to allow investors to compare
microfinance investment opportunities across borders and across asset classes."
The report provides
the context for the rating methodology by summarizing the current state of MFI
funding, reviewing the key issues in developing MFI rating methodology, and outlining
the minimum information recommended for producing a rating. Microfinance
provides an important framework for small loans to be offered to individuals with
low incomes, typically in developing economies, to enable them to grow their businesses
and increase productivity. However,
significant global expansion of micro finance requires resources of the mainstream
capital markets, including both global and local markets. Unlocking these sources
of capital presents several challenges. Mobilising large sums of capital requires
suitable instruments that allow investors to define parameters of risk and reward.
On 31 May, Standard
& Poor''s assigned ratings to the first publicly rated micro finance CDO. Standard
& Poor''s expects to rate an additional two to three transactions in the months
ahead, with issuance levels potentially reaching $500 million by the end of 2007.
As the existing
micro finance institutions also become adept at handling this new inflow of funding,
and more MFIs enter the market, securitisation volumes could reach between $1
billion-$3 billion annually over the next decade. "Though MFIs have largely
existed on the fringes of the securitissation market, greater transparency
and globally acceptable standards will further enable institutions to access capital,"
said Gary Kochubka, a director in Emerging Markets structured finance ratings
at Standard & Poor''s.
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