The
National Bank for Agriculture and Rural Development (NABARD) and CRISIL
have jointly launched a rating for microfinance institutions (MFIs). This
initiative makes CRISIL the first, and so far the only, mainstream rating
organisation in the world to grade MFIs.
Called
the 'NABARD-CRISIL MFI grading scheme', it is aimed at improving credit
delivery to the economically challenged, by encouraging banks to increase
the involvement of microfinance institutions (MFIs) in financial intermediation
to enhance credit delivery to the poor.
The
microfinance grading communicates the ability of the MFI to scale up and
sustain operations on an eight point grading scale.
Says
Krishnan Sitaraman, head, financial sector ratings, CRISIL, "Barring
a few, most MFIs are unable to avail credit from the banking sector. Thus,
the quantum of credit flow to MFIs is currently not significant." Besides,
in many cases, banks are not adequately equipped to evaluate MFIs. CRISIL,
as a full service ratings agency, has executed a number of grading and assessment
assignments for MFIs. CRISIL has also assessed microfinance securitised
portfolios and fixed deposits.
Banks
can utilise CRISIL's expertise to evaluate MFIs and partner with it in their
microfinance initiatives through its services at concessional rates. Further,
as part of the NABARD-CRISIL MFI grading scheme, NABARD will be reimbursing
banks the grading fees paid to CRISIL. The scheme will be operational initially
for a year. The scheme will support the grading of those MFIs having a loan
outstanding between Rs50 lakh and Rs5 crore.
Most
MFIs in India are either not regulated or are partly regulated. Hence, a
customised independent assessment of the scalability and sustainability
of the MFIs would be immensely beneficial for banks wanting to partner with
them. To cater to the varied requirements of the
constituents in this sector, a few years ago, CRISIL had launched a performance
grading product called MFI grading, to evaluate the MFIs.