SERVICES SUPPORTED

IMPORTANT!

PLEASE NOTE THAT THE RATING INITIATIVE WILL NO LONGER CO-FUND RATINGS AS OF THE 21ST OF DECEMBER 2011. PLEASE CLICK HERE FOR FURTHER DETAILS.

SOCIAL RATINGS

Product: Social ratings are an independent assessment of an MFI´s social performance using a standardised rating scale. Social ratings assess both social risk (the risk of not achieving its social mission) and social performance (the likelihood of contributing social value). Achievement of social impact is the ultimate goal of social performance, but proving that a given intervention has caused a certain social outcome is a complex econometric exercise not possible within the quicker process envisaged for a social rating. However, what a social rating can achieve is an analysis of the steps towards achieving impact: the processes undertaken by an MFI toward its desired goals, and the results, to the extent of analysing outreach and quality of services provided.

Methodology: Drawing on current understanding of social performance, social performance management and social responsibility, the social rating evaluates practices, measures a set of indicators, and scores them against benchmark levels, best practices, or internationally accepted standards. The social rating includes elements of auditing in that it assesses the quality and credibility of social accounts, and it identifies areas for improvement and capacity building.  

Users: Social investors and donors. The MFI itself will find the social rating useful as an assessment, decision-making and capacity development tool.

FINANCIAL RATINGS

Performance Ratings

Product: Performance ratings not only measure the MFI´s creditworthiness, but also its trustworthiness and excellence in microfinance. They incorporate features of a credit rating but also include a deeper level of analysis in order to evaluate the institution´s effectiveness in reaching micro entrepreneurs with high quality loans. A performance rating is typically an integral assessment of the MFI´s global performance (strengths and weaknesses), which can be assigned a rating or grade according to the evaluator´s own scale.

Methodology: Focuses on how the MFI is administered in terms of management and internal processes. Performance ratings are conducted under a methodology developed to provide a broad range of diagnostic information on the MFI´s management, social mission, products, risk management and growth capacity. The evaluation can also include performance measures, due diligence and benchmarking of the main indicators (regarding best practices identified by other institutions that belong to the same peer group as the MFI)

The most frequently reviewed processes are the credit process; information systems; management organization; interaction with clients, shareholders, and/or investors; control and audit systems.
The measurement of indicators, which is also part of the process, usually covers such aspects as profitability, operating efficiency, liquidity, asset quality, maturity and growth.

Users: MFI´s management and administrators for internal use, social investors, donors and technical assistance partners.

Credit Ratings

Product: Credit ratings are the product of conventional rating agencies and have a narrower focus than the aforementioned performance ratings. Credit ratings predict the likelihood that an MFI will not be able to meet its debt obligations. As opposed to performance ratings, credit ratings do not focus on how effective or efficient an MFI is at extending loans to micro entrepreneurs.

Methodology: Credit ratings are conducted under a standard methodology applied to all financial institutions, be they commercial banks or MFIs whose target customers are the poor. Its purpose is to give an informed opinion concerning the MFI´s risk of default during a given period of time. Such opinion is expressed in credit risk categories; according to the evaluator´s own scale. It measures the credit quality of an MFI.

Users: Regulatory or supervisory authorities because of a normative obligation, commercial investors and institutional savers.

Diagnostics/Assessments

Product: These are rating products specific to the microfinance field and can be applied to young and/or small institutions. They emphasise the analysis of institutional features considered necessary to grow and to eventually prepare MFIs for a specialised microfinance rating.

Methodology: Diagnostics/assessments will, in most instances, measure indicators of profitability, operating efficiency, liquidity, asset quality, maturity and growth.

Users: Donors, investors, MFIs, networks.

*Source: Rating Fund website 

*Source: Chapter 7 of the SEEP network´s Social Performance Map. If you would like to learn more on social ratings and social performance, please refer to the SEEP network or the Social Performance Task Force websites. 

COMBINED FINANCIAL AND SOCIAL RATINGS

Product: A combined exercise undertaken by specialised rating agencies. Financial ratings and social ratings ideally complement each other. Both ratings involve detailed discussions with MFI management and staff and a review and analysis of social accounts created by the MFI or created by the rating agency during the social rating. The combination of financial and social analyses enables socially responsible investors to place funds in organisations that best serve the double bottom line while demonstrating sound financial management.

Methodology: Combination of a microfinance rating and a social rating by a specialised rating agency, with two final reports as the final product.

Users: Investors, MFIs, regulators

TABLE OF SERVICES OFFERED

Criteria Services Offered to MFIs    
Type of Service Credit Rating Performance Rating Social Rating
Final Product Evaluates the MFI´s capacity to meet its obligations on time
Measures creditworthiness and analyses financial strength, including operating efficiency
Always has a grade
Measures an MFI´s excellence and trustworthiness in microfinance.
Evaluates operational and financial performance as well as internal management processes.
Always has a grade
Assesses social risk and social performance. Social performance is the effective translation of an institution´s mission into practice in line with accepted social values Always has a grade
Users Lenders, creditors, commercial investors, regulators and supervisors Social investors, donors, technical assistance
partners and MFI management
Social investors, donors and MFI management
Benefits Improve MFI performance
Attract donors, investors and lenders; instrument for pricing debt to enable raising funds from capital markets and institutional investors
Benchmarking: Compares the performance between MFIs
assessed by the same rating agency
Improve MFI performance
Attract investors, donors and facilitates access to grants and capital market
Benchmarking: Compares the performance between MFIs
assessed by the same rating agency
Improve MFI performance Attract social investment from investors and donors Benchmarking: Compares the performance between MFIs assessed by the same rating agency
Public Disclosure - The Rating Initiative Mandatory – Summary report, MFI´s name and contact details, date of report and rating agency used at a minimum Mandatory - Summary report, MFI´s name and contact details, date of report and rating agency used at a minimum Mandatory - Summary report, MFI´s name and contact details, date of report and rating agency used at a minimum
Frequency Yearly and recurrent with quarterly updates Yearly and recurrent Every 1-2 years and recurrent
Appui au développement autonome Le Forum d'African Microfinance Transparency Direction de la Coopération du ministère des Affaires étrangères Microfinance Initiative Liechtenstein Swiss Agency for Development and Cooperation Oxfam Novib Coopération Internationale BlueOrchard Microfinance Investment Managers responsAbility Social Performance Task Force Oesterreichische Entwicklungsbank Interchurch organisation for development cooperation