Originally Published: June 21, 2005
Source: Crisil, India
The National Bank for Agriculture and Rural Development (NABARD) and CRISIL Limited have jointly launched the NABARD – CRISIL MFI Grading Scheme. This Grading Scheme is an initiative to improve credit delivery to the economically challenged. The objective is to encourage banks to involve microfinance institutions (MFIs) in financial intermediation to much greater extent than now and 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 securitized portfolios and fixed deposits.
Going forward, 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 Rs.5 million and Rs.50 million.
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. CRISIL is the only mainstream rating agency in the world to have a separate methodology, scale, and definition, to assess MFIs.
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