What are the Benefits of a Microfinance Rating? Nairobi, October 2009 Caterina Giordano MicroFinanza Rating Africa Africa Regional Manager.

What are the Benefits of a What are the Benefits of a Microfinance Rating?Microfinance Rating?

Nairobi, October 2009

Caterina GiordanoMicroFinanza Rating AfricaAfrica Regional Manager

Users Users and use:and use:

Nairobi, October 2009

MFI management for internal and

external use (diagnostic, external

presentation)

Donors, social and commercial

investors, regulatory and supervisory

authorities (assessment tool

facilitating the access to subsidies,

investments and the supervision)

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Why using a rating? Why using a rating?

Nairobi, October 2009

For the MFI: Access to external financial resources

(independent evaluation)

Improve performance

Systematize flow of information towards stakeholders

Performance benchmarking against other MFIs

Nairobi, October 2009

For donors: Contribute to the development,

professionalization and transparency of the sector

Improve their performance in terms of objectives/resources allocation

Standardize assessment and monitoring tools Facilitate the coordination and potential

synergies with the investors

Why using a rating? Why using a rating?

Nairobi, October 2009

Why using a rating? Why using a rating?

For the investors: Improve the selection process and

monitoring

Better understand risk profiles of the MFIs

Define the minimum INTERNAL RATE OF RETURN (IRR) of the investment

Why using a rating?Why using a rating? A second opinion which helps to

focus on specific RISK AREAS (during the investor due diligence, after the investor due diligence to confirm or analyze in depth some relevant risk areas, etc)

Standardized information: basis for monitoring of the performance and risk of their investments

Nairobi, October 2009

How those reasons interact?How those reasons interact? The MFI need of accessing external financial

resources facilitates the growth of rating market

The benefits for the MFIs in terms of performance improvements: after the 1st rating

The majority of the investors are systematically using ratings

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Rating MarketRating Market In 2007 ratings in the microfinance sector

grew of 19.5% with 539 ratings

2280: cumulative number of microfinance

ratings since 1997. 1000 MFIs having done a rating between 1997 and 2007

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Trends Trends

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Trends… Trends… 1. Growing number of investments in the microfinance

sector2. MFIs need of attracting more resources to feed their

growth

We can demonstrate that these factors have had a

positive effect on the Ratings demand

Nairobi, October 2009

This trend has been confirmed in 2007 by

a 35% growth of the international investments in

the MFIs (USD 5,7 milliards).

Trends… Trends…

Nairobi, October 2009

How to use a rating…How to use a rating… The Rating is not only a product (report) but

also a process towards transparency and a better quality of services

Ratings seem to be an Investor tool while as a transparency process are concerning all the private and public stakeholders (donors, networks, regulators, etc)