CGAP Microfinace Rating and Assessment Fund


Objective: The Inter-American Development Bank (IDB) and the Consultative Group to Assist the Poorest (CGAP) have launched the pilot phase of a joint initiative called the Microfinance Rating and Assessment Fund (hereafter called the Rating Fund). This joint initiative is aimed at improving the quality, reliability, and availability of information on the risk and performance of MFIs.

The Rating Fund provides partial financing of rating and assessment services for microfinance institutions. It finances both ratings (an analytical report with a specific grade) and assessments (an analytical report without any specific grade) of microfinance institutions and their financial performance. The Fund does not prescribe or dictate the methodology for the assessments.

Methodology: The Rating Fund will finance 80% (up to a maximum of $8,000) of the cost of the rating/assessment of a MFI by a pre-approved individual or institution. It will also finance rating or evaluation updates, on a declining basis (60% of total costs for the second update and 40% of total costs for the third update).

The Rating Fund is available to MFIs that have provided financial services for more than three years in some institutional form. The Fund would apply to transformed MFIs as well as NGOs. Strong preference would be accorded to MFIs that commit beforehand to (i) a full public disclosure of its adjusted financial statements and the rating/assessment report, and (ii) a short feedback opinion on the rating/assessment. MFIs in all of the world's regions, except those in industrialized countries, are eligible to apply.

Eligible assessors include qualified microfinance assessment organizations, consulting firms and individuals, as well as professionally recognized international rating agencies. Locally based rating/assessment agencies, as well as organizations that are in partnership with local rating institutions, will be encouraged to apply. Potential assessors/rators need to demonstrate:

  • That they, or their leading personnel, have analyzed the financial statements and overall performance of at least 8 MFIs over the past 5 years. They should include copies of the three most recent of these reviews in their application. These reviews will be treated in a confidential manner, and destroyed subsequent to evaluation by IDB and CGAP.
  • That they can perform the basic types of financial statement adjustments routinely practiced in MFI appraisals.
  • That their rating/assessment methodology cover main microfinance risk areas, such as governance, assets quality, MIS and internal control, financial analysis, and liquidity.
A steering committee will qualify raters/assessors based on their track records and the above criteria. Continued qualification of raters/assessors would depend on the quality of the assessments they produce using this Rating Fund. A mechanism will be established to obtain MFIs' feedback and review the appropriateness of raters/assessors' methodologies.

MFIs that wish to qualify for funding for a rating/assessment exercise should apply through a simple letter to the IDB-CGAP Rating Fund with the following information enclosed:

  • One-page institutional summary highlighting operational results to date and demonstrating that the MFI meets the requirements stated above.
  • Copy of latest year financial statements including the external auditor's report (if any)
  • Copy of reports arising from rating, evaluation, appraisal, or other review by external consultants over the past 24 months
  • An estimate from the proposed rater/assessor as to the total cost of carrying out the exercise. IDB and CGAP will use regional reference criteria to evaluate the cost estimate. If the estimate seems inappropriate, IDB and CGAP reserves the right to ask the MFI to request bids from other qualified raters.
  • Specify whether funding is for (i) a rating (an analytical report with a specific grade) or (ii) an assessment (an analytical report without any specific grade).
  • A written commitment to provide the rater/assessor with sufficient information so that the adjusted financial statements are in compliance with the CGAP Financial Statement Disclosure Guidelines; and a written commitment on the part of the rater/assessor to certify whether or not the adjustment financial statements meet that requirement.
A written commitment to (i) full public disclosure of its adjusted financial statements and the rating/assessment report, and (ii) a short feedback opinion on the rating assessment.

Hari Srinivas -
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