Objective: MicroRate is a private company dedicated to the evaluation of microfinance institutions. Its objectives are to quantify fiduciary and credit risk to potential investors or creditors; to create a mechanism to link microfinance institutions with domestic and international capital markets, and to stimulate financial deepening in emerging markets.
Methodology: Among the various services MicroRate performs, it has three types of evaluations it undertakes for MFIs:
Full Initial Evaluation: A full evaluation consists of a 3 to 5 day on-site visit by at least two MicroRate staff focusing on 5 core areas of MFI financial and operational performance: Management and Governance, Management Information Systems, Financial Conditions, Credit Operations, and Portfolio Analysis.
A full evaluation results in the delivery of a concise report detailing the credit worthiness and financial health of an MFI and a management letter detailing the strengths and weakness of financial and operational performance. An MFI's projected track to financial profitability is also provided as an additional service.
Annual Analysis: Annual Updates are identical to full evaluations, but they can be performed at lower cost since MicroRate has previously evaluated the MFI. Each company receives at least one visit per calendar year, the interim evaluation based on a desk review and phone interviews. The regular semi-annual reports allow an understanding of each company's particular characteristics - both strengths and weaknesses - to deepen over time.
Preliminary Credit Assessment: A preliminary credit assessment looks at similar areas of risk to the viability of the company, but less in-depth. It differs from a full assessment mainly in that MicroRate does not independently verify information provided by an MFI. Preliminary assessments allow relatively quick judgment about the state of an MFI without incurring the expenses of a full evaluation. The report details the MFI's financial and operational strengths and weaknesses.
Hari Srinivas - hsrinivas@gdrc.org
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