Grading scheme for microfinance institutions

Rating agency Crisil and the National Bank for Agriculture and Rural Development (Nabard) today announced launch of a grading scheme for micro-finance institutions (MFIs).

As part of the MFI grading scheme, Nabard will reimburse 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 50 lakh and Rs 5 crore.

"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," said Krishnan Sitaraman, head - financial sector ratings, Crisil.

The grading scheme is an initiative to improve credit delivery to the economically challenged and to encourage banks to involve MFIs in financial intermediation to much greater extent than now.

The microfinance grading communicates the ability of an MFI to scale up and sustain operations on an eight point grading scale.

Crisil 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.

Crisil is the only mainstream rating agency in the world to have a separate methodology, scale, and definition, to assess MFIs.