Duration of scheme extended; more rating agencies roped in

Priya Nair

Mumbai, July 25

The National Bank for Agriculture and Rural Development (Nabard) plans to rate over 30 micro finance institutions (MFIs) this year under its revised scheme for rating MFIs. Nabard has extended the duration of scheme and has also roped in more rating agencies.

Launched by the bank in June 2005, jointly with rating agency Crisil, the scheme was originally meant to be operational for one year. Now it has been extended till March 2008, said a circular issued by Nabard in May. More rating agencies such as M-CRIL, ICRA, CARE and Planet Finance have also been included in the scheme.

Mr K.M. Muralidhara Rao, General Manager, Micro Credit Innovations, said, "So far we have covered only one MFI under the scheme. This year we hope that 30-35 MFIs would get themselves rated under the scheme. That is why we have made the scheme more user-friendly by roping in more agencies."

Mr Krishnan Sitaraman, Head, Financial Sector Ratings, Crisil, said, "A number of banks have enquired, but it takes time before internal approvals are obtained, especially in the case of public sector banks. Till March 2006, only ICICI Bank had availed itself of the rating scheme. Others have expressed their interest and by end of this fiscal I am sure they will avail themselves of the service too," he said.

Grant increased

Nabard has also increased the grant for MFIs by agreeing to reimburse 80 per cent of the fees for rating, as against 75 per cent earlier, subject to a maximum of Rs 80,000, the circular said.

"This is to induce banks to come forward. This will hopefully reduce the burden on both the lender and the borrower," Mr Rao said.

Ratings for MFIs will increase as an increasing number of them look to establishing themselves as mainstream players, improve their corporate governance and access the capital market, said Mr Nachiket Mor, Executive Director, ICICI Bank.

"In case of MFIs the rating is not so much for the credit risk, as for the operating capability," Mr Mor said.

The idea behind Nabard's scheme is to encourage small MFIs, those who borrow between Rs 5 lakh and Rs 50 lakh, especially the ones that are non-regulated to get rated, Mr Rao said.

"The scheme is more for the non-regulated ones which are in the nature of trusts and societies," he said.

For rating agencies challenges include disclosure, which is not of the levels as seen in banks or in other companies, said Mr Sitaraman.

"We do a lot of field visits to far-flung areas," he said. Rating for MFIs requires a unique grading framework due to the small size of the MFIs, their geographic concentration, high operating expenses and their non-profit making nature, he said.

Crisil is also in talks with MFIs that are registered in overseas countries such as West Indies, the Philippines and other Asian countries, Mr Sitaraman said.

"Internationally, there is lot of awareness about MFIs. Lot of multilateral organisations ask for MFIs to be rated," Mr Sitaraman said.

(This article was published in the Business Line print edition dated July 26, 2006)
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