Alok Misra
CEO, M-CRIL
Micro-Credit Ratings International Ltd (M-CRIL)
Global Microfinance Rating Agency (www.m-cril.com)
Agenda

 Indian Experience
 Current Profile of MFBs
 MSME Fund: Eligibility criteria
 How will MSME fund help MFBs
 Challenges: Rating Agency Perspective
Indian Experience

 Started as donor funded in 1990s by NGOs
 SIDBI set up lending facility in 1998 – backed by
ratings; external third party ratings
 2000-2003 mainly SIDBI and donor funded
 2003 onwards – demonstration effect of ratings and
SIDBI fund brought banks
 Transformation of NGOs to NBFCs started in 2006;
now 85% market share
 As of now, 75% liabilities of MFIs from bank
borrowings
Current profile of MFBs

 ~900 MFBs in the country with predominant urban
operations
 NGO-MFIs to also gradually transform to MFBs
 Average loan size ~500 US$ - some up to 2,500, tenor
up to 1 year
 Deposits and Equity as the main source of funds
 High operating costs – absence of reliable data on
MIX
 High cost of credit – Not part of Microfinance
Transparency
 Absence of Ratings
MSME Fund: Main conditions

 Compliance with Regulatory Capital of 10%
 Compliance with prevailing Prudential Ratios- Liquidity
20%, PAR <5%, OER <15%, Micro loans <=.5 mn should be
80%
 Average deposit and client growth rate of 20 % per
annum(for institutions operating for over 2 years)
 Risk Management Framework acceptable to the regulators
 Corporate Governance Culture acceptable to the regulators
 Focus on SPM especially CPP
How can MSME Fund be useful
for MFBs

 90% of MSME in Nigeria is MICRO – Total MSMEs
17 million, of which 80% have no financial access
 Diversify Fund Basket from Deposits and Equity
 More stable source of funding- Longer term allowing
multiple cycles
 Achieve growth based on leverage
 The model used extensively in countries like India,
where bank funding accounts for 80% of liabilities
 In Nigeria, MSME funding may catalyse banks to
look at MFBs as partners
Rating Framework: Mirrors
Eligibility Criteria

Financial
profile
Management
Responsible
practices
& Operations
Governance
&
Management
Microfinance
Institutional
Rating
Microfinance
environment
Big Challenges- Rater perspective

GOVERNANCE
& STRATEGY
 Board composition – governance &
management separation
 Board committees – Audit Risk
 Effective performance review by Board
 Compensation structure
 Integrated Risk Management Framework
–Beyond Credit risk
 Market strategy – where you go, to whom
you lend
 Competition strategy
 Funding profile
Big Challenges- Rater perspective
MANAGEMENT
SYSTEMS
FINANCIAL
PERFORMANCE
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Human Resources Quality
Productivity and Efficiency
Accounting System
MIS
Control mechanism including Audit
Overdue tracking
Client Protection Principles
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Financial Planning & Budgeting
Capital Adequacy & Provisioning
Portfolio quality
Profitability & Sustainability
Asset composition
ALM system
Policy on Profits

Thank You