May 2006

Crisil’s Microfinance Initiatives

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CRISIL is now the only mainstream credit rating agency in India to receive accreditation from CGAP for microfinance grading.

Background
While CRISIL was set up in 1987, its initiatives in the microfinance sector took shape only in the wee years of the 21st century and, in that sense, may be called fledgling in relative terms. However, these initiatives have, since inception, slowly but steadily made progress not only in domestic operations, but also in getting recognition in the global context. CRISIL has today executed microfinance assignments for multilaterals like CGAP (Consultative Group for Assisting the Poor), the microfinance arm of the World Bank and HIVOS of the

Netherlands. In fact CRISIL has also executed an assignment for an entity based in Philippines, for which the team was at Manila for a few days. Apart from this, CRISIL has also executed an assignment in the Caribbean. In the last few years CRISIL has analysed more than 60 MFIs.

What are MFIs ?
What microfinance is and what microfinance institutions (MFIs) exactly are still remain unclear to many. Microfinance refers to extending loans or financial assistance where the value of the same is 'small' or 'micro' in nature. For example, in India, the average size of one such loan would be less than Rs.10,000/-, which, in contrast to a car loan or a housing loan that may run into more than a million rupees.

To be specific 'Microfinance typically deals with people who constitute the weaker sections of the socio-economic strata and who reside in rural and suburban areas. Consequently the business model and skill sets required to make a success of microfinance initiatives are very different from that required in say car finance or housing finance'.

Also a number of entities in the micro-finance are non-governmental organisations (NGOs) and not-for-profit entities where the objective is more altruistic and aimed at social development rather than making profits. In CRISIL's opinion, there are over 800 entities in India involved in microfinance.

CRISIL in microfinance
CRISIL's bouquet of services in the microfinance space can be broadly divided into three categories:

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