Alok Misra CEO, M-CRIL Micro-Credit Ratings International Ltd (M-CRIL) Global Microfinance Rating Agency (

  Indian Experience  Current Profile of MFBs  MSME Fund: Eligibility criteria  How will MSME fund help MFBs  Challenges: Rating Agency Perspective Agenda

  Started as donor funded in 1990s by NGOs  SIDBI set up lending facility in 1998 – backed by ratings; external third party ratings  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 Indian Experience

  ~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 Current profile of MFBs

 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

  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 How can MSME Fund be useful for MFBs

 Rating Framework: Mirrors Eligibility Criteria Microfinance Institutional Rating Governance & Management Management & Operations Financial profile Responsible practices 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 Human Resources Quality Productivity and Efficiency Accounting System MIS Control mechanism including Audit Overdue tracking Client Protection Principles FINANCIAL PERFORMANCE Financial Planning & Budgeting Capital Adequacy & Provisioning Portfolio quality Profitability & Sustainability Asset composition ALM system Policy on Profits

 Thank You