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BSP Sets Rules for the Recognition of Microfinance Institution Rating Agencies

03.30.2010

The Monetary Board has approved the rules and regulations for the recognition and de-recognition of Microfinance Institution Rating Agencies (MIRAs), particularly for those that provide ratings for banks with microfinance operations.  This measure aims to create the enabling environment for the appropriate use of objective, credible and competent third-party ratings of microfinance institutions.  These MIRAs provide an institutional rating rather than just a rating related to a safety grade of a specific instrument or a rating on an institution’s ability to service an existing or proposed debt.  Instead, this institutional assessment looks holistically at the governance, human resources as well as the strategic, management and financial performance of the microfinance institution.

As there is an increased commercialization and growth of the microfinance industry, the demand for such ratings is increasing. Ratings are seen as an effective tool to raise the quality and efficiency of microfinance institutions, increase the transparency in the industry as well as provide confidence for social and commercial investors.  For banks with microfinance operations, ratings may provide valuable assessments that can materially improve access to financing and capital by qualified banks and generate a useful benchmark vis-à-vis other microfinance institutions both locally and internationally. 

The rules set by the BSP on the recognition and de-recognition of MIRAs include pre-qualification as well as minimum eligibility criteria. This process will ascertain that the applicant-MIRA demonstrates the commitment to comply with the relevant rules and regulations; as well as possesses the technical capability, experience and organizational resources to provide microfinance ratings that are objective and transparent. The criteria also consider the proposed rating framework and whether it reflects all the material facets of microfinance operations, its attendant risks and operational challenges.  The BSP, through the Monetary Board, will officially recognize the MIRAs, such recognition will be valid for three years and may be renewed.  At present, there are already a number of international microfinance rating agencies that have set up, or have plans of setting up, offices in the Philippines.

The recent global survey of microfinance business environments published by the Economist Intelligence Unit identified the Philippines as the third best in the world in terms of microfinance in general, and the first for policy and regulation in particular. The same survey also identified some room for improvement in terms of the microfinance investment climate in the country. This recent BSP issuance aims to provide that needed boost in the investment climate by providing further impetus to the development of a professional, transparent and vibrant microfinance industry.

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