A good number of Microfinance Institutions (MFIs) and Non-Banking Finance Institutions (NBFIs) operate in south-east Asian countries. These institutions meet the credit needs of small businesses and poor people.
A-Cra provides “CAMELS” based grading services to these financial institutions. Our Grading Model assesses the overall performance of financial institutions and determine their strengths and weaknesses to assess their long term sustainability capacity. MFI / NBFI Grading is based on following broad parameters.
C
: Capital and Debt Raising Capacity.
To assess the overall funding capacity of the financial institutions.
A
: Asset Quality.
To assess not only the NPL and PaR but also to evaluate the overall Credit Risk Management and NPL Management framework in the company.
M
: Management Quality.
To evaluate the management quality and capacity to run the financial institution with their professional skills. We also assess the management capacity to respond to changing market conditions such as changes in interest rates, loan provisioning norms etc.
E
: Earnings.
To assess the earning capacity, we evaluate various parameters such as Returns on Assets Ratio, Return on Equity Ratio, Operating Cost to Revenue Ratio etc.
L
: Liquidity.
To assess FI’s liquidity position to meet it’s short term obligations. We also evaluate company’s Asset Liability Management Process.
S
: Systems and Controls.
To evaluate the FIs on various other sustainability parameters such as Adequacy of Systems and Controls, Use of Technology, Efficacy of Accounting System, Level of Regulatory Compliances, Firm’s Age in Business etc.
Based on the above parameters, we assess overall Capability of Financial Institutions on Scale of 1 to 5 as under :
| Sr. No. | A-Cra Rating | Explanations |
|---|---|---|
| 1 | A-Cra MFI / NBFI Grading – 1 | Level of Creditworthiness - Highest |
| 2 | A-Cra MFI / NBFI Grading – 2 | Level of Creditworthiness - High |
| 3 | A-Cra MFI / NBFI Grading – 3 | Level of Creditworthiness – Moderate |
| 4 | A-Cra MFI / NBFI Grading – 4 | Level of Creditworthiness - Average |
| 5 | A-Cra MFI / NBFI Grading – 5 | Level of Creditworthiness - Poor |
Additional Information :
Plus / + : In our grading scale from 2 to 4, we may add + (plus) sign to indicate their relative position with upward leaning within the concerned Grading assigned to the rated entity.
Outlook : We also add our opinion on likely movement of grading in the short and medium term of 6 months to 2 years. Outlooks shall be “Positive”, “Stable” and “Negative”.
We issue a “A-Cra Grading Certificate” to the rated MFIs / NBFIs along with a detailed report. A-Cra Gradings shall be useful for all the third parties including the Banks, Investors and lenders as an independent third party opinion on the capability of the rated financial institution.