The Analysis Of International MFIs Rating Systems And The Research On Its Building In China

Last three decades see the rapid development of microfinance, which is focused by the welfare concept and commercial operation. In recent years, the microfinance industry, especially small loan companies, have also made considerable progress in China. It is an emerging power in the financial industry now. However, the vigorous development of small loan companies makes the concept of microfinance confusing. Labeled by "small loan", these companies are supposed to be microfinance institutions (MFIs) initially, but most of them are more like loan companies or banks with none deposits-taking in reality. The chaos of microfinance industry make the supportive polices, such as wholesale loans, technical support, tax incentives, impossible to implement. Moreover, it makes the microfinance suffer criticism. Definitely, it is crucial to separate the real MFIs and loan companies for the development of microfinance industry.The international microfinance industry is not just focused on the grassroots level, but also takes effort to build the mechanism of collaboration and regulation in a higher level. There is a unique microfinance system internationally. MFIs rating is an important component in the system. Rating is necessary for MFIs to accept donations, apply wholesale loans and IPOs. There is a direct relationship between the rating results and the survival and development of MFIs. An independent, fair and transparent MFIs rating system is widely recognized as an effective monitoring and management method. In contrast to foreign countries, China’s MFIs rating is lagged far behind both in theory and in practice. So, there is an urgent need to establish a MFIs rating system in China, which can provide clear information to institutions, market, regulators and so on. Based on the rating results, the government could carry out the supportive policies, which may lead MFIs to origin.The core of this paper is to establish a scientific and reasonable MFIs rating system in China. In my opinion, according to the status in the related field of this research, we should primarily learn from international well-known MFIs rating systems, while considering the condition of China. Thus, this paper will firstly study the practices and characteristics of mature international MFIs rating system, summarize the inspiration to us. Based upon these findings, build the principles and indexes for Chinese MFIs rating system. Subsequently, I take an investigation to test whether the system can achieve the desired effect or not, and adjust accordingly. Finally, the basic ideas and recommendations on the application of the MFIs rating system are given.Based on the framework, this paper is divided into nine chapters.Chapter Ⅰ is an introduction of the background, content, methods, previous studies, innovation of this paper.Chapter Ⅱ to Chapter Ⅳ presents and analyzes the international practice of MFIs rating.Chapter Ⅱ discusses the connotation of micro finance and the distinction with other similar concepts, and the necessity of the MFIs rating. Section2.1discusses the concept of microfinance and its contribution to society. Microfinance is initially promoted as an economic support for low-income people excluded by mainstream financial institutions. The MFIs also have the pursuit of financial sustainability. In the international sense, microfinance is not only a simple banking service, but also a development tool which plays a prominent role in poverty alleviation, promotion of rural development, and private financial regularization. Section2.2discriminates microfinance and other easily confused concepts. In the meaning and historical perspective, microfinance is the expansion and extension of microcredit. From the point of client, purposes, and nature, microfinance is different from the SME finance, poverty-relief finance and informal finance. Clearing the concept of microfinance is crucial to build a MFIs rating system. Section2.3discusses the necessities of MFIs rating to institutions, market and regulators.Chapter Ⅲ describes several international well-known MFIs rating systems, whose indicators and procedures are supposed to provide a reference for the establishment of Chinese MFIs rating system. Section3.1briefly summarizes the international practice of MFIs rating, and classifies the practice from different perspectives. According to the nature of the rating agencies, they will be divided into welfare ratings and commercial ratings. According to the rating content, they will be divided into economic ratings (global risk ratings) and social performance ratings. Section3.2introduces several major international famous MFIs rating systems. According to the reports of the rating agencies and other relevant literature, I summarize the indicators and procedures of CAMEL, PEARLS, GIRAFE, MICRORATE, M-CRIL rating systems. Taking the famous IMP-ACT project as an example, section3.3describes the characteristics of the social performance rating in the international rating system. A brief review of international practice is given:in my opinion, the international social performance rating is based on the concept of Welfarism. Emphasizing the MFIs’own social attributes, their contributions in poverty alleviation, social fair promotion are to be focused. Therefore, the international social performance ratings adapt in the MFIs’ characteristics. The design of social performance rating indicators should also take the specific conditions of China’s economic and social development level into account.Chapter Ⅳ deeply analyzes these rating systems mentioned in Chapter Ⅲ. Section4.1summarizes the features of the five rating systems. In conclusion, the international rating systems have the similar content, however, the indicators are dispersing. This situation makes it hard to directly learn from them for us. However, some secondary indicators with different names or formulas belong to the same field. This inspires me to re-summarize secondary indicators, and to test how many indicators and their weight in each field, whether these systems have specific targets with the method of statistical analysis. Section4.2to4.5does statistical analysis with CAMEL, PEARLS and GIRAFE rating system as a sample. By the research of the primary and secondary indicators, I conclude that the three rating systems have different leads indeed. CAMEL focuses on safety and risks, PEARLS concerns financial situation, GIRAFE prefers rating management ability. Different concerns are related to different clients and objectives. There should also be different emphasis for different types of MFIs in Chinese rating system.Chapter Ⅴ and Chapter Ⅵ discuss the principles and indicators of MFIs rating system in China.Chapter Ⅴ summarizes international experience, then put forward the principles of Chinese MFIs rating system. Section5.1proposes the revelation of international practice:clear targets, concern about objects, highlight the role. Section5.2put forward six principles of building Chinese MFIs rating system: clear goals and develop indicators scientifically; emphasis on social performance, taking the social contribution into account; set different indicator weight for different MFIs type; comprehensive evaluation, set a single minimum requirement for each field; ensure the quality and timeliness of information, build a dynamic adjustment mechanism; set up the relationship between rating result and rewarding or punishing policies.Chapter Ⅵ designs the framework of Chinese MFIs rating system. Section6.1proposes the primary indicators, including capital adequacy, asset quality, governance ability, liquidity, profitability, sustainability and social performance. Section6.2to6.8discusses the corresponding secondary indicators.Chapter Ⅶ and Chapter Ⅷ takes small loan companies as an example, to test whether the MFIs rating system can achieve the expected goals, and put forward the basic ideas and suggestions of the application of the rating system.Chapter Ⅶ tests the MFIs rating system. I design a rating system for small loan companies based on the framework mentioned in Chapter VI, and carry out the test among10small loan companies in Sichuan Province. The survey result shows that the rating system, with a strong discrimination, can tell the institution’s economic and social performance.Chapter Ⅷ proposes the idea of the applications on the basis of findings in Chapter Ⅶ. I believe that the rating results can be applied to the daily supervision, financing support, tax benefit and transformation into rural banks, in order to better promote the healthy development of the small loan companies.Chapter Ⅸ summarizes the shortcomings and prospect of this paper.