BSP sets rules on recognition of microfinance rating agencies

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has laid down the guidelines on the accreditation of agencies that would provide ratings for banks with microfinance operations in the country.

In a statement, the BSP said the Monetary Board has approved the rules and regulations for the recognition and derecognition of Microfinance Institution Rating Agencies (MIRAs) in order to create the enabling environment for the appropriate use of objective, credible and competent third-party ratings of microfinance institutions.

The central bank said MIRAs would provide an institutional rating rather than just a rating related to a safely grade of a specific instrument or a rating on an institution’s ability to service an existing or proposed debt.

It added that the assessment of the MIRAs would focus holistically at the governance, human resource, 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,” the BSP said.

The central bank said ratings would serve as an effective tool to raise the quality and efficiency in the industry as well as provide confidence for social and commercial investors.

The BSP added that the ratings would provide valuable assessment for banks with microfinance operations that could 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.

Under the process, the BSP would 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 operations, its attendant risks and operational challenges.

The Monetary Board’s recognition of MIRAs would be valid for three-years and could be renewed.

The BSP said there are already a number of intentional microfinance rating agencies that have set up or planning to establish offices in the Philippines.

Latest figures show that 214 banks involved in microfinance have outstanding loans of over P6.4 billion to nearly 900,000 microentrepreneurs who have over P1.5 billion in savings.

The BSP was mandated by the General Banking Law in 2000 to recognize microfinance as a legitimate banking activity and to set the rules and regulations for its practice within the banking sector.