In this white paper, MicroRate addresses the industry’s need for an objective set of criteria to classify the maturity of a microfinance institution (“MFI”). Historically, the microfinance industry referenced a system of three or four “tiers” to differentiate between MFI types. However, previous tier definitions – often vague or based only on one indicator such as size – failed to adequately capture an MFI’s level of institutional development.
The system proposed is based on a three-tier structure that applies three simple, objective indicators that, together, act as proxies for MFI maturity. The three indicators are sustainability (return on assets, RoA), size (total assets in U.S. dollars) and transparency (level of regulation/reporting).