Underscoring the substantial growth in the micro finance industry, Standard & Poor''s Ratings Services, the leading provider of financial market intelligence, today announced the release of a special publication, Microfinance: Taking Root In The Global Capital Markets, to enable micro finance institutions (MFIs) to gain greater access to global capital markets.

The report, part of an intensive collaborative effort of Standard & Poor''s analysts and experts in the micro finance sector, provides an important framework for mainstream investors to make better-informed decisions in micro finance.

"The lack of consistent metrics for analysing MFIs has hindered investment at a time when micro finance is growing at a significant rate," said Cynthia Stone, managing director and chair of the Emerging Markets Council, Standard & Poor''s. "And despite the level of interest, mainstream investors need standard metrics before they can invest in this particular sector."

The report provides needed recommendations for a rating methodology that can be used globally and consistently to rate MFIs within countries, across borders, and across asset classes. "The main challenge facing the microfinance sector today is how to scale up and facilitate more investment that can translate into more loans for the 1.5 billion people that are financially underserved," said Stone.

"Investors require transparent and globally acceptable standards for credit analysis and performance evaluation of MFIs. New metrics are needed to allow investors to compare microfinance investment opportunities across borders and across asset classes."

The report provides the context for the rating methodology by summarizing the current state of MFI funding, reviewing the key issues in developing MFI rating methodology, and outlining the minimum information recommended for producing a rating.

Microfinance provides an important framework for small loans to be offered to individuals with low incomes, typically in developing economies, to enable them to grow their businesses and increase productivity.

However, significant global expansion of micro finance requires resources of the mainstream capital markets, including both global and local markets. Unlocking these sources of capital presents several challenges. Mobilising large sums of capital requires suitable instruments that allow investors to define parameters of risk and reward.

On 31 May, Standard & Poor''s assigned ratings to the first publicly rated micro finance CDO. Standard & Poor''s expects to rate an additional two to three transactions in the months ahead, with issuance levels potentially reaching $500 million by the end of 2007.

As the existing micro finance institutions also become adept at handling this new inflow of funding, and more MFIs enter the market, securitisation volumes could reach between $1 billion-$3 billion annually over the next decade. "Though MFIs have largely existed on the fringes of the securitissation market, greater transparency and globally acceptable standards will further enable institutions to access capital," said Gary Kochubka, a director in Emerging Markets structured finance ratings at Standard & Poor''s.