to determine the weight for the variables to consider them for the five areas of CAMEL.
From the general concept of capital management it well known to us that capital adequacy is important to maintain so that the risk will be offset. So it is important to get the answer what should be the measure of capital adequacy and risk for MFIs activity and whether capital adequacy and risk related with rating?
Scale, Outreach and Growth (Size) vs. Rating
Outreach which indicates the size is the measurement of scale for the operation of an MFI. The more of the outreach of an MFI the more of the scale or size will be considered. But the question is what should be the measure of scale and outreach and whether there is a positive and significant relationship between MFI size and rating?
Portfolio quality and Profitability vs. Rating
Portfolio quality and profitability of an MFI is related significantly. There is a positive relation between portfolio quality and profitability of a financial organization organization. Though there is a set of ratios for portfolio quality and profitability but the question to be answered that whether there is a positive and significant relationship between MFI profitability and rating assigned?
Productivity and Efficiency vs. Rating
Productivity and efficiency are positively related for any organization –there is no confusion about it . Productivity and efficiency are to be defined in the context of MFIs then to get the answer that where there is a positive and significant relationship between MFI efficiency and productivity with rating?
Sustainability vs. rating
To think about rating means to think about risk. Risk is a key issue in the rating process because the rating expresses the likelihood of company to meet its repayment commitments. Poon et al (1999) find a significant relationship between risk variables and rating assigned to financial institutions. So there is a need to find the answer where there is a negative and significant relationship between MFI risk and rating assigned?
Social performance vs. rating
There is a dilemma of considering social performance in rating MFIs which is also goal for MFIs.
Should the rating incorporate social performance issues? Or, would it be necessary to create specific ratings to measure social performance? If MFIs with good social performance have also a good financial performance, only one rating will be necessary. Arguments in favor of MFIs are that the poor give back their credits.
For example, Grameen Bank, well known as a successful model that has surpassed the frontiers of the MFI world, has reported repayment rates of 98% serving over two million landless borrowers; Morduch (1999). Also, lending rates are high enough to guarantee MFI survival; Conning (1999); and MFIs reaching their social aims are able to get more money from donors.
However, empirical research shows that it is difficult to discover MFIs excelling in both the social and financial fields; Morduch (2000). Facing this dilemma, we are trying to take part for any alternative, but the hypothesis may be tested to get the answer where there is a positive and significant relationship between MFI social performance and rating assigned.