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National Credit Ratings Ltd

Social Rating Methodology

 

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Social Rating

Social rating is defined as the opinion on how a financial institution performs its financial and social goals (i.e. social performance) and probability of the financial institution to implement and achieve its mission in line of standard social values.

Social value is a part of the society’s culture, guidance or standard for social conduct to maintain the stability and uniformity of social order. While social value helps us measure relative importance in the changes experienced throughout one’s life, it is neither directly observed in the market price nor measured in the same way the financial value. As a result, social value should be assessed from the perspective of those affected by an organization’s work (www.socialvalue uk.org/what-is-social-value/).

For social rating purpose, social values encompass:

ü  sustainable access to financial services to underprivileged people in the society for improving their living standard,

ü  creating benefits for clients

ü  implementing client protection measures

ü  responsibility of staff, the community and environment

These values reflect the Social Performance Task Force (SPTF) consensus on social performance as a strategic commitment of all financial institution (Rating Guide, Volume 2: Social Rating Guide, The Rating Initiative, 2013). Thus social ratings come into picture to gauze how a financial institution obliges its social performance in line with its vision, mission and social and financial goals.

 

Why Social Rating?

Social ratings are developed and growing in demand from MFIs and investors over the last decade (since 2008). They are now globally accepted platform for the investors to scrutinize social performance management in light of the international standard. While the credit rating can only perform financial measurement of credit worthiness, social ratings goes beyond those financial values by quantifying social impact of the financial institutions on the human lives. Social ratings are useful tool for:

ü  Assessing the social performance in alignment with mission, vision and goals

ü  Analyzing and asserting the social performance management for effectiveness of the MFIs and NGO

ü  Evaluating the social performance in comparison with standard, norms, peers in the industry

ü  Demonstrating the scope of improvement in social performance

ü  Communicating with investor for understanding the policies and procedures of implementing MFIs mission, vision, social development activities

ü  Providing objective information on social performance risk profile of the MFI to the investment decision maker

ü  Ensuring transparency of the MFIs for capital flow to MFI

 

Scope & Limitation

Social rating can be applied to all types of financial institutions and for those entities with double bottom line profitability i.e. financial profit/loss and social return/impact. NCR has developed proprietary social rating methodology based on the guideline provided by The Rating Initiative. This methodology developed by NCR is applicable and used to appraise MFIs and NGOs active in Bangladesh.

 

The rating agencies require awareness of the international standard for social performance measurement and social performance task force for alignment with social rating methodology. In addition, social rating methodology requires development within country context, which is ignored here. Further, to assess the social impact, client and staff survey need to be conducted. However, NCR may use small sample for client and staff survey, and thus the data sample may be biased.

 

Social Performance Measurement Factors

Based on the social rating guideline outlined by The Rating Initiative, there are six elements examined for social rating of an entity. They are depicted in the following diagram:

 

Social Rating Process

 Rating Scale Definition

Grade

Social Rating Definition

AAA

Excellent social performance and financial practice, highest level of commitment to its mission and highest chance to meet the social mission

AA

Very strong social performance and financial practice, very high level of commitment to its mission and very high chance to meet the social mission

A

Strong social performance and financial practice, high level of commitment to its mission and high chance to meet the social mission

BBB

Adequate social performance and financial practice, moderate level of commitment to its mission and moderate chance to meet the social mission

BB

Inadequate social performance and financial practice, low level of commitment to its mission and low chance to meet the social mission

B

Low social performance and financial practice, low level of commitment to its mission and low chance to meet the social mission

C

Very Low social performance and financial practice, very low level of commitment to its mission and very low chance to meet the social mission

D

Lowest social performance and financial practice, minimum level of commitment to its mission and lowest chance to meet the social mission


Disclaimer:

The Methodology is developed by National Credit Ratings Limited (NCRL) based on data/information from secondary reliable sources which is in compliance with the guidelines provided by Bangladesh Securities and Exchange Commission and Bangladesh Bank. NCRL puts best efforts to prepare this document. The methodology inherits human error, technical and/or systematic error as its limitation therefore, NCRL does not provide warranty of any kind for this document. This is the property of NCRL and is only used for rating of entity/debts. None of the information in this document can be copied or otherwise reproduced, stored or disseminated in whole or in part in any form or by any means whatsoever by any person without written consent of NCRL.

 

 

For further details please contact:

 

National Credit Ratings Ltd.

Zaman Tower (8th Floor).

37/2, Purana Paltan (Box Culvert Road),

Dhaka-1000

Tel: +88-02-47120153, 47120157-8

E-mail: kishor@ncrbd.com

Website: www.ncrbd.com

 

 




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