Can credit ratings unlock sustainable development in Africa?

Sunday April 25 2021

GCR believes the mixture of local and regional skills on the ground is key to creating an African rating agency with an African credit voice. FILE | FOTOSEARCH

Credit ratings are forward-looking opinions on the relative ability of an entity to meet its financial obligations as they fall due. Issuers include private sector banks, insurers, micro-finance institutions, the whole gambit of corporates and public sector entities, such as local and regional governments, state-owned enterprises and sovereign governments. Such entities apply issuer credit ratings predominantly to access debt funding, either on a bilateral basis or via the debt capital markets.

Credit rating agencies (CRAs) are a key part of a functioning capital/financial market. Credit ratings provide an additional mechanism for investors to understand the credit risks associated with an entity or its debt obligations.

GCR’s role as a CRA is to ultimately contribute to sustainable developmental outcomes.  

GCR’s objective is to provide investors with credit information in a transparent, accessible, differentiated and, most importantly, comparable way.

In 2019, GCR went through a major transformation. The rating agency evolved towards a ratings framework and risk scoring system that is explicitly fit for purpose in the African context within which it specifically focuses.

One of the key objectives under the new GCR framework is to promote regional transparency by enabling rated entities operating in more than one market to have national scale ratings in different markets. For example, a Rwandan bank could have a Kenyan national scale rating alongside its international and Rwandan national scale ratings. Ratings on either scale may have different developmental outcomes.


For international scale ratings, it would be improved access to foreign currency funds, while the national scale ratings may provide greater differentiation on a national basis for accessing local currency funds, with the latter increasing the development of local capital markets.

This is particularly important in economic regions with regulatory harmonisation and close ties and cooperation, as it potentially allows for greater cross-border understanding and investment.   

Another key objective for GCR has been improving the transparency of how it formulates its independent credit ratings, from both qualitative and quantitative perspectives.

GCR has done this so as to avoid certain ‘black-box’ criticism of CRAs, whereby ratings accorded and rating movements may be difficult to understand because the criteria or models used to derive them may be unclear, and also because one of the significant restraints to accessing capital is lack of consistent and regular information provided by certain companies/markets. 

As a result, all of GCR’s credits encompass consistent monitoring, regular communication with issuers, and strict processes around the provision of data and access to management to maintain a rating. 

In regard to GCR’s criteria, it is a key objective to ensure that each issuer, investor and any other stakeholder understands how the rating is derived and what factors/events may lead to a change in rating.   

GCR believes that this independent oversight and transparency in process and criteria will ultimately enhance the discipline of issuers and instill greater investor confidence in local capital markets.

One of the most notable changes in international finance over the last decade has been the ongoing focus on environmental, social and governance (ESG) considerations. This has increased attention on the ‘right type’ of development. 

CRA’s have not ignored this trend. Many new ESG agencies have been created to help investors and issuers understand or promote their credentials in this specific space. 

GCR has explicitly written in ESG elements into its credit rating framework, allowing potential uplift to the ratings on those companies, which can demonstrate good governance, a developmental mandate, and the corresponding advantages (such as access to capital).

GCR has witnessed significant growth in the development/mandate-driven rating category. Historically, this was largely the domain of the supranational institutions such as the Trade and Development Bank and East African Development Bank.

However, recently, GCR has released ratings on various counties in Kenya and is increasingly seeing microfinance agencies consider possible credit ratings for bi-lateral deals. GCR expects project/infrastructure finance to be a key focus going forward as African states build out of the Covid-19 disruptions.

Outside of the ratings criteria and process, GCRs business model and strategic planning has been focused on the continued expansion of its African footprint. From historically being a largely South African-based rating agency, GCR now has offices and analysts in Kenya, Nigeria, Senegal, Zimbabwe, and Mauritius.

GCR believes the mixture of local and regional skills on the ground is key to creating an African rating agency with an African credit voice, while keeping all the strong elements of international best practice.