One year ago, BlueOrchard introduced BOSCO, the BlueOrchard Credit Scoring System, to wide acclaim. A central element in the BlueOrchard underwriting process, this comprehensive analytical tool scores the credit strength of microfinance institutions (MFIs) according to a predefined set of criteria and also determines a credit rating with a corresponding probability of default. While a financial strength rating or score-based approach has been best practice amongst specialized rating agencies for some time, existing MFI ratings do not assign a credit rating with a probability of default. BlueOrchard is therefore credited with a major analytical breakthrough as the BOSCO credit rating of a microfinance institution assigns both a financial strength and credit rating.

In the context of a progress report in January 2013, Chuck Olson, CFA, BlueOrchard’s Chief Credit Officer and initiator of BOSCO, stated that close to 150 microfinance institutions had been assigned a BOSCO rating, facilitating the risk-adjusted pricing of loans to microfinance institutions in line with the methodology investors apply to the pricing of global bonds. BOSCO 2.0, which will be applied systematically to all new BlueOrchard investments as from this week, maintains the rigour of the previous version as well as the overall criteria upon which all MFIs are evaluated: corporate governance, strategy, risk positioning, capital adequacy, financial performance and size to determine the financial strength, and then evaluate sovereign risk of the host country and external support to assess a credit rating. It features, however, an enhanced scoring system to better reflect specific risk factors and their impact on the probability of default of an institution. Risk appetite of an institution now goes beyond growth levels to include infrastructure to manage growth and risk tolerance; the impact of key person risk on an MFI’s financial outlook is more accurately reflected, and refinancing risks are more clearly articulated in the overall MFI assessment. Also, weights of individual factors have been revised to better quantify financial risks and return expectations. These major enhancements will benefit both investees and investors in BlueOrchard-managed funds. “Demand for microfinance investments is growing from commercial investors, who need to be assured that socially responsible investments follow the same rigour in selection and pricing standards as mainstream investments”, says Peter A. Fanconi, BlueOrchard’s Chief Executive Officer. Adds Chuck Olson, “Capital markets in general and emerging markets in particular evolve rapidly, so it is our role to ensure that MFI credit ratings are at all times comparable to those of other fixed-income investments, and that yields on microfinance investments are determined in the same manner as those of mainstream investments of comparable risk. I trust that BOSCO 2.0 will meet with approval from the most sophisticated institutional investors.”


BlueOrchard Finance S.A. was founded in 2001 as the first commercial manager of microfinance debt investments worldwide. To this day, the company has deployed in excess of USD 2bn in loans to microfinance institutions, providing access to microcredit to over 30 million individuals across 50 countries. Investors in BlueOrchard-managed funds include private and institutional investors, supranational institutions as well as renowned foundations. The company employs highly experienced staff with backgrounds in traditional and development finance including 22 investment professionals in Geneva, Zurich, Luxembourg, Lima, Phnom Penh, Bishkek and Johannesburg.