Why a BRICS rating agency would make sense

A credit rating company remains a top priority on the BRICS agenda. According to Independent Online, this is “an effort to break the dominance of the big three developed-nation firms”.

By starting up a ratings agency (RA), the BRICS establishment aims to drastically decrease high borrowing costs as per S&P Global Ratings, Fitch Ratings and Moody’s Investors Service’s assessments, while serving as a healthy competitor.

In June 2016, the chairman and managing director of the Export-Import Bank of India, Yaduvendra Mathur confirmed that Brazil, Russia, India, China and South Africa are in talks over a ratings company not dependent on clients’ revenue.

Independent Online reports that according to Bloomberg, “the biggest hurdle for a BRICS credit-assessment company would be convincing US and European investors the ratings are assigned without government pressure.

“Critics of S&P, Fitch and Moody’s say they are beholden to the companies they rate because their revenue comes from these clients.”

What purpose will the BRICS rating agency serve?

According to The BRICS Business Council,  the BRICS RA will: “offer an emerging markets-focused credit evaluation framework that will enable investors to evaluate and compare the credit risk of projects across emerging markets, and hence optimise their investment decisions in these countries.

The BRICS RA will have a methodology that will not only incorporate existing methodologies employed by the other rating agencies but also be more comprehensive, and will include insights based on its analysts’ experience and knowledge of BRICS and emerging markets.

Global investors will be able to follow the rating scale offered by BRICS rating agency to get a finer distinction of credit quality on a much wider list of companies, banks, insurance companies and government owned entities within the emerging market space.”

The current positioning of promising BRICS RA conversation lends to it eventually extending beyond the BRICS borders, opening doors to emerging markets.

– Independent Online

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