International Non-Profit Credit Rating Agency

INCRA (International Non-profit Credit Rating Agency) is the proposal conceptualized by a network of private-sector and academic experts coordinated by the Bertelsmann Foundation in North America and the Bertelsmann Stiftung in Europe. Experts from Latin America and Asia have also played a significant role in this effort. The project was initiated in 2011.

Rationale

The major focus of the INCRA is overhauling existing metrics used to calculate credit ratings. According to the project’s supporters, current evaluations focus solely on macroeconomic indicators while ignoring important political and socioeconomic factors. In addition to considering macroeconomic factors, the INCRA would take into account a country’s commitment to the rule of law, transparency, social cohesion, future resources, strategic capacity, implementation ability, and adaptability when calculating ratings. While acknowledging that no evaluation system can perfectly predict and prevent crises, the Bertelsmann Foundation was arguing that incorporating these forward looking indications would reduce global vulnerability to future financial crises.

Critics of traditional credit rating agencies, such as Standard & Poor's, Moody's, or Fitch, claim they lack transparency and confer arbitrary and biased ratings based on a for-profit model. INCRA is the Bertelsmann Foundation's effort to address these existing problems by proposing a credit rating agency that functions as a non-profit NGO.[1] Rather than creating a new credit agency itself, the Bertelsmann Foundation proposes that the G20, which already has ratings-agency regulation on its agenda, consider implementing this proposal. Beyond addressing the potential legal structure for an international credit ratings agency, INCRA integrates new methodologies and indicators to traditional macroeconomic data in order to achieve a more comprehensive sovereign ratings system. These indicators include a country's political, economic and financial development. Additional criteria may include a country's political management or the extent to which a country suffers from "brain drain."

INCRA has issued ratings for Germany, France, Italy, Japan and Brazil, which are summarized in the Country Ratings Report.[2] The proposed agency would focus solely on sovereign ratings. INCRA would operate with funds from a multi-donor endowment which should be derived from a range of contributions from governments, corporate players, NGOs, foundations and/or private donors in order to minimize conflicts of interest in ratings decisions.[3] To ensure INCRA's long-term efficacy and sustainability, the report estimates that an endowment totaling $400 million will be necessary. The original report outlines in detail the functionality of an international credit ratings agency.[4] The Bertelsmann Foundation has measured political, economic and social management and development through its Transformation Index and Sustainable Governance Indicators projects for more than a decade. These projects involve a global network of more than 300 experts from over 150 countries.

References

  1. ↑ Kinkartz, Sabine. "Alternative Ratings Agency to Challenge the Big Three". Deutsche Welle. Retrieved 21 February 2013.
  2. ↑ Martin, Michelle (20 November 2012). "Non-profit rating agency pilot gives Germany top marks". Reuters. Retrieved 13 December 2012.
  3. ↑ Mackenzie, Michael. "Non-profit credit rating agency challenge". Financial Times, 16 April 2012. Financial Times. Retrieved 19 February 2013.
  4. ↑ Ewing, Jack, Jolly, David. "Newcomer to Ratings Game Gives France a Dim View". The New York Times. New York Times. Retrieved 19 February 2013.
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