Ratings have existed for nearly 180 years! When the United States started expanding westward, so did the trading distance between merchants and their customers. Merchants were reluctant to extend credit to new and unfamiliar customers, for fear of non-payment. This then led to the birth of mercantile agencies - the precursors of today’s rating agencies. These agencies assessed the merchants’ abilities to repay their debts and published the assessment results in a guide. The first such agency was founded in 1841, in the wake of the American financial crisis of 1937 that had triggered a major depression with plunging prices, profits and wages – not unlike the recession we are facing today.

The basic functions of ratings have not changed much since then. Ratings bridge the information gap between buyers and sellers in transactions. Whether for physical goods or intangible services, and be it B2B or B2C, each party in a transaction is keen to protect their respective interests. In today’s financial world, various actors assume the role of the information intermediary. Banks perform this role in banking transactions, while credit bureaus issue credit scores to individuals in B2C transactions. In the context of a B2B or disintermediated financial transaction (such as a bond issue), rating agencies provide information which, in turn, increases transparency, efficiency and liquidity for the market.

This is exactly the reason why a transparent and well supervised jurisdiction like Labuan IBFC would welcome a bespoke rating service for all license holders, not only to evidence its well-regulated marketplace but, just as importantly, to encourage intra Labuan IBFC business amongst its burgeoning cohort of license holders.

“Labuan IBFC is now home to nearly 900 license holders, and we realise that a competitive yet tailored rating service for the jurisdiction would be an ideal springboard to increase intra Labuan business,” said Farah Jaafar-Crossby, CEO Labuan IBFC Inc, the market development agency for the jurisdiction.
Farah added that the benefit of having an independent assessment should never be underestimated as the trust a rating evokes is able to open numerous business opportunities, allowing potential counterparties and partners an unbiased insight into the strength of Labuan licensees. If history is any guide, each crisis in the past has proven that timely information is critical to overcome uncertainties; this will be no different in the post-COVID era.