
Historically, the reason the Menkyo system existed was to license instructors. It has always been something separate from one's individual progress (now expressed in their belt rank), and that's why many modern systems have carried on the practice alongside the kyu/dan system. Even if a formal Menkyo system does not exist in a particular style, there has always been a tradition of instructor certification (either formally or informally) that gave the student the authorization to teach outside of their home school, and traditionally this was reserved for those of 4th Dan or higher.
Some organizations run official instructors courses, and some groom their students individually to become teachers through shadowing and other methods. I don't believe there is a right or wrong way to produce instructors, as long as there is actual training involved and you are not just thrown onto the mat without being taught the intricacies of how to teach. I mean, it doesn't matter how good you are at math. You still need a degree in education before you can teach even at the grade school level. However, let's pretend for a minute that an actual license to teach is unnecessary since in this country, it effectively is. So much more goes into being a martial arts instructor than just being proficient in the curriculum (which is why instructor's licenses are important in the first place), that I would beware any teacher that does not seek continued education. But what I'm about to detail is not what you think...