Tracking Financial Performance Standards of ... - Sa-Dhan

Performance Indicators of Microfinance Institutions : Some Popular Tools used WorldwideAnnex1PERFORMANCE INDICATORS FOR MICROFINANCEINSTITUTIONS : SOME POPULAR TOOLS USEDWORLDWIDESl.No.Name ofTool/InstitutionBroad performance areaIndicators to measure performance1. CAMEL, ACCIONCAMEL analyses thefive traditionalaspects considered tobe most important inthe operation of afinancialintermediary.These five areasreflect the financialcondition and generaloperational strengthof the MFI and arebriefly summarised inthe next column.1. C-Capital adequacy. The capital position of theinstitution and its capacity to support growth ofthe loan portfolio as well as a potentialdeterioration in assets are assessed. The CAMELanalysis looks at the institution’s ability to raiseadditional equity in the case of losses and itsability and policies to establish reserves againstthe inherent risk in its operations.2. A-Asset quality. The overall quality of the loanportfolio and other assets, includinginfrastructure (for example, officer location andenvironment), is examined. This requiresanalysing the level of portfolio at risk and writeoffs,as well as the appropriateness of the portfolioclassification system, collection procedures, andwrite-off policies.Quantitative• Leverage• Reserve adequacyQualitative• Ability to raise equityQuantitative• Portfolio at Risk(> 30 days past due)• Write-offsQualitative• Portfolio classification system• Productivity of long-term assets• Infrastructure3. M-Management. Human resource policy, thegeneral management of the institution,management information systems, internalcontrol and auditing, and strategic planning andbudgeting are examined as distinct areas thatreflects the overall quality of management.Qualitative• Governance/Management• Human resources• Processes, controls, and audit• Information technology system• Strategic planning and budgeting4. E-Earning. The key components of revenues andexpense are analysed, including the level ofoperational efficiency and the institution’sinterest rate policy as well as the overall resultsas measured by return on equity and return onassets.Quantitative• Adjusted return on equity• Operational efficiency• Adjusted return on assetsQualitative• Interest rate Policy4. L-Liquidity. This component of the analysislooks at the institution’s ability to projectfunding needs in general and credit demand inparticular. The liability structure of theinstitution, as well as the productivity of itscurrent assets, is also an important aspect ofthe overall assessment of an institution’sliquidity management.Quantitative• Productivity of other current assetsQualitative• Liability Structure• Availability of Funds to MeetCredit Demand• Cash Flow ProjectionsSource: Saltzman, Rock and Salinger 1998103