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

Financial Statements of a Microfinance InstitutionChapter3FINANCIAL STATEMENTS OF A MICROFINANCEINSTITUTION3.1 INTRODUCTIONFinancial Statements are summary of quantitative data depicting overall financial health of an organisation.Therefore, they not only enable an assessment of how well an organisation is doing but also provide cluesof the specific areas that require management attention.In the Indian context, the financial statements most widely understood are the balance sheet and income &expenditure statement. The standard forms used by MFI and the auditors for the balance sheet and income &expenditure statement are drawn from schedule-VI of the Indian Companies Act 1956. MFIs add some annexureto both these main statements as supplementary information for details. The annexure are often not commonacross but MFI specific. Most of the annexure are also found to be explaining accounting break-up like subheadsof the broad head ‘salaries and allowances ’and therefore not of much help in the context of the financialperformance of an MFI.The four financial statements that together provide data for assessing financial performance of an MFI are:• Balance sheet• Income and Expenditure Statement• Cash Flow Statement, and• Portfolio Report.The first two statements are statutory and hence widely available statements from MFIs though not completewith required details; the latter two, in most cases, need to be specially prepared.Additionally, policy of the MFI in regard to accounting such as depreciation, provisioning norms, incomerecognition and accrued expenses would be required for complete understanding.In the Table below, for each statement, there is a corresponding column that lists the key strategic issues thathave to be culled out.Table 5 – Financial Statements and what does it conveysFinancial Statement Key Issues required as informationBalance Sheet ● What is the overall financial position of the MFI?● What asset does it own and types?● How does it finance these assets - through liabilities (obligations toothers) and through equity (shares/stocks)?● What assets and liabilities are short term or long termIncome and Expenditure ● What income is being generated by the MFI?Statement ● How much of this income is from operations?● Income from investments?● Income from other activities and sources?● Recurring and non-recurring income and expenses● What expenses are required to earn the income?● How much is incurred as financial expenses?● What are the operational expenses?Cash Flow Statement ● What are the MFI’s regular sources of cash?● How does it spend / use that cash?Portfolio Report ● What portion of the MFI’s portfolio is good?● What portion is bad and how much bad?25