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

Financial Statements of a Microfinance Institution3.2 INCOME AND EXPENDITURE STATEMENT – KEY DEFINITIONS & INTERPRETATIONSThe Income and Expenditure statement is also known as the profit and loss statement. It is a flow statementthat summarises all financial activity during a stated period of time, usually a month, quarter or year. Itdisplays all revenues and expenses for a stated period of time. The bottom line of an income statement is thenet income (or net profit or surplus) for the period.There may be need to analyse and distinguish between other services from MFI that are directly connected tomicrofinance (hence to be included in costs) and services that are independent of microfinance and hence to beexcluded for consideration in this context.There are instances that an MFI is providing other services in addition to microfinance services. These servicesand their costs, ranging from shared facilities to staff and other costs need to be bifurcated to arrive at true andfair costs assignable to microfinance operations. The guidelines for cost allocation are also provided at the endof this chapter (see section 3.4)It needs emphasis that the conventional Income statement (see Table 7 a) is as per statutory disclosure norms.For the purpose of evaluating financial performance and standards, the statutory information is expanded togreater details (see Table 8 a). In light of the above, explanation of a sample income and expenditure statement,expanded to needs of evaluation is presented further in this section.Using the expanded format (Table 8 a) helps in several ways:• One can analyse where its income is coming from and accordingly adjust its strategic direction so as toachieve long term sustainability• Subsidies can be ascertained and the true financial picture of the MFI can be understood• The existence of prudential accounting norms can be ascertained (like loan loss provision) and thiswill enable both the MFI and the wholesaler (donor) to take necessary action for safeguarding theportfolio• The extent to which increase in operational (cash and non-cash) expenses are justified by an increase inportfolio size, quality and income can also be determined. This will help, both the MFI and thewholesaler (or Donor), make better decisions aimed at enhancing the outreach and sustainability ofthe organisation.3.2.1 IncomeIncome for an MFI can be received from three basic sources• Income from Loan Portfolio• Investment Income• Other IncomeINCOME 2001 2002 2003Income from loan PortfolioIS 1 Interest on Current and Past Due Loans 18,000 24,100 31,000IS 2 Loan Fees and Service Charges 7,700 10,000 10,600IS 3 Late Fees on Loans 700 600 400IS 4 Total Income from Loan Portfolio 26,400 34,700 42,000IS 5 Investment Income (Interest on Investment) 800 3000 1000IS 6 TOTAL OPERATING INCOME 27,200 37,700 43,00029