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

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Tracking Financial Performance Standards of Microfinance Institutions3.2.3 Treatment of Donor Grants1. Funds donated to cover operational cost are a direct subsidy to the MFI.2. The value of the subsidy is, therefore, equal to the amount donated to cover expenses incurred in theperiod reported.3. Some donations are provided to cover operating shortfalls over a period greater than one year. Only theamount “spent” in the year is recorded (as per conventional method) on the income statement as revenue.4. Any amount still to be used in subsequent years remains as a liability (as per conventional method) on thebalance sheet (referred to as deferred revenue). This occurs because, theoretically, if an MFI stoppedoperations in the middle of a multi-year operating grant, they would have to return the unused donationsto the donor. Therefore, the unused amount is considered a liability.5. However, prudent norms suggest that Donated funds for operations should be reported on the incomestatement separately from revenue generated by lending and investment activities to accurately report theearned revenue of the MFI.6. These funds should be deducted from revenue or net income prior to any financial performance analysis,because they do not represent revenue earned from operations. Theoretically, any costs incurred to obtaindonor funds – “funding costs” should – should also be separated from other operating expenses, becausethe benefit of receiving the funds is not included.7. To make the adjustments, if an MFI has recorded donations to cover operational costs on the incomestatement as revenue earned, the amount should be reported below the net income line, resulting in areduction in operational revenue and, therefore, a reduction in the amount transferred to the balance sheetas current year net surplus (deficit). An offsetting credit entry is made to the balance sheet in the accumulatedcapital – subsidy account (equity).Analysing Changes in Income StatementOne of the key tasks for the analyst is to isolate changes in the structure of the various income and expensesitems across two years. This trend analysis is a very useful technique for understanding where the MFI is todayand where it is headed tomorrow. In turn, such analysis will facilitate what on-course corrections are requiredand also enable MFI management to take suitable decisions that will enable the MFI to enhance its sustainabilityand expand out reach. Basically, such analysis involves calculating the proportion of income and expense itemsas a measure of the total income and expenses respectively.34
Financial Statements of a Microfinance InstitutionTable 8 (b) – Sample Balance Sheet of an MFII II III IV VSl. No. Description Year Ending 31 st March2001 2002 2003ASSETSCurrent AssetsCash and DepositBS 1 Cash and bank current accounts 10,000 5,000 10,000BS 2 Interest-bearing deposits 4,000 14,000 16,000BS 3 Total Cash and Deposit 14,000 19,000 26,000Loan OutstandingBS 4 Regular 64,000 100,000 132,000BS 5 Past Due 40,000 39,000 34,000BS 6 Restructured 0 1,000 2,000BS 7 Gross Loans Outstanding 104,000 140,000 168,000BS 8 (Loan Loss Reserve) -10,000 -10,000 -14,000BS 9 Net Loans Outstanding 94,000 130,000 154,000BS 10 Other Current Assets 1,000 2,000 1,000BS 11 Total Current Assets 109,000 151,000 181,000Long-Term AssetsBS 12 Long Term Investments 16,000 22,000 25,000BS 13 Fixed Assets (Movable & Immovable) At Cost 6,000 8,000 8,000BS 14 (Accumulated Depreciation) -400 -600 -1,400BS 15 Net Fixed Assets 5,600 7,400 6,600BS 16 Total Long Term Assets 21,600 29,400 31,600BS 17 TOTAL ASSETS 130,600 180,400 212,600LIABILITIES AND NET WORTHCurrent LiabilitiesBS 18 Short-Term Borrowing (Commercial) 12,000 24,000 36,000BS 19 Short-Term Borrowing (Concessional) 0 0 0BS 20 Client Savings 0 0 0BS 21 Total Current Liabilities 12,000 24,000 36,000Long Term LiabilitiesBS 22 Long Term Debt (Commercial) 15,000 30,000 24,000BS 23 Long Term Debt (Concessional) 37,600 60,000 70,000BS 24 Restricted or Deferred Revenue & Expenses 0 0 0BS 25 Total Long Term Liabilities 52,600 90,000 94,000BS 26 Total Liabilities 64,600 114,000 130,000NET WORTHBS 27 Equity/Corpus/Loan Fund Capital 66,000 66,000 80,200BS 28 Retained Net Surplus/Deficit prior years 0 0 400BS 29 Net Surplus/Deficit current year 0 400 2,000BS 30 Total Net Worth 66,000 66,400 82,600BS 31 TOTAL LIABILITIES AND NETWORTH 130,600 180,400 212,60035
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REFERENCESBarrel, Margaret, Michael
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