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

Financial Statements of a Microfinance InstitutionThe components of Current Assets are dealt below:a) Cash in Hand and Bank Current AccountsAll balances available with the MFI instantly/on demand such as cash in safe or with bank in currentaccount or any non- interest bearing deposit are classified under this head. (refer BS 1, Table 8 b).b) Interest bearing depositsFunds on deposit with any financial institution, with a term of less than one year, which are earninginterest income for the MFI (refer BS 2, Table 8 b).c) Loans outstandingThis is the most important income-generating asset for an MFI. It is also called as ‘loan portfolio’. This isbecause, in common parlance of Microfinance, the main source of revenue comes from ‘lending’ to clients.Greater the micro-loans provided by the MFI, the higher its income (all other things being equal) and thegreater the loans provided, the higher the loans outstanding.As in case of sources of funds, loans given by the MFI need careful examination. In the sense that someloans may have repayment portion exceeding next one year and hence need to be treated separately as longterm. All other loan-portions falling due for collection in next one year are “current’’.For convenience of understanding, if all loans are short term in nature, there are three sub-categorieswithin this broad category of loans outstanding – Namely, Regular loans outstanding, Past due loansoutstanding and Re-structured loans outstanding. Let’s take a look into the details of each of these subcategories.• Regular Loans Outstanding - the total amount of loans outstanding at a point in time that are regular,i.e., with no late payments or defaults (refer BS 4, Table 8 b).• Past-Due Loans Outstanding - the total amount of loans outstanding which have amount past due.In other words, it represents outstanding balance of all overdue loans (refer BS 5, Table 8 b).There is another aspect that requires clarification with regard to past due loans. In strict accountingparlance, any loan, which has even a single (installment) payment over due for (just) a day, should beclassified as a past due loanHowever, MFIs may have their own norms with regard to this aspect and consequently, this could varyon a case-by-case basis. But, best practices recommend that, if a payment on a loan due on a certaindate is not paid by that date, then that loan should be classified as a past due loan.• Restructured Loans outstanding - Outstanding loans in which original terms are re-negotiated (referBS 6, Table 8 b). There are two cases here: loans can be either refinanced or rescheduled.Current Assets 2001 2002 2003Cash 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 104,000 140,000 168,00039