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

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Tracking Financial Performance Standards of Microfinance InstitutionsExplanation of the Repayment Schedule (table-9) is given below:1. Column I of the schedule gives the installment number from 1 to 502. Column II is the principal due as per loan agreement – Rs. 20 per week3. Column III is the cumulative principal due. Take for example, Installment No 5. When the 5 th installmentis due, 5 weeks X 20 principal per week would have become due. The cumulative principal due is 100 asgiven in column III corresponding to installment 5.4. The Interest due as per schedule is 3.00 per week and it is given in Column IV.5. Column V is an important column; it gives the date on which each specific installment becomes due. Forexample, the 1 st installment becomes due 1 week after disbursement (as per loan agreement). i.e., 23/7/2002 + 7 days = 30/7/2002. This is given in Column V corresponding to 1 st installment.6. Sometimes, MFIs may offer a moratorium period. In such cases, the 1 st installment would become immediatelydue after the moratorium period.7. Column VI gives the interest due as per payment. While significance of this column is reduced for MFIscharging ‘Flat’ rates of interest, for others which use the ‘declining’ balance (Table 10) or ‘EMI’ method(Table 11), this is very relevant, especially if the client makes the repayment after the scheduled installmentdate. MFIs could use this information to calculate ‘Penalties’ or ‘Late Fees’.8. All payments coming in from clients are adjusted as per loan agreement of MFI, which stipulates thefollowing:(a) First Towards - Interest Overdues(b) Second Towards - Interest Due(c) Third Towards - Principal Overdues(d) Fourth Towards - Principal Due9. Now, as can be observed from the schedule given in Table 9, the client in the example has promptly paidall installments upto installment no 39. Hence, data in columns VII (amount paid), VIII (Int. Paid), IX(Prin. Paid) and X (Date Paid) correspond to the original schedule.10. This is also reflected by the data in column XII (Cumulative Prin. Paid) which matches the data in ColumnIII (Cumulative Prin. Due).11. Accordingly, columns XV (Interest Overdue) and XVI (Principal Overdue) report a value of ‘0’ for eachinstallment till installment number 39.12. Column XVI (Prin. Overdue) = Column III (Cum. Prin. Due) – Column XII (Cum. Prin. Paid)13. Likewise, Column XV (Interest Overdue) = Column VI (Int. due) – Column VIII (Int. Paid).14. Column XIII represents any amounts prepaid – i.e., after the using sequence ofI. Interest Overdue,II. Interest Due,III. Principal Overdue, andIV. Principal Due,and deducting amounts from clients as such, any amount (that) is left, goes to this column.52
Constructing Loan Repayment Schedule Aging Schedule and Loan Portfolio Report for an MFI15. Column XIV is the Principal Outstanding column and it represents the difference of Loan Amount –Cum. Prin. Repaid (Column XII).16. Column XI is the Overdue Processing date, which is 1 day after the installment due date (Column V). Theessence of this is that, if 20 is principal due on a specific date and repayment of principal is less than the 20due, then the difference of principal due (minus) – principal paid becomes Principal Overdue, one dayafter the due date.17. For example, in installment number 40, as on 30/4/2003, the principal overdue is 20 with an age of 1 dayas principal of 20 has not been paid on even on 30/4/2003. Likewise, in the same manner, 220 is theprincipal overdue and 33 is the interest overdue as of 9/7/2003. The age of this overdue loan is 71 days, asshown in Column XVII.18. To calculate accurate age of an overdue loan, the following method should be followed:[Date of calculating Overdue (or Today) – (minus) Earliest Overdue Date with unpaid overdue]It is also to be noted that when overdues from several past installments exist, to calculate age of overdue itis important to take the date on which the earliest installment (among several installments) first fell overdue.However, this must be done only if amounts from that installment are still unpaid. If amounts fromthat installment have been paid, then the next earliest installment for which unpaid overdues exist must betaken as the basis for calculating age. Here, the earliest when the overdue occurred was in the 39 th installmentwhen Rs. 20 was not paid that fallen due on 29/4/2003. It remains unpaid as on 9/7/2003 (lastinstallment). Therefore, the age is = (9/7/2003) – (29/4/2003) = 71 days.19. Please see the box below on how not to calculate the age of an overdue loan using the installment methodof aging (which is an incorrect procedure).Example of Incorrect AgingF Let us assume that 1032 has not been paid (part of it is overdue from August 2001).F The loan term ends in January 2002.F The value per monthly installment is 180F The age is sometimes calculated as:Age =Overdue AmountInstallment amountF As per the above formula, the age, as at end January 2002 would be1032Age (End January 2002) == 5.96 Months180F This is correct, as 6 months intervene between August 2001 & January 2002 (inclusive of both months)F Let us now assume that we are in July 2002.F The age as per above method of calculation is still 6 months.F But actual age is 6 months till January 2002 + 5 months till July 2002 or11 months.F So what is considered 180 days past due is actually 330 days past dueF This incorrect aging impacts ability of MFI to collect money (the further the borrower in age ofoverdue, less likely to get it back). Also, it distorts provisioning, income and finally, sustainability53
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TermStatement of Profit and LossStr
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REFERENCESBarrel, Margaret, Michael
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