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

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ACKNOWLEDGMENTSThe need of the operational manual to track financial performance of Microfinance Institutions (MFIs)was triggered during the field-testing of financial performance standards suggested by Sa-Dhan StandardsSub-Group. It was found that state of data management system and understanding of financial conceptsamong MFIs is rather poor and hence, objective of building large number of strong MFIs will not beachieved until and unless financial systems of MFIs are not in place. The issue was taken-up before theStandards Sub-Group, which suggested to develop an operational manual to facilitate Microfinance practitionersin adopting financial standards in their respective organisations.This first draft of the manual was prepared by Mr. Ramesh S. Arunachalam (Microfinance ConsultingGroup, Chennai) under a specific task assigned by Sa-Dhan. We wish to place on records our sincerethanks to him for compiling the manual. We would also like to acknowledge that many of the conceptualand operational definitions of financial terms and concepts in the manual were taken from several documentsof CGAP, SEEP Network and other publications that are mentioned at the end of this manual.The contributions of the Sa-Dhan Standards Sub-Group (headed by Mr. Udaia Kumar and equally supportedby key members – Mr. Sanjay Sinha, Prof. David Gibbons, Mr. R. K. Mukherjee and Mr. V.Satyamurti) are gratefully acknowledged for the strategic guidance provided by them during the course ofdevelopment of this manual.Our special thanks are due to all who had generously contributed their comments on the draft that helpedin further refinement of the manual. Among them, Mr. R. K. Mukherjee, and Mr. B. C. S. Baliga hadworked further on the manual to enrich its presentation by incorporating the comments received on thedraft version.We owe sincere gratitude to Mrs. Samyukta Rao, Mr. Bikram Duggal and Ms. Bindu Ananth at ICICIBank for providing their generous moral and financial support for the process of development ofMicrofinance standards in India and more specifically for the production of this manual.Last but not the least, a lot of appreciation to Sa-Dhan team – Mrs. Achla Savyasachi, Mr. L. T. Mate,Mr. Nilesh Arya, and Mr. Niraj Kumar who provided their valuable support in various forms in givingthe final shape to the manual.We encourage readers to share their comments and suggestions on any aspect of this manual.Mathew TitusExecutive DirectorSa-DhanAugust 2003II
PREFACEThe financial sector has been a pioneer in evolving good practices and standards. Microfinance has emergedas a sector in its own standing. In only a couple of decades, the microfinance sector has attracted internationalattention, largely driven by the uniqueness of its approach, focus and perhaps part-failure of othersectors to operate in consonance to the complex challenges of poverty.While the financial sector as a whole has financial practices and standards in place, the microfinance sectorwithin, remain an uncharted domain in this aspect. Sa-Dhan - The Association of Community DevelopmentFinance Institutions in India, found it justified to take the lead in taking up the challenge – of suggesting thebroadly accepted global standards, testing contextual applicability and suitability of the standards through alongitudinal process, and finally this operational manual as one significant contribution to professional developmentof the sector.This manual is intended for microfinance practitioners having some basic familiarity with accounting termsand financial statements. The primary objective of this document is to put forward recommended financialstandards, keeping in mind the professionals in the sector who may need introduction to the depth andimplications of standards.Finally, it is important to clarify upfront what the manual isn’t or doesn’t do. It isn’t intended to be a completehow to manual for appraising microfinance institutions. Further it doesn’t discuss financial adjustments fordistinct accounting practices, subsidies and inflation. To make it clear, this manual should not be used as asubstitute for a chart of accounts or accounting policies. It is also not intended to be a financial analysis guide,as analysts normally use additional financial indicators and information beyond what is contained in thismanual. There are many reference materials for MFIs and analysts, several of which are listed at the end of thismanual.The scope of the manual is therefore limited to Sa-Dhan recommended Financial Performance Standards forself-administration purpose for MFIs.Focus of the manual is to:1) Conceptually define the various generic financial performance constructs like asset quality, viability andsustainability, productivity, efficiency, and related aspects.2) Identify reliable and valid indicators for measuring these and to provide operational definitions for theseindicators.3) Document procedures by which these indicators could be calculated including records required, methodologicalaspects and the like.4) Provide illustrative calculations of these indicators using a hand book type approach, and5) To suggest a minimum set of performance standard for Sa-Dhan’s members and the Indian microfinancesector.Sa-Dhan believes that professional horizons are wide and a continuous process. This manual is the first attemptto broaden the objective to bring forth practitioner-led best practices and standards as the reference point forall concerned.III
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REFERENCESBarrel, Margaret, Michael
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