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

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Tracking Financial Performance Standards of Microfinance Institutions5.1.2 Current Repayment RateTotal Amount Received during period – Prepayments= _________________________________________________ x 100Total Amount Due 11 (to be collected during period)Trend – An increasing Current Repayment Rate is positiveStandard Proposed by Sa-Dhan – Current Repayment Rate should exceed 90%5.1.2.1 What does it measure?F Current period repayment rate helps in understanding the behaviour of clients and performance of theinstitution in the on-going period.F This can be especially useful when the institution has several years of micro-finance experience and a largeoverall disbursement, which can usually camouflage ‘poor’ performance in the current period.F In other words, an excellent repayment track record in the past can shroud current poor repayment performance,especially if the volume of money lent in the current period is quite small in comparison to that lentcumulatively. Having the current period repayment rate is useful in such cases.5.1.2.2 What minimum records are required for calculating the Current Repayment Rate?F Loan ledger with disbursement, schedule and repayment data on each individual loan backed-up a comprehensivecredit policy outlining various terms and conditionsF Aggregation of the loan ledger data with regard to delinquent and current loans – either a simple ageingtable or comprehensive portfolio reportF Key financial statements like the Balance Sheet and Income Statement, appropriately constructed5.1.2.3 How to calculate the Current Repayment Rate?F Create a loan repayment schedule, identify whether the loan is delinquent and age the loan in days withregard to past dues (refer Table 9)F Aggregate loan repayments schedules for all loans and summarise these in the form of a simple table (referTable 12)F Define the current period for calculating the repayment ratesF Sum the total principal amount paid so far by clients in current period (see table 12, last row, col. IX).F Sum the prepayments, if any made by them so far. Prepayment would have occurred if the total amountpaid by the client exceeds the amount due from the client (see table 12, last row, col. XI).F Sum the total amounts due from the client till date in the current period - today or date of aggregation etc(see table 12, last row, col. VI).F Then do the following calculation to get the Current Repayment Rate11Some MFIs include past dues from previous period to track past due payments that were to be collected84
Performance Standards - Concept, Definitions, Calculation and Methodological IssuesTotal amounts paid so far by Clients in Current Period – Prepayments x 100%Total amounts due* from Clients till date in Current Period* - Some MFIs include past dues that need to be collected from a previous periodGiven the data in the Table 12, let’s calculate the current repayment rate as per the method suggested1. Total principal amount paid so far by clients (Table 12 – last row, col. IX) = Rs. 387,7002. Prepayment amount as on the date of calculation (Table 12 – last row, col. XI) = Rs. 7,5003. Total amounts due till date from client in current period (Table 12 – last row, col. VI) = Rs. 381,500Now, as per the suggested method of calculation:(1) – (2) =387,700 – 7,500 =380,200(2) 381,500 381,500= 99.66%5.1.2.4 What aspects affect Current Repayment Rate?F The sequence of allocating client repayments – interest first versus principal first – has an impact onrepayment rates. It is suggested that client repayments should be allocated in the following sequence - firstto interest overdue, then to interest due, then to principal overdue and finally to principal dueF When aggregating repayments from various clients, prepayments of some clients could smoothen the nonrepaymentby other clients. Hence, prepayments should always be subtracted while calculating repaymentsratesF Current period needs to be defined precisely and consistency maintained with regard to this5.1.2.5 What is the utility of Current Repayment Rate?F Monitoring current period delinquency. Can be extremely useful in doing the above if the MFI has been inoperation for a long period of timeF Current period repayment rate provides a reflection of “how much” of the amount due in the currentperiod is being paid by the clients.F It provides an insight regarding what proportion of the amount due in current period is still overdue.F In other words, it is a surrogate measure of the effectiveness of the programme in the current period. It iscrucial to have current period repayment rates especially when an MFI has been operating for a largenumber of years.F In such cases, the cumulative repayment rates, based on a large volume of loans disbursed, will offer littleinsight into immediate/programme performance.F For example, it is quite possible that a programme, which has done very well for over 10 years, couldsuddenly be performing poorly.F When cumulative disbursements are large, it would be almost impossible to find this out. Current periodrepayment rate is required for this.85
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TECHNICAL TOOL SERIES 1TRACKING FIN
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INTRODUCTION TOMICROFINANCE STANDAR
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5. PERFORMANCE STANDARDS - CONCEPT,
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ACKNOWLEDGMENTSThe need of the oper
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Tracking Financial Performance Stan
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TermStatement of Profit and LossStr
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REFERENCESBarrel, Margaret, Michael
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