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

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