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

Performance Standards - Concept, Definitions, Calculation and Methodological IssuesF Also, the operating expenses of rural MFIs are much higher since their clients are more widely dispersed.Hence, rural programmes tend to have higher total cost ratiosF Standardisation of micro-finance operations should also help in a reduced total cost ratioF This ratio is also affected by unreported and/or hidden subsidiesF Organisations providing micro-credit as well as other services can allocate costs in such a way that theircredit operations look more efficient than they really areF When MFIs allocate costs to subsidiaries or do not carry them on the books at all, for instance whendonors meet certain costs, such as paying for consultants or health workers collect loans/savings – this ratiois affectedF Finally, because the cost of funds and loan loss provision are included, a decreasing ratio may not necessarilybe good (or positive) because the numerator can be decreased by accessing subsidized funds as well ashaving lower provisions than mandated by the portfolio quality5.2.2.5 How to calculate the ratio?1. From the income statement {refer Table 8 (a)}, sum all expenses related to micro-financing, including costof fund and loan loss provision. These typically would included:I. Operational Costs {refer Table 8 (a), IS 20)}a) Salaries and Benefits {refer Table 8 (a), IS 14)}b) Administrative Expenses {refer Table 8 (a), IS 15)}c) Occupancy Expenses {refer Table 8 (a), IS 16)}d) Travel {refer Table 8 (a), IS 17)}e) Depreciation {refer Table 8 (a), IS 18)}f) Other {refer Table 8 (a), IS 19)}II. Cost of Funds {refer Table 8 (a), IS 9)}III. Loan Loss Provisions {refer Table 8 (a), IS 11)}2. From the portfolio report (refer Table 13 - row P6), calculate the average outstanding portfolio during theperiod (for instance, a year) using the following procedure:a) Divide the period (year) into appropriate sub-periods – for example, a year could be dividedinto 12 sub-periods of a month each (see Table 14)b) Take the actual loans outstanding at the beginning of the period (say April 1 st , 2001)c) Add to this the sum of loans outstanding at the end of each sub-period (i.e., month)d) Then compute Average Loan Outstanding as followse) Average Loan Outstanding (During Period) = B + E1 + E2 +E3+ ... E 12133. Divide Total Costs during period by Avg. Loans Outstanding to get Total Cost Ratio93