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

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Tracking Financial Performance Standards of Microfinance InstitutionsThe calculation of Total Cost Ratio from financial statements is illustrated below :Step 1 – Use the formula given belowOperating Costs + Cost of Funds + Loan Loss Provision__________________________________________________Average Loan Portfolio OutstandingStep 2 - Take the Operating Cost, Financial Expenses, and Loan loss Provision amountfor Year 2001 – it is 34,200=(21800+2,400+10,000) {refer Table 8 (a), IS 20, IS 09 & IS 11) for Year 2001}Sl. Description 2001 2002 2003IS 20 Total Operating Costs (A) 21,800 26,200 28,600IS 09 Total Financial Expenses (B) 2,400 7,000 7,400IS 11 Provision for loan Losses (C) 10,000 6,000 5,000TOTAL 34,200 39,200 41,000Numerator of FormulaStep 3 - Take the Average Loan Portfolio Outstanding for Year 2001 – it is 90,000 (refer to Portfolio Report –Table 13, row P6 for Year 2001)Sl. Description 2001 2002 2003P6 Average Loan Portfolio Outstanding (D) 90,000 122,000 150,000Denominator of FormulaStep 4 - Divide (Operating Cost + Cost of Funds + Loan loss provision) by Average Loan Portfolio Outstandingand as shown below, we get Total Cost Ratio as 38.00% for year 2001Total Cost Ratio 2001 2001 2002Operating Cost (A) + Cost of Funds (B) + Loan loss provision (C) 34,200 39,200 41,000Average Loan Portfolio Outstanding (D) 90,000 122,000 150,000Total Cost Ratio Value = (A+B+C) / D = 38.00% 32.13% 27.33%Step 5 - Likewise, as given above, Total Cost Ratio for Years 2002 and 2003 are 32.13% and 27.33% respectively.94
Performance Standards - Concept, Definitions, Calculation and Methodological IssuesProductivity Ratio1. By calculating and comparing productivity ratios over time, MFIs can determine whether they are indeedmaximizing (optimizing) the use of their resources2. Productivity refers to the volume of business (output) that is generated for a given resource (input) – e.g.20 field workers (input), managing 7,000 clients (output) that are generating income for MFI.3. These ratios focus on the productivity of the credit officers {see section 4.3 (12) for definition}, because,they are the primary generators of revenue. In fact, increasingly, credit officers are getting to be viewed asprofit centers (by MFIs), whereby they are expected to generate revenue in excess of all their expenses(direct and allocated to them).5.2.3 Active Borrowers Per Credit OfficerAverage Number of Active Borrowers_____________________________________________Average Number of Credit OfficersTrend – An increasing number of active borrowers {see section 4.3 (3) for definition} per Credit Officer ispositive. This again is based on the experience curve phenomenon according to which, with passage of time,the staff get more efficient at what they have been doing and therefore, will be able to do more of this workwithout (negatively) affecting quality.Standard Proposed by Sa-Dhan – Active borrowers/credit officer should be 250-350 Clients5.2.3.1 What does the ratio Active borrowers Per Credit Officer mean? - Simple DefinitionF Active borrowers per credit officer is a number (#) ratioF In simple terms, it highlights the “number of active clients serviced by a credit officer”F It measures the overall productivity of the MFI’s total human resources in managing clients who have anoutstanding loan balance and are thereby contributing to the financial revenue of MFI.F This indicator is valuable for monitoring staff productivity and for determining institutional operatingefficiency. The caseload is determined by the methodological aspects of the institution, with well-designedinstitutions capable of reaching higher numbers of borrowers per loan officer.5.2.3.2 What does it measure?F It captures the productivity of staff – the higher the ratio the more productive the institution.F Indirectly, the ratio says a fair amount about how well the MFI has adapted its processes and procedures toits business purpose of lending to micro-finance clientsF Low staff productivity usually does not mean that staff work less, but that they are tied up in excessive andtime-consuming paperwork and procedures (like filling-up of SHG records etc)F The no. of active borrowers per credit officer varies depending on the method of credit delivery andwhether or not loans are made to individuals, to individuals as group members, or to groupsF For each MFI there is an optimal no. of clients that each credit officer can manage effectivelyF While salary costs may appear lower when credit officers carry a large no. of clients, too many clients mayresult in higher loan losses, which can be more than offsetting lower administrative costs.95
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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 Standards of ... - Sa-Dhan

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