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

Tracking Financial Performance Standards of Microfinance Institutions5.2.3.3 What minimum records are required for calculating the ratio?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 constructedF Staffing details including portfolio and other data disaggregated by credit officers5.2.3.4 What strategic issues affect (distort) the ratio?F Defining a credit officer is very crucial - A credit officer is a full-time employee whom the MFI acknowledgesas such and it is normally understood that the person works at least for 8 hours a day and minimum of 5days a week.F Given the various methodological and other problems associated with productivity ratios, using averageamounts (both in the numerator and denominator) is preferable.F The distinction of active borrowers is also important to avoid possible confusion with (1) number of activeloans, when a single loan goes to a group of individuals, and (2) cumulative loans disbursed during theperiod as opposed to “active “ borrowers who currently have outstanding loans.F For the purpose of this manual, it is assumed that each loan reported is held by one borrower. Where thatis not the case, borrowers would have to be counted separately.F When comparing this ratio with other MFIs (or between different branches or different lending productswith in the same MFI), it is also necessary to take into account the average loan term because this greatlyaffects the number of borrowers a credit officer need not spend as much time processing renewals as shewould if the loan terms were shorter. If this is the case, a credit officer should in theory be able to carrymore active borrowers than a credit officer working with shorter loan terms (assuming all other factors arethe same).F Some MFIs lend only to groups (SHGs) and here the conceptual decision of whether, the group should betreated as the borrower or if the members of the group should be so considered, is a difficult choice. Ineither case, there are advantages and disadvantages but the key issue is that it would be fair and appropriateto discern and determine the correct level of analysis with regard to who should be taken as the borrower.This aspect gets particularly complicated as illustrated by the following example - consider that an MFIlends to a group with 23 members but loans are in turn taken only by 7 members. For the purpose ofcomputing this ratio, should we say that this loan was given to a group of 23 members or it was distributedamong 7 members. It is a tough situation and arguments can be made for both cases. Therefore, it isimperative that when comparisons are made across MFIs with different methodologies, this aspect of theunit of analysis (in terms of who is the borrower) must be conceptually clarified upfront.F A key aspect for this and other productivity ratios is that while credit officers could indeed be efficient,there could be a whole lot of other staff contributing to inefficiency. Hence, all measures that use creditofficers in the denominator should be interpreted with caution96