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

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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
Performance Standards - Concept, Definitions, Calculation and Methodological Issues5.2.3.5 How to calculate the ratio?1) Have clear and upfront definitions of active borrowers and credit officers2) Calculate the average number of active borrowers during the period (for instance, a year) – this should beavailable in the portfolio report or aggregated loan ledger or other reporting formats3) Calculate the average number of credit officers during the period (for instance, a year) - this should also beavailable in the portfolio report4) Divide the average number of active borrowers by the average number of credit officers to obtain the ratiovalueAs noted earlier, period averages are much more meaningful when they are computed on a monthly or at leasta quarterly basis. When using such sub-period averages, the numerator is the opening balance plus the sum ofthe balance at the end of each sub-period, while the denominator is the number of sub-periods plus one.As an example, a quarterly average would be calculated as:P avg = (Pº + P¹+P 2 +P 3 +P 4 )(4+1)The calculation of Active Borrowers Per Credit Officer from Portfolio Report is illustrated below:Step 1 – Use the formula given belowAverage Number of Active Borrowers____________________________________Average Number of Credit OfficersStep 2 - Take the Average Number of Active Borrowers for Year 2001 – it is 2,170 (Please refer to PortfolioReport, Table 13, Row P4, Column III for Average No. of Active Borrowers for Year 2001)Sl. Description 2001 2002 2003P4 Average Number of Active Borrowers (A) 2,170 2,870 3,350Numerator of FormulaStep 3 - Take the Average Number of Credit Officers for Year 2001 – it is 8 (Please refer to Table 13, Row P12,Column III for Average Number of Credit Officers for Year 2001)Sl. Description 2001 2002 2003P12 Average Number of Credit Officers (B) 8 12 12Denominator of FormulaStep 4 - Divide Average Number of Active Borrowers by Average Number of Credit Officers and as shownbelow, we get Active Borrowers Per Credit Officer as 271for year 2001Active Borrowers Per Credit Officer 2001 2002 2003Average Number of Active Borrowers (A) 2170 2870 3350Average Number of Credit Officers (B) 8 12 12Active Borrowers Per Credit Officer Value = A/B = 271 239 279Step 5 - Likewise, as given above, the average number of active borrowers per credit officer for Years 2002and 2003 are 239 and 279 respectively.97
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ACKNOWLEDGMENTSThe need of the oper
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