Technical Guide May 2014 - MicroRate
Technical Guide
Performance and Social Indicators for Microfinance Institutions
MicroRate appreciates ADA's technical and financial contribution in producing the Technical Guide: Performance and Social Indicators for Microfinance Institutions.
About ADA Over the past 20 years, ADA has been dedicated to building and catalysing the financial inclusion of populations excluded from conventional banking channels in developing countries. We empower microfinance institutions and networks. Through the Luxembourg Microfinance and Development Fund, we also help them obtain the funding necessary for their sustainable growth. We focus on the development of innovative inclusive financial services, on capacity building and on action research. We put our expertise to use in areas including youth financial inclusion, access to green energy through microfinance, microinsurance, and reinvested savings through remittances for migrants. We also put our know-how forward to individual States and collaborate with them to support their inclusive finance expansion strategies. ADA has been dedicated to the issue of transparency and the promotion of financial and social performance management practices and standards for more than 10 years. We bring first-hand support to initiatives such as Microfact 3.6, a tool which enables the direct implementation of such standards. ada-
About MicroRate MicroRate is the first microfinance rating agency dedicated to evaluating performance and risk in microfinance institutions (MFIs) and microfinance funds, also known as microfinance investment vehicles (MIVs). As the oldest and most well-respected organization of its kind, MicroRate has conducted over 750 ratings of MFIs throughout Latin America, Africa, Europe, and Central Asia. MicroRate is a leading social rater and has also become the largest MIV evaluator in the industry. This publication was prepared by MicroRate using MIX Market data. This publication can be downloaded electronically from the MicroRate website (). Any comments regarding the Technical Guide may be sent to MicroRate (info@). MicroRate would like to thank all the contributors who made this industry research report possible:
Sebastian von Stauffenberg, Damian von Stauffenberg, Maritza Rodriguez, Rebecca Spradlin, and Antonio Bryant
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Technical Guide: Performance and Social Indicators for Microfinance Institutions
Copyright ? 2014 MicroRate Incorporated ("MicroRate"). All rights reserved. This report may be reproduced provided that credit is given to "MicroRate Incorporated." Disclaimer: Please note this report was compiled primarily on the basis of self-reported data. This research is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given. The views and interpretations expressed in this report are those of MicroRate, and do not necessarily represent the views of any of those involved with this report.
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Table of Contents Foreword ......................................................................................................................... 6
The Methodology: Putting the Indicators into Context ..............................................7
Portfolio Quality .............................................................................................................8
Portfolio
at
Risk
Ratio.
.................................................................................................................................................
1 0
Write--Off
Ratio
...............................................................................................................................................................
1 4
Impairment
Expense
Ratio.
.......................................................................................................................................
1 6
Risk
Coverage
Ratio.
.....................................................................................................................................................
1 8
Efficiency & Productivity .............................................................................................20
Operating
Expense
Ratio.
...........................................................................................................................................
2 2
Cost
per
Borrower
Ratio
............................................................................................................................................
2 4
Personnel
Productivity
Ratio
. ..................................................................................................................................
2 6
Loan
Officer
Productivity
Ratio.
..............................................................................................................................
2 8
Financial Management ..............................................................................................30
Financial
Expense
Ratio.
.............................................................................................................................................
3 2
Cost
of
Funds
Ratio
. ......................................................................................................................................................
3 4
Debt
to
Equity
Ratio
. ....................................................................................................................................................
3 6
Profitability ....................................................................................................................38
Return
on
Equity.
...........................................................................................................................................................
4 0
Return
on
Assets
. ...........................................................................................................................................................
4 2
Portfolio
Yield
. ................................................................................................................................................................
4 4
Social Performance.....................................................................................................46
National
Loan
Size
Ratio.
............................................................................................................................................
4 8
Borrower
Retention
Ratio
. ........................................................................................................................................
5 0
Staff
Retention
Ratio
. ...................................................................................................................................................
5 2
Social
Efficiency
Index.
................................................................................................................................................
5 4
Appendix I: Peer Group and Data Sources ..............................................................56
Appendix II: Calculating the Ratios...........................................................................57
Appendix III: Median Ratios .......................................................................................63
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Technical Guide: Performance and Social Indicators for Microfinance Institutions
Acronyms and Definitions
APR Annual percentage rate EIR Effective interest rate GDP Gross domestic product GYEA Gross yield on earning assets MFI Microfinance institution MIR Microfinance Institutional Rating MIS Management information system MIV Microfinance investment vehicle MIX Microfinance Information eXchange (also referred to as the MixMarket) NGO Non-governmental organization NIM Net interest margin NLR National loan size ratio NPL Non-performing loan ratio PAR Portfolio at risk (typical over 30 days, if given as a dollar amount this is the loan balance of the
portion of the portfolio that is over 30 days in arrear, if given as a percentage it represents the loan balance of the portfolio that is over 30 days in arrears divided by the total loan portfolio) RFP Rate paid on funds ROA Return on assets ROE Return on equity SPTF Social Performance Task Force USSPM Universal Standards of Social Performance Management, published by the SPTF
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