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

2

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.

3

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

4

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

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download