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Performance Indicators for Microfinance Institutions – Technical Guide

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This paper notes that recent years have seen a growing push for transparency in microfinance. An important aspect of this trend has been the increasing use of financial and institutional indicators to measure the risk and performance of microfinance institutions (MFIs). The paper also points out, however, that it is hard to achieve transparency if there is no agreement on how indicators measuring financial condition, risk and performance should be named and calculated.

The authors state that the purpose of this technical guide is relatively narrow. It highlights 14 of the most commonly used indicators and illustrates how they are used. It also aims to provide some explanation and analysis of the indicators as well as weaknesses. For each indicator the guide presents the proposed definition, interprets its meaning, identifies potential pitfalls in its use, and provides benchmark values for 32 Latin American microfinance institutions compiled by MicroRate.

The authors also note that the guide isn’t intended to be a complete “how-to” manual for appraising microfinance institutions. They note further, that it doesn’t discuss financial adjustments, which are needed when comparing institutions with very distinct accounting practices.

The indicators presented in the guide fall into four main categories:

  • portfolio quality
  • efficiency and productivity
  • financial management
  • profitability

The guide also provides an annex where the indicators are calculated through.

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