> Posted by Anita Gardeva
Measuring the financial performance of MFIs is like taking an MFI’s pulse—and for that we need the right instruments.
As the microfinance industry grows and moves beyond credit, it is time to upgrade our methods of measuring financial performance in a way that captures the modern realities of microfinance. The Financial Services Working Group at SEEP recently updated the financial performance standards in its 2005 SEEP Framework to reflect those realities, and is now seeking feedback from the industry.
The Microfinance Reporting Standards Initiative is calling on all industry stakeholders to join the ongoing conversation and help shape a set of high-quality financial performance standards that can be used by the industry to share information and improve decision-making. The deadline for feedback is July 18th.
The Financial Services Working Group has added many new ratios in response to the changes and challenges faced by the industry in the past few years. For example, new ratios for better assessment of non-performing loans and loan loss rates help to improve assessment of asset quality at a time when many hope that asset quality can serve as an effective indicator of over-lending. A newly added set of deposit ratios reflects the savings movement that the industry is currently pushing.
The new performance standards are more commercial as well. The language, the formulas, and the elimination of the financial sustainability ratios (in favor of ROA and ROE), all reflect the commercialization of microfinance. To what extent are these new standards more appropriate? A third important change in the proposed standards is the overall inclination for more conservative and prudent approach to financial reporting. The working group hopes to hear your thoughts on exactly these matters.
There are two ways you can join this initiative:
- Join the industry-wide conversation at KDID.org to read what others are saying and share your opinion (a quick registration is required).
- You can find downloadable versions of the draft and appendices on www.reportingstandards.org:
- Please save your comments using Microsoft Word’s track changes feature and email your thoughts to email@example.com.
- Drafts are also available in Spanish, French and Russian.
The new financial performance reporting standards can strengthen the microfinance industry, and the more we work together to construct them, the better they will be.