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Microfinance-Performance Assessment

Microfinance-Performance Assessment. J. Yaron jyaron@colman.ac.il May 2009. Primary performance Criteria. Two Primary Goals- A) equity and B) efficiency – the reasons for intervention (subsidy) Any “social objective ” is (should be) included in at least one of the two goals above

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Microfinance-Performance Assessment

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  1. Microfinance-Performance Assessment J. Yaron jyaron@colman.ac.il May 2009

  2. Primary performance Criteria • Two Primary Goals- A) equity and B) efficiency – the reasons for intervention (subsidy) • Any “social objective” is (should be) included in at least one of the two goals above • Two primary performance assessment criteria a) outreach to target clientele and b) self- sustainability

  3. Outreach to target clientele • A real difference between the 2 primary assessment criteria • Outreach is an arbitrary index (the authority that supports it decides on the weights of each component of outreach) • (e.g. lending to very poor is more important than lending to just poor, lending to women is more important than lending to men)

  4. Outreach • Outreach is the product-the output of the resources allocated to the MFI • Typical key performance indicators are, volume of lending, average size of loan as a % of the poverty line, percentage of loans granted to women, annual rate of growth of loan portfolio, savings services • Lending to women is an important objective in Bangladesh but not in West Africa

  5. Self- sustainability • Sustainability and self sustainability-what’s the difference? • Sustainability- the probability that the MFI would continue to operate • Self- Sustainability measures the level of subsidy (implicit and explicit) the MFI benefits from against its interest income • Self- sustainability is the cost to society of MFI that is subsidized- It is a composite index

  6. Self-Sustainability • Typical subsidies • Low interest borrowing of the MFI • Sharing loan losses by the State or donors • Exemption from reserve requirements that other financial institutions shoulder • Free or subsidized training, computer use and the like • Capital (equity) of MFI that yields less than its opportunity cost

  7. Self-Sustainability -SDI • SDI – subsidy Dependence Index • Stage 1 of SDI computation: • Value of annual subsidies/average annual loan portfolio • The above ratio indicates how many cents of subsidy were granted per average annual $ of loan portfolio that served the target clientele (stock not flow)

  8. Self sustainability- SDI • Stage 2 • Value of annual subsidy / interest earned + fees paid by borrowers from the MFI • Uses: • Grant element compared to payments for service by borrower • Indication how much lending rate have to be raised to achieve self sustainability (sensitivity analysis)

  9. Self sustainability _SDI • SDI stage 1= S/OLP • SDI Stage 2= S/ OLP*I • S= Annual subsidies • OLP= Average annual outstanding loan portfolio • I = Average annual interest and fees earned on outstanding loan portfolio

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