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Benchmarking Microfinance in the Philippines

Benchmarking Microfinance in the Philippines. Matt Graham Analyst Microfinance Information eXchange (MIX). Goals for understanding. Benchmarking basics MBB and Benchmarking in microfinance Ratios, adjustments and indicators Ratio analysis for performance monitoring. Benchmarking.

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Benchmarking Microfinance in the Philippines

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  1. Benchmarking Microfinance in the Philippines Matt Graham Analyst Microfinance Information eXchange (MIX)

  2. Goals for understanding • Benchmarking basics • MBB and Benchmarking in microfinance • Ratios, adjustments and indicators • Ratio analysis for performance monitoring MABS

  3. Benchmarking The basics

  4. Why Benchmarks? Let’s warm-up with … performance analysis without benchmarks MABS

  5. Scenario 1: Basic Information • MFI 1 • Financial Self-Sufficiency: 98% • Operating Expense/ Loan Portfolio Ratio: 40% • Borrowers/ Staff Member: 150 • MFI 2 • Financial Self-Sufficiency: 220% • Operating Expense/ Loan Portfolio Ratio: 25% • Borrowers/ Staff Member: 150 • MFI 3 • Financial Self-Sufficiency: 70% • Operating Expense/ Loan Portfolio Ratio: 40% • Borrowers/ Staff Member: 300 MABS

  6. MFI 1 FSS: 98% OE/LP Ratio: 40% Borrowers/Staff: 150 MFI 2 FSS: 220% OE/LP Ratio: 25% Borrowers/Staff : 150 MFI 3 FSS: 70% OE/LP Ratio: 40% Borrowers/Staff : 300 and… MFI 1 Financial intermediary MFI2 Urban clients High-end clients Concentrated market MFI3 Rural clients Low-end of the market Scenario 2: Contextual Background MABS

  7. Scenario 3: Benchmarks MABS

  8. How? Data Comparable data Comparablegroups Benchmarks MABS

  9. How? Data Comparable data Comparablegroups Benchmarks MABS

  10. How? Data Comparable data Comparablegroups Benchmarks MABS

  11. For Whom and Why? • MFI managers and board members • Stakeholders and Investors • Regulators-BSP/PDIC • Networks • Raters MABS

  12. MicroBanking Bulletin Premier Source of Industry Benchmarks

  13. MicroBanking Standards Project Bulletin no. 1, 1997 MIX June 2002 History … Fill important market information gap MABS

  14. Outputs • Collect, standardize, adjust MFI information • Report on industry benchmarks • Produce microfinance performance analysis • Industry – MicroBanking Bulletin • MFIs and networks – Customized Performance Reports • Train and equip networks / regulators for performance monitoring • Lead industry standardization efforts MABS

  15. The MicroBanking Bulletin • Semi-annual publication • Contents • Industry benchmarks • Topical industry analysis / articles • Themes • Productivity • Transparency • Standardization • Savings MABS

  16. 1997 … 28 MFIs Latin America and Asia NGOs Mature 2003 … 124 MFIs Asia/ Africa/ LA/ CEE & NIS/ Arab States CUs/ Banks/ NBFIs/ NGOs All ages Global MFI Coverage MABS

  17. 1997 … 6 MFIs 3 Countries Mature 2003 … 21 MFIs 6 Countries New, Young, Mature … more relevant benchmarks! … and in Asia MABS

  18. Ratios, Adjustments and Indicators The behind-the-scenes story

  19. Ratio Basics • Single indicator • Comparison between information • Need • 2 different pieces of information • A useful relationship MABS

  20. 2 different pieces of information A useful relationship 2001 Net operating income: 10,000 2002 Net operating income: 15,000 Growth? Rapid growth? Increase in pricing? Decrease in costs? Unsound Ratios: Data MABS

  21. 2 different pieces of information A useful relationship 2002 Net operating income: 10,000 2002 Average fixed assets: 30,000 What role for fixed assets in income generation? Does income depend on infrastructure? Does increasing infrastructure increase income? Unsound Ratios: Relationship MABS

  22. 2 different pieces of information A useful relationship 2002 Net operating income: 10,000 2002 Average assets: 300,000 ROA: 3.3% Compares Income to the total asset base that generates it Describes asset base performance Sound Ratios MABS

  23. Adjustments • Inflation • Loan Loss provisioning • Cost-of-funds • In-kind donations MABS

  24. Outreach Sustainability / Profitability Efficiency Productivity Risk and Liquidity Indicators MABS

  25. Outreach Questions? How many are served? Who are they? Indicators # of clients Avg Loan Balance / GNP per capita … under construction … Indicators MABS

  26. Sustainability / Profitability Questions? Will it continue operations? Can it generate income? Indicators OSS / FSS AROA / AROE Indicators MABS

  27. Efficiency Questions? How costly are operations? How much does it cost to deliver a product? Indicators Operating efficiency Cost per borrower Indicators MABS

  28. Productivity Questions? How productive are resources? Indicators Personnel productivity Indicators MABS

  29. Risk and Liquidity Questions? What is portfolio quality? How well are assets & liabilities managed? Indicators Portfolio at Risk Non-earning assets Current Ratio Indicators MABS

  30. Ratio analysis What does it all mean?

  31. Understanding Performance • Using ratios for • Interpreting performance • Identifying and analyzing underlying factors MABS

  32. Basic Analysis Flowchart Operating Revenue AROA Finance Exp. Adjust. Exp. Total Expense LLPE Personnel Admin. Exp. MABS

  33. Analyzing Drivers Operating Revenue AROA Finance Exp. Adjust. Exp. Total Expense LLPE Personnel Admin. Exp. MABS

  34. Income / Expense Structure MABS

  35. Analyzing Expense Factors Operating Revenue AROA Finance Exp. Adjust. Exp. Total Expense LLPE Personnel Admin. Exp. MABS

  36. Expense Factor Analysis MABS

  37. Applying the Method • Standardized data • Relevant peer groups • Indicator analysis … let’s apply the method to a MABS PB and MicroBanking Bulletin data! MABS

  38. Institutional Characteristics and Outreach MABS

  39. Financial Performance MABS

  40. Income and Expense MABS

  41. Income and Expense MABS

  42. Income and Expense MABS

  43. Efficiency / Productivity / Portfolio MABS

  44. Thank You PMB resources: MIX Market: www.mixmarket.org MBB: www.mixmbb.org Matt Graham mgraham@themix.org MABS

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