Microfinance Consensus Guidelines

1
Microfinance Consensus Guidelines

• Definitions of Selected Financial Terms, Ratios,
  and Adjustments
• Till Bruett The SEEP Network

2
What it is and what it is not

• It is
• A SELECT list of financial terms and ratios used
  by MFIs
• A discussion of financial adjustments

• It is not
• A recommend reporting template
• A financial analysis guide

3
Purpose

• Promote more transparency in financial reporting
• A recommend list of standard definitions and
  standard method for calculating certain ratios
• A step to create a lingua franca as a reference
  point for MFI

4
Highlighted Terms

• Loan loss provision expense a non cash expense
  that is used to create of increase the loan loss
  allowance on the balance sheet.

• Loan loss allowance the portion of the gross
  loan portfolio that has been expenses in
  anticipation of losses due to default.

5
Highlighted Terms

• Personnel expense all staff salaries, bonuses
  and benefits, as well as employment taxes
  incurred by the MFI.
• Administrative expense non-financial expenses
  directly related to the provision of financial
  services or other services

• Operating Expense includes personnel and
  administrative expenses, but excludes financial
  expense and loan loss provisions expense

6
Highlighted Terms

• Number of active depositors (or savers) the
  total number of clients who currently have funds
  on deposit which the MFI is liable to repay.

• Number of savers facilitated the total number
  of individuals with savings accounts in other
  institutions that an MFI has facilitated, but it
  is itself not liable to repay.

7
Highlighted Definitions

• Number of active clients number of individuals
  who are active borrowers, depositors or both.
• Number of clients number of active clients plus
  the number of individuals who or not active, but
  remain members.

• Number of loan officers number of personnel
  whose main activity is to directly manage a
  portion of the gross loan portfolio and who is
  directly responsible for arranging and monitoring
  client loans. The number of loan officers is
  reported on a full time equivalent basis (FTE).

8
SEEP FSWG Concerns

• Document is not user friendly
• MFIs are looking for an update template for
  reporting
• Not all key terms are addressed
• No methods for calculating adjustments

9
Next Step

• SEEP will Develop a Guide for Standard Financial
  Terms, Indicators, and AdjustmentsThe guide will
  consist of four sections and an two annexes,
  including
• Definitions of financial terms
• Definitions and formulas for indicators
• Definitions, methods and formulas for adjustments
• Financial reporting templates
• Sample financial reports with indicator and
  adjustment calculations

10
Future Steps

• Trainers Guide. SEEP will develop a Trainers
  Manual and course materials for the Guide. The
  trainers manual and course materials will be the
  basis of the training curriculum.
• Training of Trainers. SEEP will test the
  training courses in different countries and
  different languages using its connection with the
  microfinance centers and local networks.

• Create and administer a standards committee.
  SEEP would act as secretary for a standards
  committee which would consist of practitioners,
  rating agencies, and donors. The committee would
  convene annually and would be available for
  consultation on an as-needed basis.