Comments on: How to assess the real strength of a microfinance institution?

By: Microfinance Focus

Microfinance Focus — Wed, 07 Oct 2009 03:30:22 +0000

With our feet in the investor pool at the moment we are finding access to capital quite challenging; the times of the last fews years where funds flowed freely to ‘non profit’ based MFI’s – I see that efficiency based models are becoming more important to the funding pool. So we have a double edged sword to appease, social based lending with commercial returns. This cannot be achieved unless management and policy are set, management remain dynamic to changes, products are aligned to deliver market needs. We align ourselves towards banks and the KPI that are manifested in the formal financial service industry; this is where all MFi should be or aspiring to be. Access to capital will continue to be hard to come by, soft or grant based lending is almost dead following GC08 (Global Crisis 2008)

Kenneth A (Ken) Corsar
New Business Development and Product Specialist at Select Advisors Limited

By: Microfinance Focus

Microfinance Focus — Wed, 07 Oct 2009 03:28:46 +0000

First of all that is an excellent blog by David, that there is life beyond just ratios in assessing the strength and viability of MFI’s.

I think the real question posed ought to be how closely aligned are MFI’s to their mission of serving the “unserved”, “underserved” or “unbanked”.

Given that most operate as non-profits, yet in a good number of instances they have strayed towards seemingly greener pastures of higher loans amts whether those be consumer or SME type loans to seek profitability.

This is the Achilles heel for the MFI’s. At lower loan amts one has to have scale, and unless one has scale, i.e.in terms of number of active customers, it is very difficult to turn a profit, and this in turn affects their ability to attract investments from the investment community.

A number of MFI’s (with active accounts in the range of 2K to 20K) are confronted with these realities, and in some instances this is the result of being badly managed, however in other instances this occurs despite having good management.

And to what Ken says, I agree on one hand but would argue that strict focus on profitability ought not to be the sole marker but to use other markers such as cost per loan acct, cost per unit of money lent, % of fixed cost to variable cost, PAR, customer churn, staff churn, etc … Not being a financial maven I will leave it to David MacDougall and others to come up with KPI’s that make sense.

My point being that donors and social investors can help MFI’s by setting KPI’s to measure their operational, financial and risk management excellence.
Just this past Friday, Sept 25th, The Rockefeller Foundation committed funds at the Clinton Global Initiatives forum for the creation of just such a standard/framework.

Jiten Patel
Technology & Program Management Executive with excellent global experience

By: Microfinance Focus

Microfinance Focus — Wed, 07 Oct 2009 03:27:31 +0000

From inception MFI needs to be adequately capitalised to achieve not only the minimum required legislative capital (if applicable) but to support its first 12 – 18 months growth strategy. Is there any indication that long term financial self sustainability will be achieved, this is to raise capital through local markets and not be reliant on possible ’soft funding / technical grants etc.
What is in the strategic plan to diversify product range beyond the first 2-3 years of operations. Is credit extension the only product in place or in the pipeline.
Secondly review of annual financial statements from inception should reflect that profitability is reached within 18 to 24 months – if not why invest? Management team plays a vital role in the strength of the business; This strength is reflected through policies and procedure manuals in place; portfolio at risk measurement; knowledge as a team of the indigenous and local capital markets. How well does management manage cost to income ratio, is there scale of economy reflected as portfolio grows over time.
Then the operating platform (is it scalable to growth and development: i.e. not Excel of some other briefcase type software).

Kenneth A (Ken) Corsar
New Business Development and Product Specialist at Select Advisors Limited

By: Ashley Alfred

Ashley Alfred — Thu, 10 Sep 2009 08:09:23 +0000

A broad array of aid agencies and philanthropic investors are ready to help institutions that can make a difference in under-privileged communities. Such institutions often find access to technical assistance and below-market rate funding. The leaders have to train staff to the peculiar business of microfinance and reach out to clients who may have only the most limited understanding of managing their finances.

By: Cristian Shoemaker

Cristian Shoemaker — Sun, 23 Aug 2009 21:36:15 +0000

In addition to mission drift, damage is being done to relatively healthy microfinance institutions by inexperienced or unrealistic stakeholders (including board members and management) in hasty pursuit of their own ’success’, typically quantified using industry standard measures. Understanding how to create and sustain conditions for lasting success, while maintaining commitment to mission as Mr. MacDougall has insightfully noted, are fundamentals worthy of remembrance as MFI’s define their goals and seek their realization. Thank you.