Regulatory Alerts2007-06-26 | OFID-05-2007Returns Format for Microfinance Banks
1. PAR ratio: This is the most widely accepted measure of portfolio quality in the microfinance industry. It represents the percentage of an MFI's loans that have at least one installment past due by a certain number of days. When referring to PAR, it is essential to specify the number of days. Some MFIs include restructured loans in their calculation, reflecting the belief that restructured loans carry higher risk than current loans. 2. Write-off ratio: This represents the percentage of an MFI's loans that have been removed from the balance of the gross loan portfolio because they are unlikely to be repaid. A high ratio may indicate a problem in the MFI's collection efforts. However, write-off policies vary, which makes comparisons among MFIs difficult. Adjustments to the write-off ratio may increase or decrease the value of loans written off by removing or adding back delinquent loans to the gross loan portfolio according to an international or national standard for writing off loans. 3. Risk coverage ratio: This efficiency indicator reflects how efficiently an MFI is using its resources, particularly its assets and personnel. It can be calculated in two different ways: Loan Officer Productivity and Overall Personnel Productivity. The latter considers the overall productivity of all MFI human resources in managing clients who have an outstanding loan balance. 4. Average disbursed loan size and average outstanding loan size: These ratios measure the average loan size that is disbursed to clients and the average outstanding loan balance by client, respectively. The total number of loans should be carefully distinguished from the gross loan portfolio when calculating these indicators. 5. Operating expense ratio and cost per borrower/client: These are the most commonly used efficiency indicators for MFIs. They provide a meaningful measure of efficiency by determining the average cost of maintaining an active borrower or client. It is also useful to compare these indicators to GDP per capita to assess an MFI's efficiency in the local context. Because they count clients rather than amounts, these indicators do not prejudice MFIs which offer smaller loans and savings accounts. 6. Average gross loss portfolio: This is a measure of risk management in microfinance institutions. It represents the average gross loan portfolio for a given period.