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Sanabel Fourth Annual Conference

Serving the Poor:

“10 Million Clients by 2010”

Financial Decision Making for Managers

Measuring Performance of Microfinance Institutions:

A Framework for Reporting, Analysis and Monitoring

Mohammed Khaled, MicroserveSteve Wardle, Grameen Foundation

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Financial Decision Making for Managers

Managers need to:Know what to measure, ensure accuracy of those

measures, set optimal standards for performance, and monitor performance.

Practically speaking this means:• Categorize data into statements and reports• Analyze the statements and reports• Use the information for monitoring purposes

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

SEEP Performance Monitoring Framework What is it?

Industry Consensus Standards for:• Standard Financial Statements and Reports• Analytical Adjustments• Financial Ratios and Indicators• Performance Monitoring Reports

Framework for Reporting, Analysis, Monitoring &

Evaluation

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

SEEP Performance Monitoring Framework What is it?

Framework for Reporting, Analysis, Monitoring &

Evaluation

Commonly referred to as the SEEP FRAME:

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Chronology of Standardization

• 1995: SEEP produced an earlier work—Microfinance Consensus Guidelines: Definitions of Selected Financial Terms, Ratios, and Adjustments for Microfinance (the Blue Book).

• 2003: CGAP published- Microfinance Consensus Guidelines: Definitions of Selected Financial Terms, Ratios and Adjustments.

• 2005: Measuring Performance of Microfinance Institutions: A Framework for Reporting, Analysis and Monitoring

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Industry Consensus

This Framework is based on the work performed by a roundtable of donors, rating agencies, and The SEEP

Network.

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

SEEP FRAME: What is New?

• Industry consensus

• A comprehensive Framework for Reporting, Analysis and Monitoring

• It takes into consideration the latest developments in the Industry.

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Industry Adoption

• Retail Level (MFIs)– Adopting Financial Statement Formats– Utilizing FRAME Tool for Financial Management

• Meso Level– Networks have adopted the FRAME Tool for partner

reporting (GF, GJPAM, Global Partnerships, etc.)– MIS Developers Adapting Reports

• Macro Level– CGAP is Revising their Financial Analysis Course – The MIX is fully FRAME Compliant

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

A Full Package

1. The Framework: Manual

2. The Tool: Excel Workbook

3. User’s Manual (for the Tool)

(Each of the above are available in

Arabic1, French1 & English)

4. A Training Course on how to use the tool and the framework

(currently available in Arabic1 & English)

1 Translation provided by Grameen-Jameel Pan-Arab Microfinance, Ltd.

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

What is the FRAME Tool?

• A sophisticated Excel Workbook that allows you to input up to three years of financial data and then generate a variety of performance indicators and financial and management reports.

• The FRAME Tool is not an accounting system. It is a tool for you to use to analyze the information generated by your accounting system.

• Once you have learned FRAME, you can input your financial data for each reporting period into the FRAME tool in just a short amount of time, typically less than an hour. FRAME then provides a broad array of analytical tools and reports that are ready to print out for distribution.

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

External Communication: • Conforms to International Financial Reporting Standards (IFRS) • MFIs, Networks, Donors and Investors all “speak the same language”

Internal Reporting, Performance Monitoring and Decision Making:• Creates Unadjusted and Adjusted Financial Statements in up to 3 currencies• Analytical Adjustments allow an MFI to:

– Analyze “true performance” considering inflation and subsidy – Benchmark against other MFIs

• Automatic calculation of 18 standard financial ratios (+ 11 adjusted) and up to 25 additional ratios as defined by the user.

• Automatic generation customizable financial performance monitoring reports for internal and external reporting.

• Analyzes variance against MFI business plan / projections • Allows for 3 years of Monthly, Quarterly or Annual trend analysis

SEEP FRAME Tool What are the Benefits?

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

A Very Flexible Tool

The FRAME tool has flexibility in a number of areas. As a few examples:

• Can input one, two, or three years of data

• Input can be monthly, quarterly, or annual data for each of those years

• The above reporting frequency can be changed year by year

• Option to create sub-accounts of existing line items in a number of areas

• Option to create new user-defined data points for inclusion in reports

• Printable financial statements can be converted into three currencies

• Two different methodologies for analytical adjustments (internal & external)

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

A Very Flexible Tool (continued)

• Information can be analyzed by historical trends, variance from actual, and variance from plan / projections

• You can extensively customize the design of various management reports

• The FRAME Tool can be converted between English, French, Arabic, Spanish and Chinese in seconds at the click of a button.

• Definitions of every item in the FRAME are optionally displayed

• The tool is available for download and use with no fees whatsoever. Future versions of the FRAME tool are currently planned for development.

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Framework Reference System

• I Income Statement• B Balance Sheet• C Cash Flow Statement• P Portfolio Report and Activity Report • R Ratios• A Adjustments• N Non-Financial Data Report

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Serving the Poor: “10 Million Clients by 2010”

Analytical Adjustments

• True performance Adjustments

– Help reverse accounting policies that can present a distorted picture of the MFI’s performance

– Help simulate an MFI’s performance under conditions similar to those of a commercially funded operation

• Benchmarking Adjustments

– Enable managers to compare or benchmark an MFI’s performance with other MFIs

– Create common minimum standards for recognizing and managing credit, country, and operational risk in financial reporting

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Serving the Poor: “10 Million Clients by 2010”

Types of Adjustments

• Subsidies– Cost of funds– In-kind donations

• Inflation

• Portfolio at Risk– Impairment Loss Allowance– Written Off Loans

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Serving the Poor: “10 Million Clients by 2010”

Financial Ratios The “SEEP 18”

The “SEEP 18” ratios are divided into the followoing categories:

• Profitability and Sustainability,

• Asset and Liability Management,

• Portfolio Quality

• Efficiency and Productivity

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Serving the Poor: “10 Million Clients by 2010”

Profitability and Sustainability

• R1 Operational Self-Sufficiency (OSS)

Financial Self-Sufficiency (FSS)

• R2 Return on Assets (ROA)

Adjusted Return on Assets (AROA)

• R3 Return on Equity (ROE)

Adjusted Return on Equity (AROE)

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Serving the Poor: “10 Million Clients by 2010”

Asset and Liability Management

• R4 Yield on Gross Portfolio

• R5 Portfolio to Assets

• R6 Cost of Funds

Adjusted Cost of Funds

• R7 Debt to Equity

Adjusted Debt to Equity

• R8 Liquid Ratio

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Portfolio Quality

• R9 Portfolio at Risk

Adjusted Portfolio at Risk

• R10 Write-off Ratio

Adjusted Write-off Ratio

• R11 Risk Coverage Ratio

Adjusted Risk Coverage Ratio

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Efficiency and Productivity

• R12 Operating Expense Ratio

Adjusted Operating Expense Ratio

• R13 Cost per Client

Adjusted Cost per Client

• R14 Borrowers per Loan Officer

• R15 Active Clients per Staff Members

• R16 Client Turnover

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

SEEP FRAME Tool 2.0 Planned Release: October 2007

Some of the items to be included for FRAME 2.0: • Monthly Budget Module• Variance Analysis Report • Microfin Import • Analytical Graphs• Branch Aggregation / Consolidation Feature• Enhanced Error Checking• Additional Input – 2 years Historical, 5 Years Projected• Improved Monthly / Quarterly Analysis

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

SEEP FRAME Resource Availability

• The Framework Manual, Tool, User’s Guide and Training Materials are available for download and use Free of Charge

• The Tool is constantly being updated, the Arabic version will be available in July and Version 2.0 of the FRAME Tool will be ready in October, so check the website:

www.seepnetwork.org/FRAME

Sanabel Fourth Annual Conference

Serving the Poor: “10 Million Clients by 2010”

Thank You

www.seepnetwork.org/FRAME

Financial Decision Making for Managers