Transparency & Performance Reporting

1. Transparency & Performance Reporting Advancing Microfinance through Transparent, Standardized Reporting Matt Graham Analyst Microfinance Information eXchange (MIX)

2. Transparency • Standardization • Benchmarking • Enabling Standard Reporting 1 2 3 4 The information infrastructure for the microfinance industry

3. Supervision Rating Internal Control External Audit Benchmarking Performance standards Management Information Systems Performance Measurement Building Blocks of Transparency Financial Transparency is about the production, testing, dissemination and use of information related to microfinance operations Adapted from: MicroBanking Bulletin no. 7

4. Monitor activity Identify strengths and weaknesses Mitigate risks Set performance targets Attract investment Report to stakeholders MFU managers and bank board members Donors and Investors Regulators/Monitors Networks Raters Benefits of Transparency

5. Monitor health of sector Set prudential norms / performance guidelines Determine population served / products used Exchange experience MFU managers and bank board members Donors and Investors Regulators/Monitors Networks Raters Benefits of Transparency

6. Supervision Rating Internal Control External Audit Benchmarking Performance standards Management Information Systems Performance Measurement Challenges to Transparency • Manual, timely data transfer • Substantial staff time in data collection Adapted from: MicroBanking Bulletin no. 7

7. Supervision Rating Internal Control External Audit Benchmarking Performance standards Management Information Systems Performance Measurement Challenges to Transparency • Inappropriate disclosures and presentation • Insufficient tools for auditing loan portfolio Adapted from: MicroBanking Bulletin no. 7

8. Supervision Rating Internal Control External Audit Benchmarking Performance standards Management Information Systems Performance Measurement Challenges to Transparency • Unavailability of standardized data • Lack of participation in performance monitoring and benchmarking exercises Adapted from: MicroBanking Bulletin no. 7

9. Transparency • Standardization • Benchmarking • Enabling Standard Reporting 1 2 3 4 The common language: enabling performance reporting

10. A History of Standards 1980 1990-95 1995-2000 Not on the radar screen Emergence of Standards Acceptance of Standards • No ratios per se • A few indicators adapted from general development projects • Financial Management Guidebook for NGOs, Christen (1990) • Delinquency: the Hidden Beast, Stearns (1991) • Static Viability Model (1992) • Pink Book (1995) • Series on Financial Ratios (1995) • SEEP FSWG Ratios Paper (1995) • Boulder MFT Curriculum (1996) • MBB (1997) • CGAP MIS and Appraisal formats (1997) • Microfin (1998) Adapted from Waterfield, SEEP AGM, October 2003.

11. Moving Standards Forward Roundtable of donors, raters, networks and others service providers to discuss key definitions 2004- on Suggested savings and social performance indicators Fall 2004 Guide for Standard Financial Terms, Indicators and Adjustments Fall 2002 Microfinance Consensus Guidelines: Definitions of Selected Financial Terms, Ratios, and Adjustments for Microfinance 2001-2002

12. Reporting Standards Rural banks are financial institutions and their statements should adequately disclose material amounts. • Inappropriate disclosure given activity. • Relevant material amounts not disclosed: • Gross Loan Portfolio • Loan Loss Allowance

13. Reporting Standards For rural banks, material disclosure means full presentation of its largest and riskiest asset: its loan portfolio and allowance accounts. • Institutions should disclose risk in their portfolio through an aging report. • Movements in any allowance for loan loss should be explained.

14. Reporting Standards Banks with microfinance operations should report on their activity with their clients, including the number of borrowers and savers served. • Precise terms that represent microfinance services. • Outreach based on both “product” and “client” numbers for all microfinance services. 1 2

15. Elements of Standards • Terms • Financial • Balance Sheet • Income Statement • Portfolio • Non Financial • Products and Clients • Institutional Adjustments Inflation Loan Loss Provisioning Subsidy Indicators Outreach Financial Structure Profitability Efficiency / Productivity Risk

16. Transparency • Standardization • Benchmarking • Enabling Standard Reporting 1 2 3 4 Benchmarks: Reference points for institutional comparisons.

17. Benchmarking Process Benchmarking is the process of standardizing and grouping performance data to create a meaningful framework for comparison. Data Comparable data Comparablegroups Benchmarks

18. Peer Groups • Grouping allows for analysis of factors affecting performance • Categories represent cohesive sets of microfinance providers for each group 1 2

19. Performance Comparison Bank #1 serves its borrowers at the lowest cost Bank #2 has achieved the highest level of cost recovery Bank #3 has the most productive loan staff Without appropriate benchmarks or standards of performance, institutional comparisons can be deceptive.

20. Performance Comparisons with Benchmarks Bank #1 serves its borrowers at a greatercost, but with higher productivity Bank #2 has achieved the highest level of cost recovery, but with inefficient systems Bank #3’s productive staff are also the most efficient of their peers Benchmarks provide the context for meaningful institutional performance comparisons. Source: MicroBanking Bulletin, July 2003 (2002 data)

21. Transparency • Standardization • Benchmarking • Enabling Standard Reporting 1 2 3 4 Overcoming challenges in transparent, standard reporting

22. Supporting Transparency Train on standard reporting for all data producers to increase the quality, and volume of available data. Support market for external evaluators with knowledge of microfinance. Establish performance monitoring activity to build basis for performance comparison and sector analysis. Publish and disseminate data to encourage understanding of standards and sector performance.

23. MIX’s Role in Supporting Transparency • Reduce key information constraints: • Reliable • Timely • Comparable • Publicly available • Through two primary services: • The MIX Market (www.mixmarket.org) • The MicroBanking Bulletin (MBB)

24. MIX’s Role in Supporting Transparency MIX Market (www.mixmarket.org) • Project your bank’s image and performance • Demonstrate your commitment to transparency • Prospect for potential investors/funders • Reduce your reporting burden • Identify MFI networks, raters and other development service providers • Compare your bank’s performance to others

25. MIX’s Role in Supporting Transparency MicroBanking Bulletin (MBB) • Benchmark your performance with other MFIs both locally and internationally • Contribute to international benchmarks • See your performance using internationally accepted microfinance standards • Receive Customized Performance Reports

26. MIX’s Role in Supporting Transparency Customized Performance Reports (CPR) • Free for all institutions that submit complete data to the MIX for inclusion in the MBB • Essential tool that allows managers and board members to view institution's performance relative to benchmarks • Include an explanation of the adjustments made to the data and defines peer group classifications and members • Kept strictly confidential unless you want to make them public

27. Thank You To participate in the MBB or MIX Market, download and complete the corresponding excel questionnaires available online at: www.mixmarket.org, and return them by email, fax or regular mail. Matt Graham mgraham@themix.org