CGAP Training Accounting Principles for MFIs Slides 4b

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Slides for CGAP's Accounting Principles Training.

Slides for CGAP's Accounting Principles Training.

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  • 1. A7-O14a SAFE Profitability Indicators Ref. DESCRIPTION 2005 2006 2007 R1 Operational Self-Sufficiency Ratio a Financial Revenue 60,114 200,455 739,948 b Financial Expense 2,087 645 53,558 c Impairment Losses on Loans - - 31,208 d Operating Expense 365,181 671,391 947,923 e b+c+d 367,268 672,036 1,032,689 R1 Operational Self-Sufficiency Ratio = a/e 16.37% 29.83% 71.65%Adj R1 Financial Self-Sufficiency Ratio a Financial Revenue 60,114 200,455 739,948 b Adjusted Financial Expense 5,397 73,426 146,789 c Adjusted Impairment Losses on Loans - - - d Adjusted Operating Expense 405,181 711,391 987,923 e b+c+d 410,578 784,817 1,134,712Adj R1 Financial Self-Sufficiency Ratio = a/e 14.64% 25.54% 65.21% R2 Return on Assets (ROA) a Net Operating Income (307,154) (471,581) (292,741) b Taxes - - - c a-b (307,154) (471,581) (292,741) d Average Assets 305,818 860,288 1,522,798 R2 Return on Assets (ROA) = c/d -100.44% -54.82% -19.22%©CGAP/World Bank, 2009
  • 2. A7-O14bSAFE Profitability Indicators (continued) Ref. DESCRIPTION 2005 2006 2007Adj R2 Adjusted Return on Assets (AROA) a Adjusted Net Operating Income (350,464) (584,362) (425,972) b Taxes - - - c a-b (350,464) (584,362) (425,972) d Adjusted Average Assets 305,818 869,964 1,542,734Adj R2 Adjusted Return on Assets (AROA) = c/d -114.60% -67.17% -27.61% R3 Return on Equity (ROE) = c/d a Net Operating Income (307,154) (471,581) (292,741) b Taxes - - - c a-b (307,154) (471,581) (292,741) d Average Equity 219,582 524,835 767,651 R3 Return on Equity (ROE) = c/d -139.88% -89.85% -38.13%Adj R3 Adjusted Return on Equity (AROE) = c/d a Adjusted Net Operating Income (350,464) (584,362) (425,972) b Taxes - - - c a-b (350,464) (584,362) (425,972) d Adjusted Average Equity 219,582 534,510 787,588Adj R3 Adjusted Return on Equity (AROE) = c/d -159.61% -109.33% -54.09%©CGAP/World Bank, 2009
  • 3. A7-O15a SAFE ALM Ratios Ref. DESCRIPTION 2005 2006 2007 R4 Yield on Gross Portfolio Ratio = a/b Cash Received from Interest, Fees,and a 47,072 189,619 734,069 Commissions on Loan Portfolio b Average Gross Loan Portfolio 100,735 409,367 1,088,835 R4 Yield on Gross Portfolio Ratio = a/b 46.73% 46.32% 67.42% R5 Portfolio to Assets Ratio a Gross Loan Portfolio 201,470 617,263 1,560,406 b Assets 611,635 1,108,941 1,936,655 R5 Portfolio to Assets Ratio = a/b 32.94% 55.66% 80.57% R6 Cost of Fund Ratio a Financial Expenses on Funding Liabilities 2,087 645 6,032 b Average Deposits c Average Borrowings 20,756 52,802 38,053 d b+c 20,756 52,802 38,053 R6 Cost of Fund Ratio = a/d 10.05% 1.22% 15.85%Adj R6 Adjusted Cost of Fund Ratio a Adjusted Financial Expenses on Funding Liabilities 5,397 13,728 57,420 b Average Deposits c Average Borrowings 20,756 52,802 38,053 d b+c 20,756 52,802 38,053Adj R6 Adjusted Cost of Fund Ratio = a/d 26.00% 26.00% 150.90%©CGAP/World Bank, 2009
  • 4. A7-O15bSAFE ALM Ratios (continued) Ref. DESCRIPTION 2005 2006 2007 R7 Debt to Equity Ratio a Liabilities 172,472 498,435 1,011,859 b Equity 439,163 610,506 924,796 R7 Debt to Equity Ratio = a/b 39.27% 81.64% 109.41% Adj R7 Adjusted Debt to Equity Ratio a Liabilities 172,472 498,435 1,011,859 b Adjusted Equity 439,163 629,857 895,318 Adj R7 Adjusted Debt to Equity Ratio = a/b 39.27% 79.13% 113.02% R8 Liquid Ratio a Cash 267,439 302,067 215,686 b Trade Investments 17,000 47,319 38,270 c a+b 284,439 349,386 253,956 d Demand Deposits 130,960 434,344 950,517 e Short-term Deposits - - - f Short-term Borrowings 41,512 64,091 12,014 g Interest Payable on Funding Liabilities - - 49,328 h Account Payable and Other Short-term Liabilities - - - i d+e+f+g+h 172,472 498,435 1,011,859 R8 Liquid Ratio = c/i 164.92% 70.10% 25.10%©CGAP/World Bank, 2009
  • 5. A7-O16 Purpose of Internal Controls  Preserve the safety of assets  Improve quality of customer service  Ensure reliability of financial information  Ensure staff adherence to policy and guidelines©CGAP/World Bank, 2009
  • 6. A7-O17 Sources of Risk  Delinquency Risk  Fraud  Liquidity Risk  Operating Risk  Security Risks  Accounting/Bookkeeping Risk  Risk of Computerization  Governance©CGAP/World Bank, 2009
  • 7. A7-O18 External AuditsA formal, independent review of an entity’s financialstatements, records, transactions, and operations,performed by professionals, for purposes of: Lending credibility to financial statements and other management reports Assuring accountability for donor funds Identifying weaknesses in internal controls and systemsScopes differ significantly according to the objectives ofeach audit.©CGAP/World Bank, 2009
  • 8. A8-O1 Balancing Act: A Microfinance Accounting Game©CGAP/World Bank, 2009
  • 9. Instructions to Determine Levels A8-O2a of Risk and Interest on DebtRisk Level Choose a level of risk: Low, Medium, High Roll the die. Given the number that appears on the top of the die, the player calculates his/her risk: Low risk = 1 x die # = 1x6 = 6 Medium risk = 2 x die # High risk = 3 x die # Record the risk level in the space on the opening balance sheet.I rolled a 6 and chose medium risk—my risk level is 2 x6 = 12.©CGAP/World Bank, 2009
  • 10. A8-O2bInstructions to Determine Levels of Riskand Interest on Debt (continued)Determine Interest on Debt Using the same number that appeared on the die from the previous roll, players calculate the interest rates to be paid on borrowings. For Concessional loans = 0.5 x die # Commercial Loans = 2 x die # Record interest rates for debt on opening Balance Sheet in the box provided. Using my same roll of 6— my concessional loan rate = 0.5 x 6 = 3% my commercial loan rate = 2 x 6 = 12%©CGAP/World Bank, 2009
  • 11. A8-O3aSample Entries for Loan Disbursements and Loan RepaymentsLOAN DISBURSEMENTS (D cards)1. If $15,000 in loans was disbursed on the fifth week of the year, the General Journal entry is as follows: Wk# Account Title Ref. Debit Credit 5 Loans Outstanding – Current 120 15,000 5 Cash 101 15,000©CGAP/World Bank, 2009
  • 12. A8-O3bSample Entries for Loan Disbursementsand Loan Repayments (continued)2. The calculation of loan fees earned is as follows: LOAN FEES EARNED = Amount of Loan Disbursed x Loan Fee Rate Loan Fees Earned = ($15,000 x 5%) Loan Fees Earned = $750The General Journal entry becomes: Wk# Account Title Ref. Debit Credit 5 Loans Outstanding – Current 120 15,000 5 Cash 101 15,000 5 Cash 101 750 5 Loan Fees 415 750©CGAP/World Bank, 2009
  • 13. A8-O3cSample Entries for Loan Disbursementsand Loan Repayments (continued)3. The calculation of interest earned is as follows: INTEREST REVENUE = Amount of Loan Disbursed x Interest Rate x [Number of Weeks the Loan will be Outstanding in the Current Year] NOTE: In this example, the loan was disbursed on week 5. Therefore it will be outstanding for 47 weeks this year. Interest Revenue = ($15,000 x 26% x 47/52) Interest Revenue = $3,525DEFERRED REVENUE = Amount of Loan Disbursed x Interest Rate x[Number of Weeks the Loan will be Outstanding in the Next Year] NOTE: In this example, the loan was disbursed on week 5 of this year. Therefore it will be outstanding for 47 weeks this year and will remain outstanding for five weeks next year. Deferred Revenue = ($15,000 x 26% x 5/52) Deferred Revenue = $ 375©CGAP/World Bank, 2009
  • 14. A8-O3dSample Entries for Loan Disbursementsand Loan Repayments (continued)The complete General Journal entry becomes: Wk# Account Title Ref. Debit Credit 5 Loans Outstanding – Current 120 15,000 5 Cash 101 15,000 5 Cash 101 750 5 Loan Fees 415 750 5 Cash 101 3,900 5 Interest Revenue (47/52 weeks) 410 3,525 5 Deferred Revenue (5/52 weeks) 225 375©CGAP/World Bank, 2009
  • 15. A8-O3eSample Entries for Loan Disbursementsand Loan Repayments (continued)LOAN REPAYMENTS (R cards) Wk# Account Title Ref. Debit Credit 2 Cash 101 15,000 2 Loans Outstanding - Current 120 15,000 2 Deferred Revenue (2/52 weeks) 225 150 2 Interest Revenue (2/52 weeks) 410 150©CGAP/World Bank, 2009
  • 16. A8-O4 Opportunity Square – A Choice This is your decision—you may choose or decline the opportunity. Decide based on your risk level, cash position, and so on. Other Squares Typical transactions of an MFI, to be recorded as stated on the square.©CGAP/World Bank, 2009
  • 17. A8-O5 Accessing a Line of Credit Cash balance at any time should be a positive one. If a player does not have enough cash to make loan disbursements or pay expenses, she must access her line of credit. Wk# Account Title Ref. Debit Credit 26 Cash 101 15,000 26 Short-term Borrowings 215 15,000©CGAP/World Bank, 2009
  • 18. A8-O6 Instructions on How to Start Playing1. Roll die to see who starts first. The person who rolls the highest number on the die begins.2. The next players are determined in a clockwise direction (the person to your left).3. The first player rolls die, moves the marker the number squares as appears on the die.4. Record the transaction of the square you landed on in your General Journal and cash ledger.©CGAP/World Bank, 2009