Financial Decision Making for Managers  Measuring Performance of Microfinance Institutions:  A Framework for Reporting, An...
Financial Decision Making for Managers <ul><li>Managers need to: </li></ul><ul><li>Know  what  to measure,  ensure accurac...
SEEP Performance Monitoring Framework   What is it? <ul><li>Industry Consensus Standards for: </li></ul><ul><li>Standard F...
SEEP Performance Monitoring Framework   What is it? <ul><li>Commonly referred to as the SEEP FRAME: </li></ul>F ramework f...
Chronology of Standardization <ul><li>1995: SEEP produced an earlier work—Microfinance Consensus Guidelines: Definitions o...
Industry Consensus <ul><li>This Framework is based on the work performed by a roundtable of donors, rating agencies, and T...
SEEP FRAME: What is New? <ul><li>Industry  consensus </li></ul><ul><li>A  comprehensive  Framework for Reporting, Analysis...
Industry Adoption <ul><li>Retail Level (MFIs) </li></ul><ul><ul><li>Adopting Financial Statement Formats </li></ul></ul><u...
A Full Package <ul><li>The Framework: Manual  </li></ul><ul><li>The Tool: Excel Workbook </li></ul><ul><li>User’s Manual (...
What is the FRAME Tool? <ul><li>A sophisticated Excel Workbook that allows you to input  up to three years  of financial d...
<ul><li>External Communication:  </li></ul><ul><li>Conforms to  International Financial Reporting Standards (IFRS)   </li>...
A Very Flexible Tool <ul><li>The FRAME tool has flexibility in a number of areas.  As a few examples: </li></ul><ul><li>Ca...
A Very Flexible Tool (continued) <ul><li>Information can be analyzed by historical trends, variance from actual, and varia...
Framework Reference System <ul><li>I Income Statement </li></ul><ul><li>B Balance Sheet </li></ul><ul><li>C Cash Flow Stat...
Analytical Adjustments <ul><li>True performance  Adjustments </li></ul><ul><ul><li>Help reverse accounting policies that c...
Types of Adjustments <ul><li>Subsidies </li></ul><ul><ul><li>Cost of funds </li></ul></ul><ul><ul><li>In-kind donations </...
Financial Ratios   The “SEEP 18” <ul><li>The “SEEP 18” ratios are divided into the followoing categories: </li></ul><ul><l...
Profitability and Sustainability <ul><li>R1 Operational Self-Sufficiency (OSS) </li></ul><ul><li>Financial Self-Sufficienc...
Asset and Liability Management <ul><li>R4 Yield on Gross Portfolio  </li></ul><ul><li>R5  Portfolio to Assets </li></ul><u...
Portfolio Quality <ul><li>R9    Portfolio at Risk </li></ul><ul><li>Adjusted Portfolio at Risk </li></ul><ul><li>R10  Writ...
Efficiency and Productivity <ul><li>R12  Operating Expense Ratio </li></ul><ul><li>Adjusted Operating Expense Ratio </li><...
SEEP FRAME Tool 2.0   Planned Release: October 2007 <ul><li>Some of the items to be included for FRAME 2.0:  </li></ul><ul...
SEEP FRAME Resource Availability <ul><li>The Framework Manual, Tool, User’s Guide and Training Materials are available for...
<ul><li>Thank You </li></ul><ul><li>www.seepnetwork.org /FRAME </li></ul>Financial Decision Making for Managers
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  1. 1. Financial Decision Making for Managers Measuring Performance of Microfinance Institutions: A Framework for Reporting, Analysis and Monitoring Mohammed Khaled, Microserve Steve Wardle, Grameen Foundation
  2. 2. Financial Decision Making for Managers <ul><li>Managers need to: </li></ul><ul><li>Know what to measure, ensure accuracy of those measures, set optimal standards for performance, and monitor performance. </li></ul><ul><li>Practically speaking this means: </li></ul><ul><li>Categorize data into statements and reports </li></ul><ul><li>Analyze the statements and reports </li></ul><ul><li>Use the information for monitoring purposes </li></ul>
  3. 3. SEEP Performance Monitoring Framework What is it? <ul><li>Industry Consensus Standards for: </li></ul><ul><li>Standard Financial Statements and Reports </li></ul><ul><li>Analytical Adjustments </li></ul><ul><li>Financial Ratios and Indicators </li></ul><ul><li>Performance Monitoring Reports </li></ul>F ramework for R eporting, A nalysis, M onitoring & E valuation
  4. 4. SEEP Performance Monitoring Framework What is it? <ul><li>Commonly referred to as the SEEP FRAME: </li></ul>F ramework for R eporting, A nalysis, M onitoring & E valuation
  5. 5. Chronology of Standardization <ul><li>1995: SEEP produced an earlier work—Microfinance Consensus Guidelines: Definitions of Selected Financial Terms, Ratios, and Adjustments for Microfinance (the Blue Book). </li></ul><ul><li>2003: CGAP published- Microfinance Consensus Guidelines: Definitions of Selected Financial Terms, Ratios and Adjustments. </li></ul><ul><li>2005: Measuring Performance of Microfinance Institutions: A Framework for Reporting, Analysis and Monitoring </li></ul>
  6. 6. Industry Consensus <ul><li>This Framework is based on the work performed by a roundtable of donors, rating agencies, and The SEEP Network. </li></ul>
  7. 7. SEEP FRAME: What is New? <ul><li>Industry consensus </li></ul><ul><li>A comprehensive Framework for Reporting, Analysis and Monitoring </li></ul><ul><li>It takes into consideration the latest developments in the Industry. </li></ul>
  8. 8. Industry Adoption <ul><li>Retail Level (MFIs) </li></ul><ul><ul><li>Adopting Financial Statement Formats </li></ul></ul><ul><ul><li>Utilizing FRAME Tool for Financial Management </li></ul></ul><ul><li>Meso Level </li></ul><ul><ul><li>Networks have adopted the FRAME Tool for partner reporting (GF, GJPAM, Global Partnerships, etc.) </li></ul></ul><ul><ul><li>MIS Developers Adapting Reports </li></ul></ul><ul><li>Macro Level </li></ul><ul><ul><li>CGAP is Revising their Financial Analysis Course </li></ul></ul><ul><ul><li>The MIX is fully FRAME Compliant </li></ul></ul>
  9. 9. A Full Package <ul><li>The Framework: Manual </li></ul><ul><li>The Tool: Excel Workbook </li></ul><ul><li>User’s Manual (for the Tool) </li></ul><ul><li>(Each of the above are available in </li></ul><ul><li>Arabic 1 , French 1 & English) </li></ul><ul><li>A Training Course on how to use the tool and the framework </li></ul><ul><li>(currently available in Arabic 1 & English) </li></ul>1 Translation provided by Grameen-Jameel Pan-Arab Microfinance, Ltd.
  10. 10. What is the FRAME Tool? <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  11. 11. <ul><li>External Communication: </li></ul><ul><li>Conforms to International Financial Reporting Standards (IFRS) </li></ul><ul><li>MFIs, Networks, Donors and Investors all “speak the same language” </li></ul><ul><li>Internal Reporting, Performance Monitoring and Decision Making: </li></ul><ul><li>Creates Unadjusted and Adjusted Financial Statements in up to 3 currencies </li></ul><ul><li>Analytical Adjustments allow an MFI to: </li></ul><ul><ul><li>Analyze “true performance” considering inflation and subsidy </li></ul></ul><ul><ul><li>Benchmark against other MFIs </li></ul></ul><ul><li>Automatic calculation of 18 standard financial ratios (+ 11 adjusted) and up to 25 additional ratios as defined by the user. </li></ul><ul><li>Automatic generation customizable financial performance monitoring reports for internal and external reporting. </li></ul><ul><li>Analyzes variance against MFI business plan / projections </li></ul><ul><li>Allows for 3 years of Monthly, Quarterly or Annual trend analysis </li></ul>SEEP FRAME Tool What are the Benefits?
  12. 12. A Very Flexible Tool <ul><li>The FRAME tool has flexibility in a number of areas. As a few examples: </li></ul><ul><li>Can input one, two, or three years of data </li></ul><ul><li>Input can be monthly, quarterly, or annual data for each of those years </li></ul><ul><li>The above reporting frequency can be changed year by year </li></ul><ul><li>Option to create sub-accounts of existing line items in a number of areas </li></ul><ul><li>Option to create new user-defined data points for inclusion in reports </li></ul><ul><li>Printable financial statements can be converted into three currencies </li></ul><ul><li>Two different methodologies for analytical adjustments (internal & external) </li></ul>
  13. 13. A Very Flexible Tool (continued) <ul><li>Information can be analyzed by historical trends, variance from actual, and variance from plan / projections </li></ul><ul><li>You can extensively customize the design of various management reports </li></ul><ul><li>The FRAME Tool can be converted between English, French, Arabic, Spanish and Chinese in seconds at the click of a button. </li></ul><ul><li>Definitions of every item in the FRAME are optionally displayed </li></ul><ul><li>The tool is available for download and use with no fees whatsoever. Future versions of the FRAME tool are currently planned for development. </li></ul>
  14. 14. Framework Reference System <ul><li>I Income Statement </li></ul><ul><li>B Balance Sheet </li></ul><ul><li>C Cash Flow Statement </li></ul><ul><li>P Portfolio Report and Activity Report </li></ul><ul><li>R Ratios </li></ul><ul><li>A Adjustments </li></ul><ul><li>N Non-Financial Data Report </li></ul>
  15. 15. Analytical Adjustments <ul><li>True performance Adjustments </li></ul><ul><ul><li>Help reverse accounting policies that can present a distorted picture of the MFI’s performance </li></ul></ul><ul><ul><li>Help simulate an MFI’s performance under conditions similar to those of a commercially funded operation </li></ul></ul><ul><li>Benchmarking Adjustments </li></ul><ul><ul><li>Enable managers to compare or benchmark an MFI’s performance with other MFIs </li></ul></ul><ul><ul><li>Create common minimum standards for recognizing and managing credit, country, and operational risk in financial reporting </li></ul></ul>
  16. 16. Types of Adjustments <ul><li>Subsidies </li></ul><ul><ul><li>Cost of funds </li></ul></ul><ul><ul><li>In-kind donations </li></ul></ul><ul><li>Inflation </li></ul><ul><li>Portfolio at Risk </li></ul><ul><ul><li>Impairment Loss Allowance </li></ul></ul><ul><ul><li>Written Off Loans </li></ul></ul>
  17. 17. Financial Ratios The “SEEP 18” <ul><li>The “SEEP 18” ratios are divided into the followoing categories: </li></ul><ul><li>Profitability and Sustainability, </li></ul><ul><li>Asset and Liability Management, </li></ul><ul><li>Portfolio Quality </li></ul><ul><li>Efficiency and Productivity </li></ul>
  18. 18. Profitability and Sustainability <ul><li>R1 Operational Self-Sufficiency (OSS) </li></ul><ul><li>Financial Self-Sufficiency (FSS) </li></ul><ul><li>R2 Return on Assets (ROA) </li></ul><ul><li>Adjusted Return on Assets (AROA) </li></ul><ul><li>R3 Return on Equity (ROE) </li></ul><ul><li>Adjusted Return on Equity (AROE) </li></ul>
  19. 19. Asset and Liability Management <ul><li>R4 Yield on Gross Portfolio </li></ul><ul><li>R5 Portfolio to Assets </li></ul><ul><li>R6 Cost of Funds </li></ul><ul><li> Adjusted Cost of Funds </li></ul><ul><li>R7 Debt to Equity </li></ul><ul><li>Adjusted Debt to Equity </li></ul><ul><li>R8 Liquid Ratio </li></ul>
  20. 20. Portfolio Quality <ul><li>R9 Portfolio at Risk </li></ul><ul><li>Adjusted Portfolio at Risk </li></ul><ul><li>R10 Write-off Ratio </li></ul><ul><li>Adjusted Write-off Ratio </li></ul><ul><li>R11 Risk Coverage Ratio </li></ul><ul><li>Adjusted Risk Coverage Ratio </li></ul>
  21. 21. Efficiency and Productivity <ul><li>R12 Operating Expense Ratio </li></ul><ul><li>Adjusted Operating Expense Ratio </li></ul><ul><li>R13 Cost per Client </li></ul><ul><li>Adjusted Cost per Client </li></ul><ul><li>R14 Borrowers per Loan Officer </li></ul><ul><li>R15 Active Clients per Staff Members </li></ul><ul><li>R16 Client Turnover </li></ul>
  22. 22. SEEP FRAME Tool 2.0 Planned Release: October 2007 <ul><li>Some of the items to be included for FRAME 2.0: </li></ul><ul><li>Monthly Budget Module </li></ul><ul><li>Variance Analysis Report </li></ul><ul><li>Microfin Import </li></ul><ul><li>Analytical Graphs </li></ul><ul><li>Branch Aggregation / Consolidation Feature </li></ul><ul><li>Enhanced Error Checking </li></ul><ul><li>Additional Input – 2 years Historical, 5 Years Projected </li></ul><ul><li>Improved Monthly / Quarterly Analysis </li></ul>
  23. 23. SEEP FRAME Resource Availability <ul><li>The Framework Manual, Tool, User’s Guide and Training Materials are available for download and use Free of Charge </li></ul><ul><li>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: </li></ul><ul><li>www.seepnetwork.org /FRAME </li></ul>
  24. 24. <ul><li>Thank You </li></ul><ul><li>www.seepnetwork.org /FRAME </li></ul>Financial Decision Making for Managers
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