This document provides an overview of Session 2 of the Microfinance in Action course. It outlines the session objectives, which include describing key aspects of a sustainable enterprise and preparing a presentation on a microenterprise study. The session will also cover balance sheets, profit and loss statements, and determining enterprise sustainability. Participants are instructed to consider questions about sustainability from different perspectives.

1. Microfinance in Action
Session 2
Dr. Phyllis SantaMaria
Gabriel Flores

2. Welcome to MFIA Session Two!
• Warm-up exercise: re-introductions (1 min ea.)
– Name, where you‟re from, profession/organisation
• Why are you here on this course?
• What do you want to accomplish through this course:
– On the course
– Personally
– Professionally
– In your projects
• Your Talent profile
• Who your buddy is for the Microenterprise study
2

3. After tonight‟s session, you will be able to...
• Describe the key aspects of a sustainable enterprise
• Gather the needed data to create a balance sheet and
profit & loss statement – and interpret the
information
• Prepare your presentation for Session 3 on your
Microenterprise study
• Commit to which Five Talents project you‟d like to
work on
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4. Consider in pairs...
• How do you know an enterprise is sustainable?
• Some questions you can look at as you explore:
– What is meant by sustainable?
– Why is/isn‟t it necessary to be sustainable?
– From whose perspective should it be “sustainable”?
– Over what time period?
– How is it measured? How is it verified?
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5. A sustainable enterprise – our description
• Consistently delivers offerings aligned with its
Purpose
• Creates positive social impact for all People
• Uses resources effectively to sustain the Planet
• Is self-sufficient, generating more value than it
consumes - a Profit
• Its strategies and actions have 30 years‟ Perspective
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6. Three phases towards sustainability
1. Start up: proven concept, brand attraction and operating team
(transition to phase 2)
– Core funding for at least 24 months
– Individuals should plan to be self-sustaining for 24 months
– Success rates according to Small Business Association (USA)
• 66% of new enterprises survive the first two years
• 44% survive five years
– Loyal customer base and track record of two years‟ accounts
2. Management: market connections, tradable market value, bankable
asset (transition to phase 3)
– Establishing core processes
– Independent of founders, owners or specific teams
3. A sustainable organisation: cash flow structure, licensable system
– Well-defined succession plan
– Meets all „5 Ps‟: Purpose, People, Planet, Profit and Perspective
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7. Focus for today: „Profit‟ in a „Start Up‟
Starting at Grassroots – David Kamau‟s story
David‟s info goes here...
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8. What David learned from his brother
Watch the following YOUTUBE Video:
http://youtu.be/yRfw5grDfHc
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9. Practical Enterprise Course on „Profit‟
Cash in/cash out
1000 Kenyan Shillings = $11.64/£7.21
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10. Practical Enterprise Course on „Profit‟
Cash in/cash out
The end-of-day Cash Balance
Microfinance without Borders © 2009

11. Separating Business and Personal Record Keeping
Business 1, Business 2, Personal Cashbook in columns
Cash in
Income Cash out
Business 1 Business 2 Personal Business 1 Business 2 Personal
Date Item Date Item
23/11 Cash B/F 1500 2000 750 23/11 Potato 1000
purchase
Potato sales 1250 School 2000
fees
Used clothes 750 Iron for 750
sales used
clothes
Gift from 500 Potato 250
Income
friend Transport
Expenses
Merry-go- 2000 Lunch 100
round
TOTALS 2750 2750 3250 TOTALS 1250 750 2100
24/11 Cash B/F 1500 2000 1150
Microfinance without Borders © 2009

12. Practical Enterprise Course
‘Home Play’ Week 1
• Buy yourself a cash book.
• Keep cash in and cash out for one week.
• Share what you have learned with family
members.
• Ask them to help you with your cash in and
cash out.
• Interview someone about how they keep
their cash in and cash out.
See notes © 2010 Bronze
Module

13. Consider in pairs...
• How could this cash in/cash out be useful to a micro
enterprise? To a family?
• How does this compare to how you keep track of
your money?
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14. Balance Sheet review from Rural Finance No. 4
The Balance Sheet for a Micro Enterprise
Equity & Liabilities (Sources) Assets (Uses)
Where Equity (the owner’s capital) FIXED ASSETS: Tools, equipment
What
has the and buildings
are its
money Borrowed money (the loans) Cash in hand and in the bank uses?
come
Retained profits (reserves) Growing crops, stored crops,
from?
livestock
Goods obtained on credit from Stocks of materials, work in
suppliers progress or finished goods
Advance deposits from customers Money owed by customers buying
on goods to be supplied on credit
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15. Profit and Loss review from Rural Finance No. 4
The Profit and Loss Account for a Micro Enterprise
Income/ Revenue Expenses/ Costs
Where Sale of goods Purchase of goods
How
has the Interest from money kept in Payment of rent much
money bank has it
come
Bad debts cost for
from?
A Total Income B Total Costs sales?
SALES
Profit =( A-B)
A B
PROFIT
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16. Balance Sheet concepts from Rural Finance No. 7
The Balance Sheet for a Money Lender
Equity & Liabilities (Sources) Assets (Uses)
Where
Equity (the owner’s capital) Loans to customers What
has the
are its
money Borrowed money (the loans) Cash in hand
uses?
come
Retained profits (reserves) Money in the bank
from?
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17. Profit and Loss concepts from Rural Finance No. 7
The Profit and Loss Account for a Money Lender
Income/ Revenue Expenses/ Costs
Where Interest from loans Books and stationery
How
has the Interest from money kept in Interest on borrowed money much
money bank has it
come
Bad debts (loan loss) cost for
from?
A Total Income B Total Costs sales?
SALES
Profit =( A-B)
A B
PROFIT
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18. Lessons from the Money Lender example
• Financial service is a business like any other.
• Money is a product like maize, books, crafts.
• Financial statements are made for a money lender, a savings and loan group, a rural
bank and a microfinance institution in a similar way to any enterprise
• The tools of financial analysis can be applied to these accounts
• We‟ll look at ratios specific to microfinance….
Retained profits to see how business is doing
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19. MUMFI exercise: balance sheet
A researcher interviews MUMFI’s manager on 31st March, 2010 and first collects the information she
needs to construct a balance sheet.
• An international donor agency provided a capital grant of $2,000,000 to start MUMFI.
• They borrowed another $1,500,000 from a local development bank at start up and put it into a one
year fixed term deposit account in a local commercial bank.
• MUMFI head office has four Land Cruisers and each field office has two motorcycles. The value of all
these vehicles on 31st March is $300,000.
• The computers and furniture in the offices are worth $200,000.
• MUMFI organise their clients into groups and so far they have 500 self help groups with a total of
10,000 members. Group members are required to save and during this first year of operation the
average total deposits were $500,000.
• During the year, MUMFI had an average amount of loans outstanding with clients (the loan portfolio)
of $1,000,000.
• The total of cash and current account balances held with banks on 31st March is $500,000.
Fill out the balance sheet for MUMFI. If the assets are greater than the liabilities, then
you must enter a figure “for retained profit” to make it balance. If liabilities are greater
than the assets, then the balancing figure is negative and represents accumulated losses.

20. MUMFI exercise: balance sheet (Classroom
said)...
The Balance Sheet for MUMFI on 31st March 2010
Equity & Liabilities/Sources Assets/Uses
Capital grant (equity) Money in deposit account
Loan Vehicles
Savings deposits Computers and furniture
Loan portfolio
Cash and current account
Total Total
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21. MUMFI exercise: balance sheet
The Balance Sheet for MUMFI on 31st March 2010
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22. MUMFI exercise: profit and loss account
The researcher goes on to collect the information she needs to produce a profit and loss account for
MUMFI.
MUMFI has established five field offices each with five field staff, a manager and two office staff. The total
bill for running the field offices is $300,000 a year.
The cost for headquarters staff and administration is $500,000 a year.
The cost of running all the vehicles is $70,000 a year.
They have decided to depreciate vehicles and equipment at an annual rate of 10%, making a total annual
depreciation charge of $50,000.
MUMFI pays 6% annual interest on savings accounts. They paid out approximately $30,000 to their savings
clients in the last year.
They also pay 10% annual interest on the $1,500,000 they have borrowed from the development bank.
They have invested the borrowed money in a fixed term deposit account where it earns 20% annual
interest.
They charge an effective rate of interest of 30% on the loans they give and that generated an income of
$300,000 during the last year.
Can you complete the profit and loss account for her? You will have to work out the 10%
interest paid on the loan and the 20% interest earned on the fixed term deposit.
A B
PROFIT
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23. MUMFI exercise: profit and loss account
The Profit and Loss Account
Income/ Revenue Expenses/ Expenditure/Costs
Interest from fixed term 300,000 Interest on loan 150,000
deposit a/c
Interest from loans to 300,000 Interest on savings 30,000
clients
Field office salaries 300,000
Vehicle running costs 70,000
Head office costs 500,000
Depreciation 50,000
Total Income (A) 600,000 Total Expenses (B) 1,100,000
Gross Profit or (Loss) (A-B) -500,000
A B
PROFIT
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24. MUMFI exercise: calculate some ratios
The researcher needs some more information to calculate some ratios to help with improving MUMFI’s
performance. Could you help her with the information she has so far?
1. What are the administrative expenses, which are $920,000, as %
a percentage of the average loan portfolio of $1,000,000? This
ratio shows the cost of lending.
2. What is the operating income of $600,000 as a percentage of %
the operating expenses of $1,100,000?
This shows the level of operational self-sufficiency.
3. What is the return on capital in MUMFI? Calculate the loss of %
$500,000 as a percentage of the total assets of $3,500,000.

25. MUMFI exercise: calculate some ratios
The researcher needs some more information to calculate some ratios to help with improving MUMFI’s
performance. Could you help her with the information she has so far?
1. What are the administrative expenses, which are $920,000, as 92 %
a percentage of the average loan portfolio of $1,000,000? This
ratio shows the cost of lending.
2. What is the operating income of $600,000 as a percentage of 55%
the operating expenses of $1,100,000?
This shows the level of operational self-sufficiency.
3. What is the return on capital in MUMFI? Calculate the loss of -14%
$500,000 as a percentage of the total assets of $3,500,000.

26. BREAK: What insights have you gained?
• About „profit‟ for an organisation to become
“sustainable”?
• About your own finances and your record keeping
system? What about helping others keep records?
26

27. Homeplay: Review your Microenterprise Study
with Q&A
1. Why study a Microenterprise in the MFIA?
2. What is a Microenterprise?
– A small business with fewer than 5 employees (5+ is OK!)
– Registered as a sole trader, partnership or limited company (by guarantee
or shares)
3. Who is involved in a Microenterprise?
– Who is the owner? Who are the employees/team?
– Who are the customers and other stakeholders?
4. Where are they found? When do they operate?
– Are they seasonal? Do they rely on repeat business?
– Do they work alone or collaborate with other businesses?
5. How do they sustain themselves?
– What are their challenges?
– How do they know they‟re profitable (or not)?
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28. For your Presentation...
• The Name of the Microenteprise
• Why you chose to study this particular one
• Criteria for your evaluation
1. Why are they in business, history
2. What they offer, solutions, their unique selling proposition (USP)
3. Who are the team members and their skills; Info about the market
sector(s) in which they operate, their niche
4. When do they operate? Where are they found
(online/offline/location, etc.); How they manage customer services;
With whom and how do they connect with service providers,
advocates, partners – e.g. how do they fit in the business ecosystem
5. How do they operate? What are their processes? How does their
business work? What is their financial model?

29. For your Presentation...
6. Their financial reports1: Balance sheet
7. Their financial reports 2: Profit and loss statement
8. Key ratio 1: Owner’s equity
9. Key ratio 2: average amount of profit owner has reinvested in
business each year
10. Key ratio 3: % Rate of return = Profit ÷ Capital invested ×
100
BONUS: Recommendations you would/could make to the
Microenterprise…
Score your presentation based on criteria 1-10.

30. Template overview
How to do your Microenterprise Study
• Choose a buddy
• Go through the online lessons in Rural Finance:
http://www.microfinancelessons.com/
– Lesson 4: Financial Reality of Business Enterprise
– Lesson 5: Collecting and Analysing Financial Information from Microenterprises
– For extra credit ;-) : Lesson 6: Can they afford to borrow? Rates of return and the cost of
money
• Interview a Microenterprise owner
• Interview top tips:
– Introduce yourselves and stress that you‟ve come to learn from the business – not to give
advice or teach anything. Convince them that you‟re not the „tax [wo]men‟.
– Praise the business and its products/services.
• Collect the following information:
– Brief description of the business and its owner
– Reason why they started it, its history, the number of jobs it is creating and the owners‟ opinion
about its main strengths/problems
– Financial information as discussed in Lessons 4 & 5 in Rural Finance
– Reference the five questions we just used to explore Microenterprise
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31. Microfinance in Action Course
Microenterprise Study TEMPLATE
<YOUR NAMES>

32. Introduction
• INTRODUCE YOURSELVES – A BIT OF
BACKGROUND – WHY YOU‟RE HERE ON THE
COURSE

33. Background on the Microenterprise
• The Name of the Microenteprise
• Why you chose to study this particular one
• Background information
– Why are they in business, history
– What they offer, solutions, their unique selling proposition (USP)
– Who are the team members and their skills; Info about the market sector(s)
in which they operate, their niche
– When do they operate? Where are they found (online/offline/location,
etc.); How they manage customer services; With whom and how do they
connect with service providers, advocates, partners – e.g. how do they fit
in the business ecosystem
– How do they operate? What are their processes? How does their business
work? What is their financial model? What are their financial reports/data?

34. Your Micrenterprise‟s numbers
Balance Sheet (Snapshot):
From RURAL FINANCE LESSON 4

35. Your Micrenterprise‟s numbers
Profit & Loss Sheet (Periodic):
From RURAL FINANCE LESSON 4

36. Your Analysis
Analysing the Data - Ratios: From RURAL FINANCE LESSON 5
• Equity
• Profit
• R.O.R.

37. Your Learnings & Recommendations
Key lessons you learned:
Recommendations you would/could make to the
Microenterprise...

38. Introduction to our Partner MFI for projects

39. Purpose & Mission

41. 41

42. How we operate

46. Who we work with

49. Where we work

50. 50

51. Credit-led Microfinance: Savings-Led
Microfinance:
Indonesia
India Bolivia
Peru Kenya
Philippines Sudan & South Sudan
Tanzania Burundi
Uganda Myanmar

52. Our impact

53. Headline figures
100% of clients Savings portfolio £404,476
received business
training 37,658 clients
8,124 new clients in 2011
12
Average loan
Countries 93%
£56 Loans in repayment
circulation
£1,461,208 rate

54. Current challenges

55. Current challenges
• Social impact measurement
• Mobile money
• Sustainable funding

56. Social impact measurement
Uganda
Challenge Results
• Recommendations
• 2 Months‟ internship
sponsored by Vodafone to
design programme (MWB
graduate)
• Funding to partially
implement social impact
measurement in Uganda

57. Mobile money Tanzania
Challenge Results

58. Current challenge: sustainable
funding
CARE-PLAN-BARCLAYS ‘Banking on Change’ to
reach 400k people in 11 countries through
VILLAGE SAVINGS & LOAN ASSOCIATIONS

59. This course‟s challenges
CARE-PLAN-BARCLAYS ‘Banking on Change’ to
reach 400k people in 11 countries through
VILLAGE SAVINGS & LOAN ASSOCIATIONS

60. READY TO TAKE ACTION?
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61. ACTION: Register for TWO sessions of the UK
MF Club
Lillian Mwikali Dr Robert Stone
What happens when The Great Debate:
Savings Groups grow Banks or MFIs?
up?
Thur 14 March, 6.30 – 8.00 pm
Wed 27 Feb, 7 – 8.30 pm
Reed Smith
Allen and Overy
The Broadgate Tower
One Bishops Square
EC1 6AD
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62. Are you now able to...
• Describe the key aspects of a sustainable enterprise
• Gather the needed data to create a balance sheet and
profit & loss statement – and interpret the
information
• Prepare your presentation for Session 3 on your
Microenterprise study
• Declare which Five Talents project you‟d like to
work on
… not sure? Collaborate with others!
62

63. Also Remember...
• Complete your Talent profiling, if not already done
• Schedule your profile debrief with Gabriel today so
that it takes place in the next two weeks
63

64. Contact Information
• Dr. Phyllis SantaMaria:
– Mobile: +44 7715 004 303
– Landline: +44 207 839 0844
– Email: phyllis@microfinancewithoutborders.com
• Gabriel Flores
– Mobile: +44 7834 528 966
– Email: gabriel@microfinancewithoutborders.com
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