1. Microfinance-Performance Assessment J. Yaron jyaron@colman.ac.il May 2009

2. Primary performance Criteria  Two Primary Goals- A) equity and B) efficiency – the reasons for intervention (subsidy)  Any “social objective” is (should be) included in at least one of the two goals above  Two primary performance assessment criteria a) outreach to target clientele and b) self- sustainability

3. Outreach to target clientele  A real difference between the 2 primary assessment criteria  Outreach is an arbitrary index (the authority that supports it decides on the weights of each component of outreach)  (e.g. lending to very poor is more important than lending to just poor, lending to women is more important than lending to men)

4. Outreach  Outreach is the product-the output of the resources allocated to the MFI  Typical key performance indicators are, volume of lending, average size of loan as a % of the poverty line, percentage of loans granted to women, annual rate of growth of loan portfolio, savings services  Lending to women is an important objective in Bangladesh but not in West Africa

5. Self- sustainability  Sustainability and self sustainability-what’s the difference?  Sustainability- the probability that the MFI would continue to operate  Self- Sustainability measures the level of subsidy (implicit and explicit) the MFI benefits from against its interest income  Self- sustainability is the cost to society of MFI that is subsidized- It is a composite index

6. Self-Sustainability  Typical subsidies  Low interest borrowing of the MFI  Sharing loan losses by the State or donors  Exemption from reserve requirements that other financial institutions shoulder  Free or subsidized training, computer use and the like  Capital (equity) of MFI that yields less than its opportunity cost

7. Self-Sustainability -SDI  SDI – subsidy Dependence Index  Stage 1 of SDI computation:  Value of annual subsidies/average annual loan portfolio  The above ratio indicates how many cents of subsidy were granted per average annual $ of loan portfolio that served the target clientele (stock not flow)

8. Self sustainability- SDI  Stage 2  Value of annual subsidy / interest earned + fees paid by borrowers from the MFI  Uses:  Grant element compared to payments for service by borrower  Indication how much lending rate have to be raised to achieve self sustainability (sensitivity analysis)

9. Self sustainability _SDI  SDI stage 1= S/OLP  SDI Stage 2= S/ OLP*I  S= Annual subsidies  OLP= Average annual outstanding loan portfolio  I = Average annual interest and fees earned on outstanding loan portfolio