Measuring the performance of microfinance providers: an assessment of past and present practices. (21st July 2008)

• Record Type: Journal Article
• Authors: Manos, Ronny; Yaron, Jacob
• Is Part Of: International journal of financial services management. Volume 3:Number 2(2008)
• Page Start: 171
• Page End: 187
• Publication Date: 2008-07-21
• Subjects: development finance -- financial self sufficiency -- microfinance institutions -- outreach index -- subsidy dependence index -- financial services -- performance measurement; Financial services industry -- Management -- Periodicals; 332.1068
• Languages: English
• ISSNs: 1460-6712

Abstract

Measuring the performance of providers of financial services to poor individuals and to micro and small enterprises is a relatively new phenomenon, and the paper discusses the reasons for this. It is argued that using traditional financial ratios to assess performance of microfinance institutions (MFIs) is inappropriate, owing to the high level of subsidies popular in the industry, which these measures ignore. In contrast, two performance measures that are becoming increasingly popular in the microfinance industry do attempt to adjust for subsidies granted to MFIs. These two performance measures, financial self sufficiency (FSS) and the subsidy dependence index (SDI), are compared and contrasted. The paper points to the superiority of the SDI over the FSS, and suggests the use of the outreach index alongside the SDI, to measure the degree to which the MFI has achieved social objectives.