Introduction
Micro Finance Institution is an institution that provide several services to the people specially in poverty reduction. In measuring the management performance, micro finance institution focus on two options: Financial Indicators and Outreach. For financial indicator includes portfolio quality, leverage, capital adequacy ratio, productivity, efficiency, profitability, and financial viability. Whereas for outreach indicator includes client performance, customer performance and deposit performance.
Measuring The MFI Performance
The indicator that used to measure the micro finance institution usually in six areas that have a benefit for the management and external party, there are:
Portfolio Quality
This indicator provides the information about asset percentage where unproductivity assets can reduce an income and liquidity position in micro finance institution. There are kinds of ratio which used to measure quality of portfolio and providing the information related to portfolio. The ratios are Repayment Rate, Portfolio Quality Ratios, and Loan Loss Ratios.
Productivity and Efficiency
This indicator shows the activity of MFI, how they act as great management condition and performance. There are several ratios to measure the productivity of MFI, Ratio of active loan amount per credit part, Ratio of loan portfolio position per credit part, and Ratio of total payment in period per credit part, Ratio Deposits per saving, Ratio the number of saver per saving amount etc.
In other side, Efficiency ratio measure how much the cost out flow while providing the financing services in order to get profits. There is a ratio can be used to look at the efficiency: Operating cost Ratio.
Financial Viability
Financial viability refers to an ability of micro finance institution in covering all expenses thought an income that has been got. It can be measured by independent operational, MFI doesn't need any donator for subsidy their operational. There are two types of financial viability: Enough in operational and financial.
Profitability
In case of measuring the net income of MFI, when tend to used profitability indicator that look forward to the balance sheet structure. Profitability ratio helps investor and manager to know whether they own a yield as much as what they have invested in MFI. To measure this point we need to know the percentage of return on assets (ROA), return on business (ROB) and return on equity (ROE).
Leverage and Capital Adequacy
The leverage tend to focus on the level of how much MFI borrows money as their equity toward amount of equity they have, in other way we can say that how much additional value of the maney that can be earned by MFI. There are two resources that support MFI to run their activity: Loan from Bank and Saving by client. When the resources is enough, the lender and depositors will be believed to the MFI because it’s easy to them in payment their loan. Leverage indicator can be measured by divide Equity and liability.
While, capital adequacy usually can be measured using ratio capital to risk-weighted assets.
Scale, Outreach and Growth
MFI brings an additional indicator in measuring their performance with introduce activity scale and outreach. There are several outreach indicator as used in the measuring the performance: Outreach of client and staff, saving and borrowing.
Performance
In general in every performance indicators there are performance standards that assumed has a good quality standard for healthy MFI. In measuring the standard we can determine Criteria of performance, indicator of performance and standard of performance.
