Toolkit for Loan Portfolio Assessment of Microfinance Institutions

This toolkit presents a framework on assessment of the risks and inadequacies associated with an MFI'‘s portfolio. For an MFI, loan portfolio is the primary income generating asset and it is most commonly subject to material misstatements. The deterioration in the quality of the loan portfolio is the most common reason for failure of an MFI.

The toolkit states that the portfolio assessment is generally a complicated and time consuming exercise. An assessor needs to allocate significant effort in the review of the loan portfolio and to carry out field visits. This toolkit is designed to help the assessors in their efforts of conducting an effective assessment. It comprises of four sections:

• First section attempts to answer questions related to loan policies, record keeping, review documentation, internal control over the lending functions, etc.;
• Second section outlines the basic methodology in terms of how to structure the loan portfolio assessment;
• Third section describes the checklist and tool, which has been generated after extensive field-testing;
• Last section is the appendix which provides explanatory notes to technical aspects.