Basic Financial Management and Ratio Analysis for MFIs Toolkit

This toolkit provides an overview of basic accounting principles and systems in order for managers to understand the basis of financial information used for financial management and ratio analysis. It states that MFI stakeholders expect MFI senior managers to ensure that strong and adequate financial systems are in place in the MFI. Therefore, it is essential that MFI managers understand and appreciate the accounting system. The purpose of ratio analysis is often for external reporting and comparison with other MFIs. This toolkit focuses on operational analysis and performance management. Topics discussed include accounting overview, financial statements and operational reports, basic financial ratios, and basic financial ratio analysis. The toolkit discusses commonly accepted ratios for microfinance analysis within four broad categories, namely:

• Sustainability and profitability;
• Portfolio quality;
• Asset and liability management;
• Efficiency and productivity.