Transversal Analysis of MFO Performance in Africa

As the microfinance industry gradually matures and a greater number of African microfinance institutions (MFIs) increasingly access commercial capital from domestic and international sources, professionalism in these institutions becomes all the more important.

• Management team capacities and better transparency are important indicators of an institutions potential to attain financial sustainability and profitability, and attract commercial lenders and investors.

Such a need led to the establishment of the African MFI Performance Evaluation Forum in 2001. Fifteen African MFIs and three ratings agencies came together to determine what the most important aspects of evaluation and ratings were. Some of their conclusions include:

• Performance evaluations should be done on a regular basis;
• There needs to be greater support and encouragement of transparency in MFIs;
• Establish a panel that would resolve disputes between MFIs and ratings agencies.

This African MFI Performance Evaluation Forum conducted a study using 26 African MFIs to look at performance evaluation procedures so as to determine how better practices can be implemented. The Forum examined various institutional financial health indicators as well as structures of institutional financing, including:

• Portfolio quality,
• Profitability,
• Influence of the legal status,
• Influence of local legislation,
• Conditions of acquiring commercial funding from other regions,
• Efficiency and productivity.

Some of the conclusions from the study include:

• The study did not fully analyze all the variables that could have an impact on financial performance;
• More data was needed to determine efficiency and productivity of these MFIs and an analysis of their cost structures;
• Overall, the Forum and study are important to bring certain issues such as transparency to light as well as begin developing benchmarks against which to measure certain financial institutional indicators.