New Financial Ratios for Microfinance Reporting

This article describes eight new ratios that convey MFI financial position and performance.

Over the past decade, there has been an industry wide effort to identify and implement financial reporting standards that would provide uniform financial information for all MFIs.

The ratios incorporate recent developments in international accounting and financial reporting. They are:

• Capital Adequacy Ratio, which measures an institution's solvency;
• Uncovered Capital Ratio, which provides a detailed indication of MFI portfolio quality;
• Foreign Currency Risk Ratio, which measures the relationship between an MFI's net foreign currency assets and its equity for each foreign currency;
• Average Deposits Balance per Deposit Account, which helps an institution gauge its client base in terms of their savings;
• Yield on Liquidity and Investment Ratio, which indicates the level of returns for an institution from its cash holdings and investments;
• Savings Liquidity Ratio, which measures an institution's ability to accommodate withdrawals from deposits;
• Effective Financial Expense of Savings Ratio, which measures how much interest an MFI pays for savings;
• Effective Operating Expense of Savings Ratio, which tells an MFI how expensive it is to run its savings program.