MICROBANKING BULLETIN - Microfinance Information Exchange

APPENDICESAPPENDICESAppendix I: Notes to Statistical SectionThe MicroBanking Standards Project, of which TheMicroBanking Bulletin is a major output, is open toall MFIs that are willing to disclose financial datathat meet a simple quality test. Participating MFIstypically have three characteristics: 1) they arewilling to be transparent by submitting theirperformance data to an independent agency; 2)they display a strong social orientation by providingfinancial services to low-income persons; and 3)they are able to answer all the questions needed forour analysis.The one hundred and fourteen institutions thatprovided data for this issue represent a largeproportion of the world’s leading microfinanceinstitutions. They have provided data generally bycompleting a detailed questionnaire, supplementedin most cases by additional information. Allparticipating MFIs receive a customized reportcomparing their results with those of the peergroups.presented, or for consequences resulting from theiruse. We employ a system to make tentativedistinctions about the quality of data presented tous and include only information for which we have areasonable level of comfort. However, we cannotexclude the possibility of a programmisrepresenting its results.The most delicate areas of potential distortion are:(1) unreported subsidies and (2) misrepresentedloan portfolio quality. There can also beinaccuracies in reporting the costs of financialservices in multipurpose institutions that alsoprovide non-financial services, in part because ofdifficulties in assigning overhead costs. These risksare highest for younger institutions, and forinstitutions with a record of optimistic disclosure. Ifwe have grounds for caution about the reliability ofan MFI’s disclosure, we will not include itsinformation in a peer group unless it has beenexternally validated by a third-party.Data Quality IssuesThe Bulletin classifies information from participatinginstitutions according to the degree to which wehave independent verification of its reliability. AAAratedinformation has been independentlygenerated through a detailed financial analysis byan independent third party, such as a CAMELevaluation, a CGAP appraisal, or assessments byreputed rating agencies. A-rated information isbacked by accompanying documentation, such asaudited financial statements, annual reports, andindependent program evaluations that provide areasonable degree of confidence for ouradjustments. B-rated information is from MFIs thathave limited themselves to completing ourquestionnaire. These ratings signify confidencelevels on the reliability of the information; they areNOT intended as a rating of the financialperformance of the MFIs.The criteria used in constructing the StatisticalTables are important for understanding andinterpreting the information presented. Given thevoluntary nature and origin of the data,CALMEADOW, the Editorial Board, and CGAP cannotaccept responsibility for the validity of the resultsAdjustments to Financial DataThe Bulletin adjusts the financial data it receives toensure comparable results. The financialstatements of each organization are converted tothe standard chart of accounts used by the Bulletin.This chart of accounts is simpler than that used bymost MFIs, so the conversion consists mainly ofconsolidation into fewer, more general accounts.Then three adjustments are applied to produce acommon treatment for the effect of: a) inflation, b)subsidies, and c) loan loss provisioning and writeoff.In the statistical tables the reader can compareadjusted and unadjusted results.InflationThe Bulletin reports the net effect of inflation bycalculating increases in expenses and incomes dueto inflation. Inflation causes a decrease in the realvalue of equity. This “cost of funds” is obtained bymultiplying the prior year-end equity balance by thecurrent-year inflation rate. 15 Fixed asset accounts,on the other hand, are revalued upward by the15 Inflation data are obtained from line 64x of the InternationalFinancial Statistics, International Monetary Fund, various years.MICROBANKING BULLETIN, SEPTEMBER 2000 55