Title: Measuring the performance of microfinance providers: an assessment of past and present practices

Authors: Ronny Manos, Jacob Yaron

Addresses: School of Business Administration, College of Management, 7 Yizhak Rabin Blvd., Rishon Lezion 75190, Israel. ' School of Business Administration, College of Management, 7 Yizhak Rabin Blvd., Rishon Lezion 75190, Israel

Abstract: Measuring the performance of providers of financial services to poor individuals and to micro and small enterprises is a relatively new phenomenon, and the paper discusses the reasons for this. It is argued that using traditional financial ratios to assess performance of microfinance institutions (MFIs) is inappropriate, owing to the high level of subsidies popular in the industry, which these measures ignore. In contrast, two performance measures that are becoming increasingly popular in the microfinance industry do attempt to adjust for subsidies granted to MFIs. These two performance measures, financial self sufficiency (FSS) and the subsidy dependence index (SDI), are compared and contrasted. The paper points to the superiority of the SDI over the FSS, and suggests the use of the outreach index alongside the SDI, to measure the degree to which the MFI has achieved social objectives.

Keywords: development finance; financial self sufficiency; microfinance institutions; outreach index; subsidy dependence index; financial services; performance measurement.

DOI: 10.1504/IJFSM.2008.019669

International Journal of Financial Services Management, 2008 Vol.3 No.2, pp.171 - 187

Published online: 19 Jul 2008 *

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