Financial Performance
of Selected
Microfinance
Institutions
Introduction
With initial and ongoing subsidization, microfinance institu-
tions (MFIs) have been able to operate for years without too
much pressure to comply with the best or most profitable
operational strategies. An increase in competition and the
emergence of an ability to compare the financial performance
Benchmarking Progress
to Sustainability
by Michael Tucker
Abstract: A few microfinance institutions (MFIs) have implemented
best business practices and made the transition to fully regulated finan-
cial institutions. Many more are in the process of undertaking this
transformation or at least considering it. Rising competition among
growing numbers of MFIs for both funding and clients has made
improved financial performance a necessity for most if not all MFIs.
Financial ratios of 17 Latin American MFIs are compared to bench-
mark performance ratios for the industry and with commercial Latin
American banks. This small sample of data, while useful, also under-
lines the need for more widespread MFI reporting. Complicating
reliance on financial comparisons is a complete lack of standardized
measures on how well the poor are being served.
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Journal of Microfinance
Volume 3 Number 2108
of MFIs with each other and to benchmarks is beginning to
create greater concentration on improving business practices.
Realization that more efficient and financially sustainable
MFIs may also in the end lead to the assistance of a greater
number of the poor has served to link improving business prac-
tices with social mission. A shift in defining that social mission
may, however, be underway at some institutions as profits
grow in importance. Measuring and comparing the perfor-
mance of MFIs has been difficult due to both a lack of publicly
available financial information and differences in reporting in
a mostly nonregulated industry. Data used in this overview has
been limited but it does indicate movement toward some stan-
dardization and the emergence of the ability to make bench-
mark comparisons.
Financial Sustainabilty
As more of MFI financing has come in the form of loans at
below market interest rates instead of outright grants, the
providers of low interest loans have found that their fiduciary
responsibilities necessitated greater scrutiny of the financial
practices of recipients. Even for NGOs still providing outright
grants, the task of determining which MFI to fund becomes
more of a business decision as the number of MFIs has grown.
Social goals may be more efficiently and effectively met by
MFIs familiar with best business practices as well as willing to
adhere to free market norms of making their operations trans-
parent to would-be lenders or donors. In the absence of stan-
dardized, well-reported indicators of how well MFIs serve the
poor, the only measures available are financial ratios.
Michael Tucker is a Professor of Finance at Fairfield University in Fairfield
Connecticut. He has consulted with microfinance institutions in Haiti and Nicaragua,
has worked with small business start-ups in both countries, and is one of the founders
of Fairfield University’s Center for Microfinance Advising and Consulting (CMAC).
His publications have appeared in many journals, including Ecological Eco om cs,
Financial Review, Journal of Futures Markets, and Journal of Multinational
Financial Management. Tuck r@fair1.fairfield.edu
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