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Ratio Measurement

MFI Ratio indicators for portfolio analysis are measured in key areas and when they are all combine, they give a clear perspective about the financial situation of the MFB.


The Key area of ratio management is divided into four indicators namely;

  1. Asset/ Liability Management
  2. Profitability/ Sustainability
  3. Portfolio Quality
  4. Efficiency & Productivity


Using figures from previously analysed financial statement and portfolio report, we calculate the stated ratio below.


  1. Asset and Liability (Financial) Management

These ratios show the ability of an MFI to manage financial obligation in terms of loan disbursements and also take care of its loan obligation to creditors. MFBs should at all times have enough liquidity to meet their obligations and at the same time maximize idle resources to their own advantage.


Categories of ratio in the Asset and Liability Management Ratio

Ratio Source Formula Description Benchmark Range for MBSs
Portfolio yield Income statement

Loan portfolio

Interest and fee income from loans

Average gross loan portfolio

Measures profitability of the loan portfolio Comparable with local market
Portfolio to Assets Loan portfolio

Stat of Fin Pos

Gross Loan Portfolio

Total Asset

Measures part of assets that covers the loan portfolio 60% – 80%
Current Ratio


Stat of Fin Pos

Stat of Fin Pos

Short-term Assets

Short-term Liabilities

Measures the MFIs ability  to cover short-term liabilities
Non-Earning Liquid Asset Stat of Fin Pos

Stat of Fin Pos

Cash and Cash in Bank

Total Asset

Shows how much of the MFBs money is lying idle and not generating income
Financial Expenses Loan portfolio

Loan portfolio

Interest and fee expense

Average gross loan portfolio

Measures what it cost to finance the MFBs asset
Debt-to-Equity Stat of Fin Pos

Stat of Fin Pos



Measures how much of the equity is being financed by debt < 50%





Ratio Sample calculation Figures
Portfolio yield







Portfolio to Assets


2015                       2014

153,000,000            164,000,000

145,000   126,200

2015                      2014

105,517%             129,952%

Current Ratio


2015                      2014


33,000                      29,000

2015                      2014

370%                     358%

Non-Earning Liquid Asset        2015                     2014

6,000                       3,500

145,000              126,200

2015                      2014

4%                        3%

Financial Expenses







Debt-to-Equity 2015                   2014

72,000     69,000

73,000                  57,200

2015                     2014

99%                      121%



Some MFIs only recognize debt in place of liabilities thereby limiting the liabilities only to the debt owed to other sources.


  1. Sustainability / Profitability

These ratios show and summarizes the MFI overall performance level. It shows the profit/loss level and decides the self-sufficiency level of the MFI in other to cover its cost. This ratio determines the continuity of an MFI business operation.


Categories of ratio in the Sustainability and Profitability Ratio


Ratio Source Formula Description Benchmark Range for MBSs
Return on Average Asset Income statement

Stat of Fin Pos

Net Income after tax

Average Total Asset  

Shows how much the MFB is generating through its asset 1.3% – 6%
Return on Average Equity Income statement

Stat of Fin Pos

Net Income after tax

Average Total Equity                

Shows rate of return the MFB earns through equity 7.9% – 18.8%
Operational Self-Sufficiency Income statement

Income statement

Net Income after tax

Fin Expenses+LLP Expense + Operating expense   

Shows the MFBs cost in relation to its operating income >100%
Net Interest Margin Income statement

Income statement

Interest Income – Interest Expenses

Average Earning Assets

Shows the margin generated by the  MFBs earning asset




Ratio Sample calculation Figures
Return on Average Asset 2015


145,000 + 126,200



Return on Average Equity 2015


73,000 + 57,200



Operational Self-Sufficiency 2015            2014


1,707,500    1,567,500

2015            2014

127%             34%

Net Interest Margin 2015

2,750,000 –  495,000








  1. Portfolio Quality

They measure loan portfolio quality of MFI and most especially the loan outstanding in terms of risk exposure. The loan portfolio is the most important asset of MFIs hence should be properly managed.


Categories of ratio in the Portfolio Quality Ratio


Ratio Source Formula Description Benchmark Range for MBSs
Portfolio at Risk (PAR) Non-performing loan Loan portfolio Loan portfolio Portfolio at risk

Gross loan portfolio 

This is the percentage of loan portfolio that is risky <5%
Write-Off  Ratio


Loan portfolio Loan portfolio Value of loan written off during the year

Average loan portfolio                                              

This is the percentage of unrecovered loan that is provisioned from the gross loan portfolio = or < 2
Risk Coverage Loan portfolio Loan portfolio Loan loss provision expense

Portfolio at Risk       

This shows much the MFB can absorb in terms of losses >100%
Loan-at-Risk (LAR)


Loan portfolio Loan portfolio Number of loans more than x days late

Total Number of Outstanding Loans               

Shows the total number of loan that is at risk <5%




Ratio Calculation Figures
Portfolio at Risk (PAR) Non-performing loan 2015                2014

11,229,417        4,798,297

153,000,000                164,000,000

2015                2014

7%                    3%

Write-Off  Ratio






Risk Coverage 2015                2014

210,000      155,000

11,229,417        4,798,297

2015                2014

2%                     3%

Loan-at-Risk (LAR)


2015                2014

125                        105

307,225               372,250

2015               2014

0.04%               0.03%




PAR is also known as Non-Performing Loan and is calculated based on the number of days in which payment are in arrears.


  1. Efficiency and Productivity

These ratios measure the rate and frequency in which an MFI conducts its operations in terms of cost and its relation to output. Emphasis is place on proficiency the management of assets and human resources.



Categories of ratio in the Efficiency and Productivity Ratio

Ratio Source Formula Description Benchmark Range for MBSs
Average Outstanding Loan Size Loan portfolio Loan portfolio Gross Loan Portfolio

Active Borrowers     

Measures the average loan own by clients in the loan portfolio Subject to MFB mission
Operating Expense Ratio Income statement

Loan portfolio

Operating Expenses 

Average gross loan portfolio

Shows the MFB’s expenses which includes administrative and personnel expenses



10 – 40%

Cost per active borrower


Income statement

Loan portfolio

Operating Expense   

Average number of borrower

Shows the cost of maintaining the MFB’s active borrower
Active borrower per Loan Officer Loan portfolio Loan portfolio Number of Active Borrower

Number of Loan Officers          

Shows the average number of borrower that a loan officer manages Between

250 – 280

Client Retention Rate Loan portfolio Loan portfolio Number of Active Borrower

No of Active Borrower + New of New Client

Measures how well the MFB is maintaining its client and acquiring new ones.


Preferable a higher number
Average Deposits Account Stat of Fin Pos

Loan portfolio

Total Deposits          

Total Gross Loan Portfolio

Shows how much of the loan is being financed by depositors funds Preferable a higher number




Ratio Calculation Figures
Average Outstanding Loan Size 2015     2014

153,000,000            164,000,000

307,225           372,250

2015     2014

49,800%                       44,056%

Operating Expense Ratio 2015





Cost per active borrower




307,225 + 372,250



Active borrower per Loan Officer 2015     2014

307,225  372,250

852                          1,121

2015     2014

361                                332

Client Retention Rate 2015                         2014

307,225   372,250

307,225+65                 372,250+42

2015     2014


Average Deposits Account 2015                        2014

33,000     29,000

153,000,000            164,000,000

2015     2014

0.02%                          0.02%


 Ratio Analysis Facts

  • Ratio analysis help understand past indices and give reference for future decision and cannot predict the future.
  • Combination of different ratio gives a clear picture and true position of an MFI result.
  • Decision making for better operation and improvement is independent of financial ratio analysis.
  • MFI use different methodology to deliver their services hence comparing ratios might not give the true picture of event.
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