Glossary of Financial Terms

KEY INDICATORS Active Clients: the number of clients with loans outstanding on any given date. Total Loan Portfolio: the outstanding principal balance of all of the MFIs outstanding loans including current, delinquent and restructured loans, but not loans that have been written off. Capital Adequacy Leverage (Risk Assets/Equity): measures the relationship between an institutions capital base and its risk weighted asset exposure. The optimal range for this indicator as measured by the ACCION CAMEL is < 6.0X. Asset Quality Portfolio at Risk > 30 days/Total Portfolio: the total balance of normal loans over 30 days past due + portfolio in legal collection + total balance of refinanced portfolio/active loan portfolio. The optimal range for this indicator as measured by the ACCION CAMEL is < 3.0%. Efficiency Operating Expense/Average Portfolio: measures the operating efficiency of an MFI. The optimal range for this indicator as measured by the ACCION CAMEL is < 20.0%. Earnings Net Operating Income/Average Assets: Measures how well the MFI uses its total assets to generate returns from operations, before donations, taxes and other non-operating revenue/expenditures. The optimal range for this indicator as measured by the ACCION CAMEL is > 3.0%. Return on Assets (Net Income/Average Assets): Measures how well the MFI uses its total assets to generate returns, after donations, taxes and other non-operating revenue/expenditures. Net Operating Income/Average Equity: Measures the institutions ability to increase its equity base through earnings from operations, before donations, taxes and other nonoperating revenue/expenditures. The optimal range for this indicator as measured by the ACCION CAMEL is > 15.0%. Return on Equity (Net Income/Average Equity): Measures the institutions ability to increase its equity base through earnings, including donations, taxes and other non-operating revenue/expenditures.

STATISTICS New Clients: the total number of new clients that entered the microfinance program during any specific period of time. Active Clients: the number of clients with loans outstanding on any given date. Amount Disbursed: the total value of loans disbursed during any specific period of time. Active Portfolio: the total amount loaned out less amount of repaid loans; i.e., all money that is on the street or owed to the institution in the form of loans on a given date. Average Balance: this is the average loan balance that the active clients have with the institution. Total active portfolio/Active clients. Portfolio at Risk > 30 days: the total balance of normal loans over 30 days past due + portfolio in legal collection + total balance of refinanced portfolio/active loan portfolio.

QUARTERLY REPORT Balance Sheet: The balance sheet is a stock statement, which is a snapshot of the MFI at a moment in time. The statement reflects what the MFI owns and what is owed to it (assets), what it owes others (liabilities), and the difference between the two (equity or net assets). The balance sheet shows the net worth of an institution at that moment. Total Loan Portfolio: the outstanding principal balance of all of the MFIs outstanding loans including current, delinquent and restructured loans, but not loans that have been written off. Loan Loss Reserve: a provision set aside to cover potential loan losses. Net Fixed Assets: the purchase value or cost of all physical property and property improvements, furniture, and equipment that are currently used by the MFI (including all donated equipment) less accumulated depreciation expenses. Commercial Debt: funds received by the MFI through a loan agreement or other contractual arrangement that carry a market rate of interest. Subsidized Debt: funds received by the MFI through a loan agreement or other contractual arrangement that carry a below market rate of interest. Total Liabilities: all the liability accounts representing everything that the MFI owes to others, including all deposits, borrowings, accounts payable, and other liability accounts. Net Worth: total assets less total liabilities. It is also the sum of all of the equity accounts net of any equity distributions such as dividends, stock repurchases, or other cash payments made to shareholders. Income Statement: The income statement is also known as the profit and loss statement. It is a flow statement that summarizes all financial activity during a stated period of time, usually a month, quarter or year. It displays all revenues and expenses for a stated period of time. The bottom line of an income statement is the net income (or net profit or surplus) for the period. Interest and Fee Revenue: revenue from interest earned, fees and commissions on the loan portfolio. Total Operating Revenue: this is the sum of all operating revenue accounts. This item includes revenues linked with lending such as interest from loans, accrued interest, loan commissions, and training revenue. Total Financial Expense: this is the sum of the financial expense accounts. This item includes all interest, fees and commissions incurred on all liabilities, and loan loss provision expenses.

Financial Margin: Operating Revenue minus Financial Expense. Measures the value of operating revenue that remains after all financial expenses have been paid. Total Operating Expense: non-financial expenses directly related to the provision of financial services or other services that form an integral part of the MFIs financial services relationship with its clients. Examples include rent, utilities, supplies, and personnel salaries. Net Operating Income: total operating revenue less all expenses related to the MFIs core financial service operations. It does not include donations, revenues expenses from nonfinancial services. Other Income: all revenue not directly related to core microfinance operations. Donations and revenues from grants may also be considered non-operating revenue. Other Expenses: all expenses not directly related to the core microfinance operation. This may include extraordinary expenses, which are one-time expenses incurred by the MFI that are not likely to be repeated in coming years. Net Income: total revenue less total expenses, operating and non-operating, including all donations and taxes, if any. Ratios Capital Adequacy Leverage (Risk Assets/Equity): measures the relationship between an institutions capital base and its risk weighted asset exposure. The optimal range for this indicator as measured by the ACCION CAMEL is < 6.0X. Loan Loss Reserve/Total Portfolio: measures the degree to which an MFI has reserved for potential loss in relation to its total outstanding loan portfolio. Loan Loss Reserve/Portfolio at Risk > 30days: measures the degree to which the portfolio at risk is covered by the MFIs loan loss reserve. Portfolio at Risk > 30 days/Total Portfolio: the total balance of normal loans over 30 days past due + portfolio in legal collection + total balance of refinanced portfolio/active loan portfolio. The optimal range for this indicator as measured by the ACCION CAMEL is < 3.0%. Productivity Total Portfolio/Loan Officer (actual amount): measures the average value of the loan portfolio managed by each loan officer. Active Clients/Loan Officer: measures the average caseload of each loan officer. Active Clients/Total Staff: measures the overall productivity of the MFIs total human resources in managing clients.

Efficiency Operating Expense/Operating Revenue: measures the percentage of operating revenue that is utilized to cover operating costs. Operating Expense/Average Portfolio: measures the operating efficiency of an MFI. The optimal range for this indicator as measured by the ACCION CAMEL is < 20.0%. Financial Expense/Average Portfolio: Measures the financial cost of maintaining the outstanding loan portfolio. Financial Margin/Average Portfolio: Measures the amount of operating revenue remaining, in relation to the loan portfolio, to cover operating and other expenses after all financial costs have been covered. Profitability Net Operating Income/Average Assets: Measures how well the MFI uses its total assets to generate returns from operations, before donations, taxes and other non-operating revenue/expenditures. The optimal range for this indicator as measured by the ACCION CAMEL is > 3.0%. Return on Assets (Net Income/Average Assets): Measures how well the MFI uses its total assets to generate returns, after donations, taxes and other non-operating revenue/expenditures. Net Operating Income/Average Equity: Measures the institutions ability to increase its equity base through earnings from operations, before donations, taxes and other nonoperating revenue/expenditures. The optimal range for this indicator as measured by the ACCION CAMEL is > 15.0%. Return on Equity (Net Income/Average Equity): Measures the institutions ability to increase its equity base through earnings, including donations, taxes and other non-operating revenue/expenditures.

The information in this glossary is based on the ACCION CAMEL and on the article titled Definitions of Selected Financial Terms, Ratios, and Adjustments for Microfinance, which was the result of a roundtable project that included the following institutions MicroRate, the SEEP Network, The MicroBanking Bulletin, CGAP, IADB, USAID, Planet Finance, M-CRIL, and the Financial Services Working Group of the SEEP Network.