By George Nhepera- Facilitator/Coordinator

gnhepera@zamfi.org/ gnhepera@gmail.com

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 Outline of the Session 3
Use of Financial Ratios
in Financial Analysis

Financial Analysis (FA)

Models for MFIs
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 Financial Ratios and MFI
Performance Monitoring Models
 What is a Ratio ?
1. A ratio simply relates one figure appearing in the
financial statement to some figure appearing
somewhere.
2. Alternatively ratios describe the relationships
between different items in the financial statement

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What Benefits can be derived from
Ratios by MFI
 Ratios to a MFI is what a scan or x-ray machine is to a
doctor. A detecting or diagnostic tool of a problem.
 Imagine a clinic operating without a scan/X-ray to detect
patients problems.
 The same for an MFI not interested in Ratio Analysis
 They provide a very quick and relatively simple means
of assessing( revealing ) the financial health of an MFI
business.( HIV Status)/ Coronavirus!!!
 If used correctly, ratios can be a powerful tool for
understanding, interpreting and comparing financial
reports.
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 Introduction to Models for FA of
MFIs
 It is therefore against this background of the usefulness of
ratios in reflecting the performance of a company that has
seen in recent years, models that are ratios-based being
developed for evaluating MFIs performance.
 Models that group ratios into categories which relate to
a particular aspect of an MFI financial performance are
currently being used by various donors, regulators ,
practitioners and rating agencies such Planet, M-Gril,
Microrate in the microfinance sector.

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 Models(Tools) for MFI Perfomance Monitoring( PM )

Three main models These are

have emerged, which
the MFIs can chose for
assessment of their
Performance over time
• Accion CAMELS Tool
• The FRAME Tool-PAPE
• The Risk Management
System Tool ( RAS)

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 ACCION CAMELS

• Capital adequacy,(buffer)
CAMELS • Asset quality(default risk),
(is an • Management(leadership)
acronym • Earnings,(Profit)
• Liquidity mgt( life blood!)
for: • Sensitivity to Market Risk

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 Accion CAMELS
 A diagnostic management tool which was developed in the
late 1970s for use by banks regulators in USA.
 Leading international MFIs worldwide such as ACCION and
FINCA , have adopted the tool, which seeks to identify the
strengths and weaknesses of the MFI with respect to the
above key areas.
 In Zimbabwe RBZ adopted it for MFIs in 2004 as a tool for
assessing suitability for credit granting from a
Wholesale Facility. Most donors and regulators use the
tool.

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 FRAME TOOL

Tools Tracks 18
ratios for PAPE
FRAME is i.e.
Framework for
• Profitability and
Reporting, sustainability,
Analysis, • Asset and liability
Monitoring and mgt,
Evaluation • Portfolio quality,
• Efficiency and
productivity.

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 FRAME TOOL -PAPE
 Tool was developed by the SEEP Network and
Alternative Credit Technologies in 2005 to help MFIs
analyze and monitor their financial performance.
 The model tends to comprehensively consolidate all
aspects of performance measurement (summarized
into ratios).
 These ratios are easy to generate and interpret,
allowing a simple appraisal of an MFI to be done by
many stakeholders of different orientations.

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 FRAME TOOL
 Hence it has been adopted by many donors, MFIs and
regulators.
 In Zimbabwe ZAMFI has adopted the tool for its
quarterly offsite analysis of the financial sustainability
of MFIs
 Workshops on the tool were conducted prior to the
adoption of the tool and included officials from the
central bank.

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 Risk Assessment System (RAS)

Risks monitored
are 8 Major risks: OUTPUT
• Credit risk REPORT
• Liquidity risk
Monitors the MFI Risk Mapping
• interest rate risk
from a risks • Foreign exchange
Matrix and
perspective, a new risk Narratives
approach. • Operational risk ( highlight key risk
• legal and
compliance,
to focus in
• Strategic Risk monitoring )
• reputational risks.

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 RAS TOOL
 Failure to adequately manage these risks exposes
MFIs to risk of :
1. insolvency,
2. litigation
3. financial collapse.
 The tool has been adopted by many central banks
and individual MFIs for performance Monitoring
from a risk perspective

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 Discussion/Exercises- 3
1. In pairs/groups.
2. As an MFI which of the 3 Model(Tools) for PM
would you be comfortable to use and Why ie
a) Accion CAMEL
b) Frame- PAPE
c) RAS- Risk assessment System
3. What are the likely benefits and challenges you
would derive from your desired tool?
Share with us.

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 Take a Break
5 Minutes

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