MICROFINANCE MATTERS - Microfinance Institution Performance: Monitoring Made Simple

UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance

Issue 1 / January - February 2004

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Standardized Donor Reporting Tool in Uganda Increases Donor Collaboration and Transparency CGAP Donor Good Practice Case Study No. 7, 2003

"The collaborative effort of microfinance industry players and donors in Uganda to standardize reporting is a great example of aid efficiency. A standardized reporting format for donors will bring down transaction costs and allows MFIs to better focus their efforts and resources on the need of their customers. Standardized reporting could also increase the transparency of the sector."

Peter Kooi, Director UNCDF Microfinance (Member of CGAP)

Local microfinance institutions in Uganda teamed up with 15 donor agencies - including the African Development Bank (AfDB), the European Union (EU), the Norwegian Agency for Development Cooperation (NORAD), the U.K. Department for International Development (DFID), and the U.S. Agency for International Development (USAID) - to develop a standardized reporting tool, known as the Performance Monitoring Tool (PMT). The new reporting format was designed to reduce the administrative burden on MFIs incurred by unconnected, multiple reporting requirements of donor agencies. The Tool also allows donors to improve transparency and accountability in monitoring the performance of their MFI partners.

The goal of the Performance Monitoring Tool (PMT) is to provide a quarterly report regarding the institutional performance of MFIs. Selected items from an MFI's financial statements and portfolio information, in addition to 38 key performance indicators make up the content of the five-page report. Indicators on profitability, liquidity, portfolio quality, capital ratios, and outreach are included among these strategic and performance indicators. Qualitative information in the narrative report supplements the quantitative data.

PMT is expected to reduce time spent on reporting to donors, allowing MFI managers more time to concentrate on the strategic and operational aspects of their organizations. The comprehensive set of institutional results, trends, and indicators included in the PMT report will help MFIs to better manage their institutional performance. For donors, the reports provide comprehensive institutional information needed to evaluate MFI performance, track any funds received and spent by an MFI, and help improve overall management. Clients will also benefit from being served by a more efficient and secure institution. The development of a standardized reporting format also paved the way for AMFIU (Association of Micro Finance Institutions in Uganda) to set local standards and benchmarks for the microfinance industry in Uganda.

Efforts to create a uniform reporting format for MFIs were initiated by the Support to Feasible Financial Institutions and Capacity Building Efforts (SUFFICE) project in June 2000. With the collaboration of USAID-funded Support for Private Enterprise Expansion and Development (SPEED), which was in charge of developing the financial report format, SUFFICE introduced a complete reporting tool by adding a narrative reporting format in May 2002. After initial testing and donor approval, the PMT became available for use by the MFIs in the end of June 2003.

Key to the speedy adoption of the format was the high level of donor coordination, achieved principally through the Private Sector Donor Sub-Group on microfinance (PSDSG), which enabled members to reach consensus on a vision for the microfinance industry in the country. The supportive legal and regulatory environment enjoyed by the Ugandan microfinance industry, and the government's political will to implement sound microfinance practices in the sector also promoted the rapid success and implementation of the reporting initiative.

The development and implementation of the Performance Monitoring Tool in Uganda is one example of the success of collaborative efforts between donor countries and key stakeholders in the standardization of MFI reporting, and provides country-level input for the work of The MIX Market in standardizing MFI reporting throughout the industry.

To read the full text, please go to the CGAP direct www.cgap.org/docs/CaseStudy_07.pdf. For more information on the PMT in Uganda, contact the Uganda Private Sector Donor Group at www.private-sector.org, Infomatics, LTD. at www.informaticsltd.com and the MIX Market at www.mixmarket.org.

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