Experience has shown that funding agencies’ microfinance interventions produce better results when design, reporting, and monitoring focus explicitly on key measures of performance. Unfortunately, many projects fail to include such measurement. This note, written for staff who design or monitor projects that fund microfinance institutions (MFIs), offers basic tools to measure performance of microfinance institutions (MFIs) in five core areas:
1. Outreach—how many clients are being served?
2. Client poverty level—how poor are the clients?
3. Collection performance—how well is the MFI collecting its loans?
4. Financial sustainability—is the MFI profitable enough to maintain and expand its services without continued injections of subsidized donor funds?
5. Efficiency—how well does the MFI control its administrative costs?
The indicators suggested here do not capture all relevant aspects of MFI performance. Some funders, and certainly all MFI managers, will want to monitor a longer list of indicators. And there are important dimensions, such as governance quality, that simply cannot be quantified.