New Microfinance Reporting Standards

Press Release

June 29th, 2010

Are Operating Self Sufficiency (OSS) and Financial Self Sufficiency (FSS) still valid?

Call to action for international stakeholders to shape new Microfinance Financial Reporting
Standards

How does microfinance as an industry decide what ratios are important for financial reporting or social performance?  How do
different stakeholders with varied interests come together to decide how MFIs
should operate so that the entire universe of thousands of institutions advance?  It isn’t easy, but a public comment period
available now requests your input. 

The SEEP Network ("Helvetica Neue Light""">www.seepnetwork.org"Helvetica Neue Light""">), a US based NGO that works with MFI associations in North America and throughout the world, is leading a voluntary compliance
effort to bring together necessary stakeholders on reporting standards for
MFIs. It is called the Microfinance Reporting Standards Initiative (www.reportingstandards.org). 
The new standards will increase transparency, facilitate comparability,
improve decision-making, and increase investment by making it easier to observe
and understand an MFI’s financial health.

Collaborative efforts led to a 2005 publication of the SEEP FRAMEWORK “Measuring Performance of Microfinance Institutions, a Framework for Reporting, Analysis, and Monitoring.” The Framework includes
foundational information for uniform financial statements and 18 ratios
designed to measure MFI performance in four areas: 1) sustainability/ profitability;
2) asset and liability management; 3) portfolio quality; and 4) efficiency/ productivity.
Such information is used on MIX Market, the FRAME tool, investors/donors, MIS
software vendors, raters, regulators, auditors, etc. The original Framework was
tailored to credit-only institutions.

Today in 2010, we have the next iteration of the Microfinance Financial Reporting Standards with extensive updates to the Framework. The current draft adds new ratios to better convey
financial position and performance. It adds information on savings to be more
pertinent for deposit taking institutions and credit unions. Guidance is
provided for capital adequacy, capital quality and foreign exchange risk. The
ratios incorporate recent developments in international accounting and
financial reporting, including new standards and guidelines from IASB, Basel
II, and IFRS.  For example, OSS and FSS
are suggested to be removed and replaced by ROE and ROA to reflect the fact
that MFIs can and must cover their costs (aka be profitable or at least break
even). 

Dozens of organizations are involved, including Social Enterprise Associates, Mennonite Economic Development Associates (MEDA), CHF International, Opportunity
International, The Microfinance Information Exchange (MIX) and many other
highly knowledgeable microfinance stakeholders. Investors, donors, raters, and
others are providing feedback until July 18th. Please take a look and
share with others to participate in this open review period.

Once industry-wide consensus has been built, the SEEP Network will release a second edition of the Framework, ideally in late 2010.

To provide opinions, financial support, and/or other contributions to this initiative, visit www.reportingstandards.org. You may also contact Lindsey
Longendyke at SEEP (longendyke@seepnetwork.org) or Drew Tulchin (drew@socialenterprise.net).