How to Measure the Performance of Microcredit Programs

Measure outreach.
Types of clients served and variety of financial services offered determine the level of outreach. Indicators of outreach include
  • The value and number of loans and savings accounts;
  • Types of financial services offered;
  • Number of branches established;
  • Percentage of target population served;
  • Annual growth rate of assets;
  • Participation of women.
All thriving rural finance institutions did well in at least 2 of these areas.

Measure self-sustainability.
A credit program or institution is self-sustaining when income exceeds expenditures (including the opportunity costs of equity). When an institution providing credit receives a subsidy, it may be profitable but unable to sustain that profitability.

Subsidies to credit institutions can take several forms:

  • below-market interest rates;
  • losses absorbed by the state instead of the institution;
  • reimbursements of operating costs;
  • exemptions from reserve requirements or forced investments.

The Subsidy Dependence Index (SDI)
The SDI is a financial tool developed to measure the reliance of an institution on subsidies. The index measures how much the average lending interest rate would have to be increased to compensate for a complete and immediate subsidy elimination. The lower the SDI, the more sustainable the institution.

The SDI measure does not mean that adjusting interest rates is feasible in all cases. Successful rural finance institutions vary greatly in their dependence on subsidies. Measuring the performance of credit programs is not accomplished by the uniform application of narrow criteria. A flexible approach yields the best results, but evaluation criteria must address these core areas of performance.

Yaron, Jacob. 1994. Successful Rural Finance Institutions. Finance and Development, vol. 31, no. 1, p. 33.

Hari Srinivas -
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