A. INTRODUCTION

Lack of adequate and effective financial accounting and reporting systems is one of the main reasons for failure in microfinance programmes. Financial reporting is the basic means by which you and those who fund your organization can determine: a) the financial soundness of your loan portfolio; b) the efficiency of your programme in terms of overheads to delivery; c) the effectiveness of your controls; and d) the overall financial viability of your programme.

Remember that credit, especially in microfinance, is a matter of trust and verification. Without adequate and appropriate financial controls, your staff will be subject to levels of temptation that could undermine your programme.

In the chapters that follow , you will learn how reliable information is gathered, transferred, and summarized. Information can be transmitted simply and accurately if an orderly process is followed. We have provided a very basic system which should be considered as a starting point.

A note on record-keeping technology..

Our approach to record-keeping in this chapter utilizes straightforward manual systems. While labour-saving products such as carbon paper, three-part forms, copiers or personal computers may be available, these advances save time rather than change the basic process of collecting information.

Accurate and detailed accounting entries must be made for each transaction either manually or by using a computer The principal advantage of a computer is that entries are posted automatically to categories and this data can be quickly sorted and arranged to create reports. A computer will also minimize errors.

Computers have disadvantages. Hardware and software are expensive and require trained personnel. Machines cannot operate without a steady supply of electricity. Also, when computers malfunction, they are difficult to service in the field.

If your programme has a computer, use "Quicken" , a programme published by Intuit Software. It is easy to operate, allows for hundreds of loan accounts and is widely available for either IBM or Apple formats.