Institutional Performance Standards and Plans

   


The Institutional Performance Standards and Plans are intended for use by project officers in donor and implementing organizations, managers, and policy makers. The purpose of these principles is to establish common standards for donor agencies to apply in supporting broader access to financial services for micro and small enterprises. They identify the characteristics intermediaries seeking support should be able to demonstrate, either in current operations or through credible plans underpinned by concrete measures.

A. Institutional Strengths

  1. Institutional culture, structures, capacities, and operating systems that can support sustained service delivery to a significant and growing number of low-income clients. Requirements include a sound governing structure, freedom from political interference, good fit to local context, competent and stable staff, a strong business plan for expansion and sustainability, and mission and vision which create a sense of purpose, ownership, and accountability
  2. Accurate management information systems that are actively used, to make decisions, motivate performance, and provide accountability for funds. Such systems are essential for effective and efficient management.
  3. Operations that manage small transactions efficiently, with high productivity, as measured by variables such as loans per staff and operating costs as a percentage of average annual portfolio.
  4. Meaningful reporting standards. Transparent financial reporting that conforms to international standards and allows prospective funders to evaluate performance adequately.

B. Quality of Services and Outreach

  1. Focus on the poor. Evidence of service to low-income clients, women and men, especially clients lacking access to other financial institutions. The focus need not be exclusive, as mainstream institutions such as banks are encouraged to become providers, but it must entail a distinct commitment to reaching the poor.
  2. Client-appropriate lending. For example, for micro-level clients, institutions should feature quick, simple and convenient access to small, short-term loans, often short-term, that are renewed or increased based on excellent repayments. Use of collateral substitutes (e.g., peer guarantees or repayment incentives) or alternative forms of collateral to motivate repayment. Emphasis on character-based lending for smaller loans, with simple cash flow and project appraisal for larger and longer-term loans.
  3. Savings services. Offering savings mobilization services, where legally possible and economically
  4. feasible, that facilitate small deposits, convenient collections, safety, and ready access to funds - either independently or with another institution.
  5. Growth of Outreach. Making significant progress in expanding client reach and market penetration, demonstrating both strong client response to services offered and competence in service delivery management.

C. Financial Performance

  1. Appropriate pricing policies. Offering loans at rates sufficient eventually to cover the full costs of efficient lending on a sustainable basis (after a reasonable start-up period), recognizing that poor entrepreneurs are able and willing to pay what it costs an efficient lender to provide sustainable financial services. Interest charges by the retail unit should be set to cover the costs of capital (at the opportunity cost, including inflation), administration, loan losses and a minimum return on equity.
  2. Portfolio quality. Maintaining a portfolio with arrears low enough that late payments and defaults do not threaten the ongoing viability of the institution. For example, organizations with loans in arrears over 30 days below 10 percent of loans outstanding and annual loan losses under 4 percent of loans outstanding satisfy this condition.
  3. Self-sufficiency. Steadily reducing dependence on subsidies in order to move toward financial self-sufficiency. Achieving operational efficiency, i.e., covering all administrative costs and loan losses with client revenues within a reasonable time period, given local conditions. International experience shows that successful intermediaries have achieved operational efficiency in three to seven years, and full self-sufficiency, i.e., covering all financing costs at non-subsidized rates within five to ten years.
  4. Movement toward financial independence. Building a solid and growing funding base with clear business plans, backed by operational capacities that lead to mobilization of commercial funds from depositors and the financial system, and eventually to full independence from donor support.
Hari Srinivas - hsrinivas@gdrc.org
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