Most microfinance institutions (MFIs) have trouble producing accurate and meaningful reports about their financial and social performance. Without timely tracking of the right performance indicators, it is hard for MFIs and their donors to judge progress and manage risk.
Donors often want to track how their specific funds are used by MFIs (how many countries purchased? how many loans made?). Because money is fungible, such reporting is less meaningful than reporting on the performance of the institution as a whole. Reports for donors often leave out the key institutional indicators needed to manage an MFI, to judge its performance, and to compare it with others. Finally, preparing separate reports for each donor’s project imposes and unreasonable burden on many MFIs.
Nevertheless, the donor reporting process can be a powerful tool to improve MFI performance and transparency when it includes presentation –and credible independent confirmation –of core indicators such as loan collection ( e.g. portfolio at risk ), financial sustainability ( e.g. adjusted return on assets), and client poverty levels.