cgap training accounting principles for mfis slides 4b
DESCRIPTION
Slides for CGAP's Accounting Principles Training.TRANSCRIPT
©CGAP/World Bank, 2009
SAFE Profitability Indicators A7-O14a
Ref. DESCRIPTION 2005 2006 2007
R1 Operational Self-Sufficiency Ratio
a Financial Revenue 60,114 200,455 739,948
b Financial Expense 2,087 645 53,558
c Impairment Losses on Loans - - 31,208
d Operating Expense 365,181 671,391 947,923
e b + c + d 367,268 672,036 1,032,689
R1 Operational Self-Sufficiency Ratio = a/e 16.37% 29.83% 71.65%
Adj R1 Financial Self-Sufficiency Ratio
a Financial Revenue 60,114 200,455 739,948
b Adjusted Financial Expense 5,397 73,426 146,789
c Adjusted Impairment Losses on Loans - - -
d Adjusted Operating Expense 405,181 711,391 987,923
e b + c + d 410,578 784,817 1,134,712
Adj R1 Financial Self-Sufficiency Ratio = a/e 14.64% 25.54% 65.21%
R2 Return on Assets (ROA)
a Net Operating Income (307,154) (471,581) (292,741)
b Taxes - - -
c a - b (307,154) (471,581) (292,741)
d Average Assets 305,818 860,288 1,522,798
R2 Return on Assets (ROA) = c/d -100.44% -54.82% -19.22%
©CGAP/World Bank, 2009
SAFE Profitability Indicators (continued)
A7-O14b
Ref. DESCRIPTION 2005 2006 2007
Adj R2 Adjusted Return on Assets (AROA)
a Adjusted Net Operating Income (350,464) (584,362) (425,972)
b Taxes - - -
c a - b (350,464) (584,362) (425,972)
d Adjusted Average Assets 305,818 869,964 1,542,734
Adj R2 Adjusted Return on Assets (AROA) = c/d -114.60% -67.17% -27.61%
R3 Return on Equity (ROE) = c/d
a Net Operating Income (307,154) (471,581) (292,741)
b Taxes - - -
c a - b (307,154) (471,581) (292,741)
d Average Equity 219,582 524,835 767,651
R3 Return on Equity (ROE) = c/d -139.88% -89.85% -38.13%
Adj R3 Adjusted Return on Equity (AROE) = c/d
a Adjusted Net Operating Income (350,464) (584,362) (425,972)
b Taxes - - -
c a - b (350,464) (584,362) (425,972)
d Adjusted Average Equity 219,582 534,510 787,588
Adj R3 Adjusted Return on Equity (AROE) = c/d -159.61% -109.33% -54.09%
©CGAP/World Bank, 2009
SAFE ALM Ratios A7-O15a
Ref. DESCRIPTION 2005 2006 2007
R4 Yield on Gross Portfolio Ratio = a/b
aCash Received from Interest, Fees,and
Commissions on Loan Portfolio47,072 189,619 734,069
b Average Gross Loan Portfolio 100,735 409,367 1,088,835
R4 Yield on Gross Portfolio Ratio = a/b 46.73% 46.32% 67.42%
R5 Portfolio to Assets Ratio
a Gross Loan Portfolio 201,470 617,263 1,560,406
b Assets 611,635 1,108,941 1,936,655
R5 Portfolio to Assets Ratio = a/b 32.94% 55.66% 80.57%
R6 Cost of Fund Ratio
a Financial Expenses on Funding Liabilities 2,087 645 6,032
b Average Deposits
c Average Borrowings 20,756 52,802 38,053
d b + c 20,756 52,802 38,053
R6 Cost of Fund Ratio = a/d 10.05% 1.22% 15.85%
Adj R6 Adjusted Cost of Fund Ratio
a Adjusted Financial Expenses on Funding Liabilities 5,397 13,728 57,420
b Average Deposits
c Average Borrowings 20,756 52,802 38,053
d b + c 20,756 52,802 38,053
Adj R6 Adjusted Cost of Fund Ratio = a/d 26.00% 26.00% 150.90%
©CGAP/World Bank, 2009
SAFE ALM Ratios (continued) A7-O15b
Ref. DESCRIPTION 2005 2006 2007
R7 Debt to Equity Ratio
a Liabilities 172,472 498,435 1,011,859
b Equity 439,163 610,506 924,796
R7 Debt to Equity Ratio = a/b 39.27% 81.64% 109.41%
Adj R7 Adjusted Debt to Equity Ratio
a Liabilities 172,472 498,435 1,011,859
b Adjusted Equity 439,163 629,857 895,318
Adj R7 Adjusted Debt to Equity Ratio = a/b 39.27% 79.13% 113.02%
R8 Liquid Ratio
a Cash 267,439 302,067 215,686
b Trade Investments 17,000 47,319 38,270
c a + b 284,439 349,386 253,956
d Demand Deposits 130,960 434,344 950,517
e Short-term Deposits - - -
f Short-term Borrowings 41,512 64,091 12,014
g Interest Payable on Funding Liabilities - - 49,328
h Account Payable and Other Short-term Liabilities - - -
i d + e + f + g + h 172,472 498,435 1,011,859
R8 Liquid Ratio = c/i 164.92% 70.10% 25.10%
©CGAP/World Bank, 2009
Purpose of Internal Controls
Preserve the safety of assets
Improve quality of customer service
Ensure reliability of financial
information
Ensure staff adherence to policy and
guidelines
A7-O16
©CGAP/World Bank, 2009
Sources of Risk
Delinquency Risk
Fraud
Liquidity Risk
Operating Risk
Security Risks
Accounting/Bookkeeping Risk
Risk of Computerization
Governance
A7-O17
©CGAP/World Bank, 2009
External Audits
A formal, independent review of an entity’s financial statements, records, transactions, and operations, performed by professionals, for purposes of:
Lending credibility to financial statements and other management reports
Assuring accountability for donor funds
Identifying weaknesses in internal controls and systems
Scopes differ significantly according to the objectives of each audit.
A7-O18
©CGAP/World Bank, 2009
Balancing Act:
A Microfinance Accounting Game
A8-O1
©CGAP/World Bank, 2009
Instructions to Determine Levels of Risk and Interest on Debt
Risk Level
Choose a level of risk: Low, Medium, High
Roll the die. Given the number that appears on the top of the die, the player calculates his/her risk:
Low risk = 1 x die # = 1x6 = 6
Medium risk = 2 x die #
High risk = 3 x die #
Record the risk level in the space on the opening balance sheet.
I rolled a 6 and chose medium risk—my risk level is 2 x6 = 12.
A8-O2a
©CGAP/World Bank, 2009
Instructions to Determine Levels of Risk and Interest on Debt (continued)
Determine Interest on Debt
Using the same number that appeared on the die from the previous roll, players calculate the interest rates to be paid on borrowings. For
Concessional loans = 0.5 x die #
Commercial Loans = 2 x die #
Record interest rates for debt on opening Balance Sheet in the box provided.
A8-O2b
Using my same roll of 6—
my concessional loan rate = 0.5 x 6 = 3%
my commercial loan rate = 2 x 6 = 12%
©CGAP/World Bank, 2009
Sample Entries for Loan Disbursements and Loan Repayments
LOAN DISBURSEMENTS (D cards)
1. If $15,000 in loans was disbursed on the fifth week of the year, the
General Journal entry is as follows:
A8-O3a
Wk# Account Title Ref. Debit Credit
5 Loans Outstanding – Current 120 15,000
5 Cash 101 15,000
©CGAP/World Bank, 2009
Sample Entries for Loan Disbursements and Loan Repayments (continued)
A8-O3b
2. The calculation of loan fees earned is as follows:
LOAN FEES EARNED = Amount of Loan Disbursed x Loan Fee Rate
Loan Fees Earned = ($15,000 x 5%)
Loan Fees Earned = $750
The General Journal entry becomes:
Wk# Account Title Ref. Debit Credit
5 Loans Outstanding – Current 120 15,000
5 Cash 101 15,000
5 Cash 101 750
5 Loan Fees 415 750
©CGAP/World Bank, 2009
Sample Entries for Loan Disbursements and Loan Repayments (continued)
A8-O3c
3. The calculation of interest earned is as follows:
INTEREST REVENUE = Amount of Loan Disbursed x Interest Rate x [Number of Weeks the Loan will be Outstanding in the Current Year]
NOTE: In this example, the loan was disbursed on week 5. Therefore it will be outstanding for 47 weeks this year.
Interest Revenue = ($15,000 x 26% x 47/52)
Interest Revenue = $3,525
DEFERRED REVENUE = Amount of Loan Disbursed x Interest Rate x
[Number of Weeks the Loan will be Outstanding in the Next Year]
NOTE: In this example, the loan was disbursed on week 5 of this year. Therefore it will be outstanding for 47 weeks this year and will remain outstanding for five weeks next year.
Deferred Revenue = ($15,000 x 26% x 5/52)
Deferred Revenue = $ 375
©CGAP/World Bank, 2009
Sample Entries for Loan Disbursements and Loan Repayments (continued)
A8-O3d
The complete General Journal entry becomes:
Wk# Account Title Ref. Debit Credit
5 Loans Outstanding – Current 120 15,000
5 Cash 101 15,000
5 Cash 101 750
5 Loan Fees 415 750
5 Cash 101 3,900
5 Interest Revenue (47/52 weeks) 410 3,525
5 Deferred Revenue (5/52 weeks) 225 375
©CGAP/World Bank, 2009
Sample Entries for Loan Disbursements and Loan Repayments (continued)
A8-O3e
LOAN REPAYMENTS (R cards)
Wk# Account Title Ref. Debit Credit
2 Cash 101 15,000
2 Loans Outstanding - Current 120 15,000
2 Deferred Revenue (2/52 weeks) 225 150
2 Interest Revenue (2/52 weeks) 410 150
©CGAP/World Bank, 2009
Opportunity Square – A Choice
This is your decision—you may choose or decline the
opportunity.
Decide based on your risk level, cash position, and so
on.
A8-O4
Other Squares
Typical transactions of an MFI, to be recorded as
stated on the square.
©CGAP/World Bank, 2009
Accessing a Line of Credit
Cash balance at any time should be a positive one.
If a player does not have enough cash to make loan
disbursements or pay expenses, she must access her line
of credit.
A8-O5
Wk# Account Title Ref. Debit Credit
26 Cash 101 15,000
26 Short-term Borrowings 215 15,000
©CGAP/World Bank, 2009
Instructions on How to Start Playing
1. Roll die to see who starts first. The person who rolls the
highest number on the die begins.
2. The next players are determined in a clockwise direction
(the person to your left).
3. The first player rolls die, moves the marker the number
squares as appears on the die.
4. Record the transaction of the square you landed on in
your General Journal and cash ledger.
A8-O6