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Finance Management | "Subprime Crisis: Lessons for the Microfinance Industry"

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Subprime Crisis: Lessons for the Microfinance Industry

- By Raghavendra Badaskar *

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Page - 3

Securitization has a lot of pros for the MFIs which become evident from the MFI balance sheet. The loan portfolio disappears from the balance sheet of the MFI and frees up more capital for expansion purpose. The MFIs still carry out the responsibility of collection for which they are appropriately remunerated. Banks further looks for a secondary market for these structured securities. There are numerous measures to gauge the quality of loan portfolio. Table 3 below show the quality and efficiency metrics for a sample of MFIs from the Mix

MFIs Categorized by Loan Portfolio
Category Sustainability Asset Quality Efficiency
Gross Loan Size (MFIs) OSS PaR>30 Days WOR OER CPC
>10,000,000 (Large) (8) 134.30%   2.56%   1.94%   11.57%   276  
< 10,000,000;
>1,000,000 (Medium) (23)
104.59%   4.16%   0.47%   13.20%   306  
< 1,000,000;
> 100,000 (Small) (10)
105.99%   1.53%   0.11%   12.74%   170  

*A little Skew due to averaging effect.

Table 3: Efficiency Parameters for MFI Operations an Indication of Asset Quality

Source: The Mix Market; www.mixmarket.org

OSS = Financial Revenue (Total) / (Financial Expense + Loan Loss Provision Expense + Operating Expense); PaR > 30 days = Portfolio at Risk > 30 days/ Gross Loan Portfolio; WOR = Write Offs for the 12-month period / Period Average Gross Loan Portfolio; OER = Operating Expense / Period Average Gross Loan Portfolio; CPC= Number of Active Borrowers / Number of Personnel.

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* Contributed by: -
Raghavendra Badaskar,
PGP II,
T. A. Pai Management Institute, Manipal.


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