Manual on Key Performance Indicators for Development Finance Institutions Developed by: ADFIAP 28 th...
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1 Manual on Key Performance Indicators for Development Finance Institutions Developed by: ADFIAP 28 th ADFIP ANNUAL MEETINGS October 28 – November 1, 2013 Rarotonga, Cook Islands
Manual on Key Performance Indicators for Development Finance Institutions Developed by: ADFIAP 28 th ADFIP ANNUAL MEETINGS October 28 – November 1, 2013
Manual on Key Performance Indicators for Development Finance
Institutions Developed by: ADFIAP 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 2
ADFIAPbriefly Asso. of Development Financing Institutions in
Asia & the Pacific 131 member-institutions in 45 countries
& territories Founded in 1976 during the 6 th ADB conference
for DFIs Founding member & Secretariat of the World Federation
of DFIs An NGO in consultative status with the UN ECOSOC 2008
Winner of ASAEs Associations Make a Better World Award Permanent
secretariat in Manila, Philippines 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 3
4-Pillared Sustainability Framework 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 4
Sustainable Development Role Business Development Role
Professional Development Role the institution the person the nation
KNOWLEDGE + ADVOCACY + LINKAGES EXPERIENCES + TOOLS + COMMUNITY 3
Development Roles & Service Units 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 5
Rationale for the Manual To develop a management and
measurement system for DFIs that: 1.encompasses the main &
critical aspects of their balancing mission and mandate operational
sustainability & development impact. 2.quantifies its
development impact to include economic, social and environmental
dimensions. 28 th ADFIP ANNUAL MEETINGS October 28 November 1, 2013
Rarotonga, Cook Islands
Slide 6
5 Part I: Mission of the DFI Part II: DFI Activities for
Priority Sectors Part III: External Benefits of DFI: Development
Investment Part IV: Indirect Costs of DFI: Subsidies & Failures
Part V: Internal KPIs: The DFIs Efficiency Part VI: Benchmarking:
Key Performance Areas Part VII: Summary of Key Economic &
Financial Performance for Successful & Efficient DFIs Part
VIII: Economic, Social & Environmental Performance Mission of
the DFI Adoption of the Code of Practice 8 KPIs for Development
Investment 7 KPIs for Subsidies & Failure/Longevity Rates of
Start-ups 7 KPIs for Profitability of the DFI 5 KPIs for Portfolio
Quality 4 KPIs for Capital Liquidity 4 KPIs for Efficiency &
Productivity 6 KPIs over 3 Target Sectors = 18 Benchmarks 4 KPIs
for Economic Performance 8 KPIs for Environmental Performance 10
KPIs for Social Performance The Framework 28 th ADFIP ANNUAL
MEETINGS October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 7
6 6 KPIs for DFIs Dissected Key Performance Indicators (KPIs)
for DFIs are the supporting analytical system for planning and
monitoring actual performance against budgets and benchmarks of
Development Finance Institutions (DFIs). To be effective
indicators, these KPIs must be guided by clearly-stated mission,
priority sectors, performance targets and goals. 28 th ADFIP ANNUAL
MEETINGS October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 8
7 Part I: Mission of the DFI A. Overall Preparedness of the DFI
to adopt KPIs Pre-requisites: Mission Statement DFI-wide
understanding of the mission & its implementation into programs
for the target sectors An installed and operating system of
reviewing performance called KPI Internal KPI for reviewing the
sustainability of the DFI External KPI for reviewing the impact of
DFI on the target sector/country B. Corporate Governance and the
Code of Practice for DFIs DFIs can lose all of their capital due to
weak corporate governance structures and practices. ADFIAP is aware
of the importance of good governance and has supported its members
through seminars on the subject. An adoption of a Code of Practice
is a must. 28 th ADFIP ANNUAL MEETINGS October 28 November 1, 2013
Rarotonga, Cook Islands
Slide 9
8 8 Part II: DFI Activities for Priority Sectors External KPIs
measure the volume & quality of Development Investment (DI) of
the DFI. Eventually, these investments are expected to benefit the
target sectors. Part II explores the scope of the DFI operation,
its strengths and constraints. KPIs measure the volume and quality
of investments. Special target sectors like SMEs, entrepreneurs and
new technology are given their own KPIs. 28 th ADFIP ANNUAL
MEETINGS October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 10
9 9 A. The DFI offers the following services indicated with (
): Long-term loans Advisory services (no fee) Consulting services
(for a fee) Equity financing participation for new projects
Short-term loans Import-export facility and financing Residential
housing loans Consumer credit (automobile loans and personal loans)
Guarantee for loans of clients (stand-by credit facility)
Management of assets held in trust for clients Others (please list)
Part II: DFI Activities for Priority Sectors 28 th ADFIP ANNUAL
MEETINGS October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 11
10 (1) Economic Sectors Manufacturing Forest products
Processing Wholesale/Retail Transport and Communication Building
and Construction Real estate and lodging Professional services
Social services Agriculture (plantation) Fishing Others (please
list) (2) Social Groups The poor (low income) Women SMEs Small
farmers, fishermen Others (specify) B. The following sectors or
beneficiaries are the priority target for the DFI: Part II: DFI
Activities for Priority Sectors 28 th ADFIP ANNUAL MEETINGS October
28 November 1, 2013 Rarotonga, Cook Islands
Slide 12
11 Part III: External Benefits of the DFI - Development
Investment The objectives of a DFI are: 1.To improve the
socio-economic status of people by making the right Development
Investments (DIs) 2.To ensure sustainable performance, the DI is a
higher risk than lending to seasoned commercial projects. On one
hand, investing in development projects might strain the DFIs
capital position. On the other hand, a DFI might concentrate its
investments on non-DI assets, forego its priority sectors and enjoy
superior financial returns! Its weak performance over investing in
priority sectors will be questioned. For a DFIs performance to be
sound and sustainable, it must perform well in its development
investments and still be financially sustainable. Dual goals are a
reality in development finance. A DFI is organized to take risks on
behalf of the government to benefit the people. 28 th ADFIP ANNUAL
MEETINGS October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 13
12 Debt or equity funds disbursed by DFIs and made available
for investments with high development impact. Commercial banks do
not finance projects with low short-term returns and high financial
risk Funds provided by official development agencies (ODA) for
re-lending to target sectors Funds that are committed for target
sectors although not actually disbursed, e.g., ear-marked or
guaranteed availability by a DFI Guarantees issued to a commercial
bank, underwriter, etc. in favor of a target beneficiary/sector to
enable the latter to gain access to commercial bank funds or
underwriters funds. Infrastructure projects with very long term
cost recovery Residential housing loans New technologies DIs are
funds that DFIs commit to projects that benefit the target
community/sector which commercial banks are unwilling to finance,
being too risky. Examples of DIs are: Part III: External Benefits
of the DFI - Development Investment 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 14
13 The following loans are not DIs: Loans that would have been
made by commercial banks to financially feasible development
projects, e.g., structured financing for high-risk, high- profit
development projects like bio-ethanol production All commercial
short-term loans to established companies All consumption loans to
individuals except residential loans (which are classified as a DI)
Commercial real estate properties All capital expansion projects
with proven markets Part III: External Benefits of the DFI -
Development Investment 28 th ADFIP ANNUAL MEETINGS October 28
November 1, 2013 Rarotonga, Cook Islands
Slide 15
14 Code Key Performance Indicator KPI Definition & Formula
DI-1 DI-2 DI-3 DI-4 DI-5 DI-6 DI-7 DI-8 1.DI Ratio (%) 2.DI
Instrument (%) 3.Target Economic Sector DI (%) 4.Distribution of DI
by Sector (%) 5.Average Size of DI ($ per sector) 6.Share of DFI in
Each Economic Sector (%) 7.Contribution to Entrepreneurial
Development CED Loans 8.Contribution to Entrepreneurial Development
CED - Advisory Development Investments / Average Total Assets Value
of DI by Instrument / Total Value of DI Value of DI for Target
Economic Sectors / Total Value of DI No. of DI per Economic Sector
/ Total Number of DI Total Value of DI per sector / No. of DI by
Economic Sector Value of DI per Sector / Total Value of DI + Com
Bank Loans Value of DI committed for funding investment in new
business / Total Amount of DI Outreach: Number of new businesses/
assisted by the DFI Number of clients assisted by the DFI to set up
new business Part III: External Benefits of the DFI - Development
Investment 28 th ADFIP ANNUAL MEETINGS October 28 November 1, 2013
Rarotonga, Cook Islands
Slide 16
15 Because DFIs are set up by the government to be exposed to
high credit and operational risks, subsidy from government to DFIs
is a reality from the beginning. Many DFIs are organized with
government providing most of their capital. One can now restate the
objectives of DFIs to include the issue of subsidies, as follows:
1.to improve the socio-economic status of people by making the
right DI 2.to avoid subsidies and be financially and
economically-sustainable Part IV: Indirect Costs of DFI Subsidies
& Failures 28 th ADFIP ANNUAL MEETINGS October 28 November 1,
2013 Rarotonga, Cook Islands
Slide 17
16 CodeKey Performance Indicator RatioKPI Definition &
Formula SD-1 SD-2 SD-3 SD-4 SD-5 SD-6 SD-7 1. Subsidy Dependence
Ratio 2. Subsidy Dependence Index 3. Subsidy-adjusted Return on
Equity (SA-ROE) 4. Subsidy-adjusted Return on Asset (SA-ROA) 5.
Investment Loans to New Business (3 years in business) 6. Failure
Rates of DI Beneficiaries 7. Longevity of Start up Businesses under
DFI Support Total Value of Subsidy to DFI / Total Revenues from
Loans & Equity Investments Total Subsidy to the DFI(s) /
Average Loan Portfolio (L) x Yield on Loans (i) Subsidy-Adjusted
Profit = (Accounting Profits Profit Grants) / Average Equity
Subsidy-Adjusted Profit / Average Total Assets Total Loan to New
Business / Total Loan Number of Failures During the Year / Average
Total Number of DI Beneficiaries Longevity of Start-up
DFI-supported Businesses over a 10 year period or longer Part IV:
Indirect Costs of DFI Subsidies & Failures 28 th ADFIP ANNUAL
MEETINGS October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 18
17 Internal KPIs for DFIs are mainly financial ratios that are
calculated to diagnose its condition and performance. The financial
statements may be filled in using a customized electronic
spreadsheet program (Excel) in order to generate the ratios that
based on common definition. Interpretations, by KPI, follow:
Sustainability and Profitability (SP) Portfolio Quality (PQ)
Capital / Liquidity (CL) Efficiency and Productivity (EP) Part V:
Internal KPIs: The DFIs Efficiency 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 19
18 Key Performance Area Code Key Performance Indicator Ratio
KPI Definition and Formula Sustainability and Profitability (SP)
SP-1 SP-2 SP-3 SP-4 SP-5 SP-6 SP-7 1.Loan Portfolio
Self-sufficiency 2.Operational Self-sufficiency 3.Yield on Gross
Loans Portfolio 4.Average Cost of Deposits 5. Average Cost of
Borrowings 6. Net Income / Capital 7. Net Income / Total Assets
Revenue from loan portfolio / Total expenses Revenue from all
earned income / Total expenses Revenue from loan portfolio /
average gross loan portfolio Interest expense on deposits / average
deposits Interest expense on borrowings / average borrowings Net
income / Average capital Net income / Average assets Part V:
Internal KPIs: The DFIs Efficiency 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 20
19 Key Performance AreaCode Key Performance Indicator Ratio KPI
Definition and Formula Portfolio Quality (PQ) PQ-1 PQ-2 PQ-3 PQ-4
PQ-5 1.Rescheduled Portfolio at Risk 2.Annual Write-off Rate 3.Loan
Loss Coverage (Times) 4.Loan Loss Provision / Total Loans
5.Provision for Loss / Net Interest Earnings Rescheduled portfolio
at risk / Gross loan portfolio Net loan losses written off / Gross
loan portfolio Operating income before loan loss provision / Loan
loss provision Loan loss provision / Average value of loans
portfolio Loan loss provision / Net interest earnings Capital /
Liquidity (CL) CL-1 CL-2 CL-3 CL-4 CL-5 1.Current Ratio 2.Capital
to Assets 3.Capital to Loans 4.Capital to Deposits 5.Borrowed Funds
to Assets Current assets / Current liabilities Average capital /
Average assets Average capital / Average loans Average capital /
Average deposits Average borrowings / Average assets Efficiency and
Productivity (EP) EP-1 EP-2 EP-3 EP-4 1.Loan officer productivity
2.Average disbursed loan size 3.Cost per active loan outstanding
4.Operating expense ratio No. of active borrowers / number of loan
officers Value of loans disbursed / Total number of loans disbursed
Operating expenses / No. of active loans Operating expense /
Average gross loan portfolio Part V: Internal KPIs: The DFIs
Efficiency 28 th ADFIP ANNUAL MEETINGS October 28 November 1, 2013
Rarotonga, Cook Islands
Slide 21
20 Part VI: Benchmarking Key Performance Areas Benchmarks are
useful for DFIs seeking acceptable target performance levels and
good/best practice standards. The Community Development
Institutions (CDFI) has published benchmarks representing current
good practice amongst UK CDFIs intended to act as goals or targets,
particularly for younger organizations. DFIs are very close to
CDFIs in terms of orientation to development and their focus on the
disadvantaged sectors. They can be used as initial benchmarks and
possibly replaced by peer groups of DFIs. The benchmarking is done
using a three-step technique as follows: Determine KPIs for main
market(s) served The KPIs selected for benchmarking should be
reviewed and adjusted Review interlinked factors together to draw a
complete picture. According to CDFI, strong performance on one
benchmark may directly impact (sometimes negatively) performance
over another 28 th ADFIP ANNUAL MEETINGS October 28 November 1,
2013 Rarotonga, Cook Islands
Slide 22
21 DFI Target Sectors Loan Fund Self- sufficiency Gross Yield
Annual Write/Off Loan Officer Productivity Operating Expense
Operational Self- sufficiency Micro- finance 35%16.50%9%10064%40%
Small Business 50%14.50%12%8248%55% Social 48%5.50%3%2018%75%
Example of Benchmarks: UKs CDFI Part VI: Benchmarking Key
Performance Areas 28 th ADFIP ANNUAL MEETINGS October 28 November
1, 2013 Rarotonga, Cook Islands
Slide 23
22 Part VII: Summary of Key Economic and Financial Indicators
Key economic and financial performance indicators will show that a
DFI, being an instrument of public policy, is a successful and
sustainable institution when it: meets its primary mission and
achieves its development goals its business activities are focused
on priority target sectors continues to invest in development
projects with growing outreach in both number and geographic
distribution of projects. In this way, more entrepreneurs open
their small businesses meets its social goals of developing SMEs
and nurturing entrepreneurs and promoting new technologies is
independent of subsidy in whatever form after its initial set-up is
economically efficient and financially self-sustaining at a scale
comparable to performance ratings of benchmarked DFIs 28 th ADFIP
ANNUAL MEETINGS October 28 November 1, 2013 Rarotonga, Cook
Islands
Slide 24
23 ECONOMICCodeDescription of Performance Indicator (GRI Code)
Economic Performance EC2 Financial implications and other risks and
opportunities for the organizations activities due to climate
change (EC2) EC4 Significant financial assistance received from
government (EC4) Market PresenceEC7 Procedures for local hiring and
proportion of senior management hired from the local community at
significant locations of operation. (EC7) Indirect Economic Impacts
EC8 Development and impact of infrastructure investments and
services provided primarily for public benefit through commercial,
in-kind, or pro bono engagement. (EC8) Part VIII: Economic, Social
& Environmental Performance 28 th ADFIP ANNUAL MEETINGS October
28 November 1, 2013 Rarotonga, Cook Islands
Slide 25
24 ENVIRONMENTCodeDescription of Performance Indicator (GRI
Code) Materials EN1 Materials used by weight or volume (EN1) EN2
Percentage of materials used that are recycled input materials
(EN2) Energy EN4 Indirect energy consumption by primary source.
(EN4) EN51 Energy saved due to conservation and efficiency
improvements (EN5l) WaterEN8 Total water withdrawal by source (EN8)
BiodiversityEN11 Location and size of land owned, leased, managed
in, or adjacent to, protected areas and areas of high biodiversity
value outside protected areas (EN11) Emissions, Effluents, and
Wastes EN19 Emissions of ozone-depleting substances by weight
(EN19) Products and ServicesEN26 Initiatives to mitigate
environmental impacts or products and services, and extent of
impact mitigation (EN26) Part VIII: Economic, Social &
Environmental Performance 28 th ADFIP ANNUAL MEETINGS October 28
November 1, 2013 Rarotonga, Cook Islands
Slide 26
25 SOCIALCodeDescription of Performance Indicator (GRI Code)
EmploymentLA1 Total workforce by employment type, employment
contract, and region (LA1) Management- Labor Relations LA4
Percentage of employees covered by collective bargaining agreements
(LA4) LA6 Percentage of total workforce represented in formal joint
management-worker health and safety committees that help monitor
and advise on occupational health and safety programs (LA6)
Education and Training LA10 Average hours of training per year per
employee by employee category (LA10) LA14 Ratio of basic salary of
men to women by employee category (LA14) Part VIII: Economic,
Social & Environmental Performance 28 th ADFIP ANNUAL MEETINGS
October 28 November 1, 2013 Rarotonga, Cook Islands
Slide 27
26 SOCIALCode Description of Performance Indicator (GRI Code)
Security Practices HR8 Percentage of security personnel trained in
the organizations policies or procedures concerning aspects of
human rights that are relevant to operations (HR8) Indigenous
Rights HR9 Total number of incidents of violations involving rights
of indigenous people and actions taken (HR9) CommunitySO1 Nature,
scope, and effectiveness of any programs and practices that assess
and mange the impacts of operations on communities, including
entering, operating, and exiting (SO1) Corruption SO2 Percentage
and total number of business units analyzed for risks related to
corruption (SO2) SO3 Percentage of employees trained in
organizations anti-corruption policies and procedures (SO3) Part
VIII: Economic, Social & Environmental Performance 28 th ADFIP
ANNUAL MEETINGS October 28 November 1, 2013 Rarotonga, Cook
Islands
Slide 28
27 Final Word Members as well as interested non-members of
ADFIAP that would like to use and adopt this manual are requested
to formally write the Association, being its proprietary developer,
and sign a simple non-disclosure agreement as given in the manual.
THANK YOU FOR YOUR ATTENTION! 28 th ADFIP ANNUAL MEETINGS October
28 November 1, 2013 Rarotonga, Cook Islands