Sa-Dhan Newsletter Volume 5 Issue 1
Operational Costs of Delivering MicroFinance
Relationship between the operating expense ratio and portfolio size of individual MFIs has been investigated in Figure
4. Though the correlation is not perfect, an inverse relationship between portfolio size and operating expense ratio emerges
from the sample information. However, the inverse correlation is stronger during the initial growth after which it stabilises.
It can be expected to go down further to an average range of 7-15% as the portfolio size reaches around US$1 million.
However, this also depends on the methodology adopted by the organisation.
The above discussion indicates the factors affecting the operating expenses of MFIs. This also tells us the relationship
between the operating expenses and operational efficiency. To summarise, these factors are: the personnel efficiency in
terms of clients services and loan serviced, maturity of the MFI in terms of its age and its attaining the economies of
scale.
Benchmarks in operational efficiency
The Top10 MFIs in the M-CRIL database can be regarded as the benchmark for the MF industry in Asia. Of these 10
MFIs, four are Indian MFIs and the rest are from different parts of Asia. Some of the indicators of their operational
efficiency are provided in Table 3.
Table 3: Industry Benchmarks
MFIs
MFI Model
OER (%)
Operational Efficiency
Age
Portfolio size
Clients
Loan serviced
(Years)
(INR)
serviced
(INR*)
I
Grameen
23.4
112
302,284
4.5
93,331,150
II
Grameen
323
1,414,108
1.5
6,750,000
6.7
III
SHG
21.1
673
198,529
3.5
36,400,000
IV
Mixed
7.1
194
12.5
187,500,000
3,033,333
V
Grameen
34.4
130
657,895
10.0
31,764,706
VI
Grameen
10.2
488,688
16.0
90,400,000
903
VII
Mixed
30.7
115
403,571
10.5
164,312,600
VIII
SHG
31.8
387
750,286
7.0
310,000,000
IX
Mixed
16.2
139
1,050,847
3.5
491,000,000
X
Grameen
22.5
146
541,943
4.5
93,331,150
Best/Most Efficient Practice
6.7
903
3,033,333
Simple Average (Ind benchmark)
20.4
312
884,148
7.4
150,478,960
Wt. Average (Ind benchmark)
23.8
194
673,136
7.6
147,433,346
* INR = Indian Rupees
It is apparent from this table that an OER of around 19-22% is what can be realistically expected from MFIs by
the time they mature at around seven years of age. At this stage, the typically efficient MFI should be servicing
around 200-300 clients and a portfolio (in India) of around Rs5 lakh per member of staff and an overall portfolio
of around Rs10 crore.
In order to obtain a better understanding of the issues related to operating expenses of an MFI, the case study
below presents a profile of an organisation which has shown good performance on efficiency parameters.
Case Study : MFI X
Organisational Profile
Legal form
Years of m-f
Number of
Active borrowers
Members
Staff
Branches
Active borrowers/
Operation
staff member
Society
6
50,254
52,935
103
17
488
6
