Doing without subsidy – financial planning for small microfinance providers
Although microfinance is widely claimed to be ‘sustainable’, and even ‘profitable’, most MFIs are started with the aid of grants or other subsidies and generally continue to benefit from subsidies of various kinds. However, donors do not supply indefinite support and there may well come a point when they expect an institution to be financially independent.
In this lesson we will meet Abdul who is manager of TRuMFI, the Totally Rural MFI. He has just been told by an evaluation mission that TRuMFI must be able to cover all its costs from its own income within two years.
Along with Abdul you will discover how to identify and measure the key monetary subsidies that form part of most donor assistance, as well as other types of subsidies that may be less readily identifiable. Then you can join him as he constructs TruMFI’s balance sheet and profit and loss account and, together with his colleagues, tries to find a plan which will enable them to operate without subsidies. They consider increasing fees and interest rates, reducing costs, expanding the portfolio, and look at the pros and cons of all these actions.
Are they able to come up with a plan that will enable them to cover their costs? Do the lesson and find out! The figures are highly simplified but you will find the calculations easier if you have already completed lessons 5 and 7.
