Manual
on
Key Performance Indicators
for
Development Finance Institutions
Developed by:
ADFIAP
28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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ADFIAP…briefly
Asso. of Development Financing Institutions in Asia & the Pacific
131 member-institutions in 45 countries & territories
Founded in 1976 during the 6th 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 ASAE’s Associations Make a Better World Award
Permanent secretariat in Manila, Philippines
28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
Rarotonga, Cook Islands
4-Pillared Sustainability Framework
28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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3 Development Roles & Service Units
the nation
Business Development Role
the institution
Professional Development Role
the person
KNOWLEDGE + ADVOCACY + LINKAGES
EXPERIENCES + TOOLS + COMMUNITY
Sustainable Development Role
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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.
28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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The
Framework
Part I: Mission of the DFI
Part II: DFI Activities for Priority
Sectors
8 KPIs for Development
Investment
Part III: External Benefits of DFI:
Development Investment
7 KPIs for Profitability of the DFI
5 KPIs for Portfolio Quality
4 KPIs for Capital Liquidity
4 KPIs for Efficiency & Productivity
• Mission of the DFI
• Adoption of the Code of Practice
Part IV: Indirect Costs of DFI:
Subsidies & Failures
Part V: Internal KPIs:
The DFI’s Efficiency
Part VI: Benchmarking:
Key Performance Areas
7 KPIs for Subsidies
& Failure/Longevity
Rates of Start-ups
6 KPIs over 3 Target Sectors
= 18 Benchmarks
Part VII: Summary of Key Economic
& Financial Performance for
Successful & Efficient DFIs
Part VIII: Economic, Social &
Environmental Performance
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4 KPIs for Economic Performance
8 KPIs for Environmental Performance
10 KPIs for Social Performance
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October 28 – November 1, 2013
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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.
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October 28 – November 1, 2013
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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.
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October 28 – November 1, 2013
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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.
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part II: DFI Activities for Priority Sectors
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)
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Part II: DFI Activities for Priority Sectors
B. The following sectors or beneficiaries are the priority target for the DFI:
(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)
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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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
DFI’s 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 DFI’s 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.
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part III: External Benefits of the DFI - Development
Investment
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:
 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 underwriter’s funds.
 Infrastructure projects with very long term cost recovery
 Residential housing loans
 New technologies
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part III: External Benefits of the DFI - Development
Investment
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, highprofit 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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part III: External Benefits of the DFI - Development
Investment
Code
DI-1
DI-2
DI-3
1.
2.
3.
DI-4
4.
DI-5
5.
DI-6
DI-7
DI-8
6.
7.
8.
Key Performance
Indicator
DI Ratio (%)
DI Instrument (%)
Target Economic Sector DI
(%)
Distribution of DI by Sector
(%)
Average Size of DI ($ per
sector)
Share of DFI in Each
Economic Sector (%)
Contribution to
Entrepreneurial
Development CED – Loans
Contribution to
Entrepreneurial Development
CED - Advisory
KPI Definition & Formula
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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
Rarotonga, Cook Islands
Part IV: Indirect Costs of DFI – Subsidies & Failures
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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part IV: Indirect Costs of DFI – Subsidies & Failures
Code
Key Performance Indicator Ratio
SD-1
1. Subsidy Dependence Ratio
SD-2
2. Subsidy Dependence Index
SD-3
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
SD-4
SD-5
SD-6
SD-7
KPI Definition & Formula
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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
Rarotonga, Cook Islands
Part V: Internal KPIs: The DFI’s Efficiency
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)
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part V: Internal KPIs: The DFI’s Efficiency
Key
Performance
Area
Sustainability and
Profitability
(SP)
Code
SP-1
SP-2
SP-3
SP-4
SP-5
SP-6
SP-7
Key Performance
Indicator Ratio
KPI Definition and Formula
1.Loan Portfolio Self-sufficiency Revenue from loan portfolio / Total expenses
2.Operational Self-sufficiency
Revenue from all earned income / Total
expenses
3.Yield on Gross Loans
Revenue from loan portfolio / average gross loan
Portfolio
portfolio
4.Average Cost of Deposits
Interest expense on deposits / average deposits
5. Average Cost of Borrowings Interest expense on borrowings /
average borrowings
6. Net Income / Capital
Net income / Average capital
7. Net Income / Total Assets
Net income / Average assets
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
Rarotonga, Cook Islands
Part V: Internal KPIs: The DFI’s Efficiency
Key Performance
Area
Code
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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
Rarotonga, Cook Islands
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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part VI: Benchmarking – Key Performance Areas
Example of Benchmarks: UK’s CDFI
DFI
Target
Sectors
Loan Fund
Selfsufficiency
Gross
Yield
Annual
Write/Off
Loan
Officer
Productivity
Operating
Expense
Operational
Selfsufficiency
Microfinance
35%
16.50%
9%
100
64%
40%
Small
Business
50%
14.50%
12%
82
48%
55%
48%
5.50%
3%
20
18%
75%
Social
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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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
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part VIII: Economic, Social & Environmental
Performance
ECONOMIC
Code
Economic
Performance
EC2
Description of Performance Indicator (GRI
Code)
Financial implications and other risks and
opportunities for the organization’s activities due
to climate change (EC2)
Significant financial assistance received from
government (EC4)
Procedures for local hiring and proportion of
senior management hired from the local
community at significant locations of operation.
(EC7)
EC4
Market Presence
Indirect Economic
Impacts
EC7
Development and impact of infrastructure
investments and services provided primarily for
public benefit through commercial, in-kind, or pro
bono engagement. (EC8)
EC8
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October 28 – November 1, 2013
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Part VIII: Economic, Social & Environmental
Performance
ENVIRONMENT
Materials
Code
Description of Performance Indicator (GRI Code)
EN1
Materials used by weight or volume (EN1)
Percentage of materials used that are recycled input
materials (EN2)
Indirect energy consumption by primary source. (EN4)
EN2
EN4
Energy
Energy saved due to conservation and efficiency
improvements (EN5l)
Total water withdrawal by source (EN8)
Location and size of land owned, leased, managed in,
or adjacent to, protected areas and areas of high
biodiversity value outside protected areas (EN11)
EN51
Water
EN8
Biodiversity
EN11
Emissions, Effluents, and
Wastes
EN19
Emissions of ozone-depleting substances by weight
(EN19)
EN26
Initiatives to mitigate environmental impacts or
products and services, and extent of impact mitigation
(EN26)
Products and Services
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October 28 – November 1, 2013
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Part VIII: Economic, Social & Environmental
Performance
SOCIAL
Code
Employment
LA1
Total workforce by employment type,
employment contract, and region (LA1)
LA4
Percentage of employees covered by collective
bargaining agreements (LA4)
ManagementLabor Relations
Education and
Training
Description of Performance Indicator (GRI
Code)
LA10
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)
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)
LA6
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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Part VIII: Economic, Social & Environmental
Performance
SOCIAL
Code
Security
Practices
HR8
Indigenous
Rights
HR9
Community
SO1
Description of Performance Indicator (GRI
Code)
Percentage of security personnel trained in the
organization’s policies or procedures concerning
aspects of human rights that are relevant to
operations (HR8)
Total number of incidents of violations involving
rights of indigenous people and actions taken
(HR9)
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)
Percentage and total number of business units
analyzed for risks related to corruption (SO2)
Percentage of employees trained in
organization’s anti-corruption policies and
procedures (SO3)
SO2
Corruption
SO3
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
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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!
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28th ADFIP ANNUAL MEETINGS
October 28 – November 1, 2013
Rarotonga, Cook Islands