Financial and Social Goals

The roof of the Risk Management Graduation Model represents the achievement of an MFI’s financial and social goals. It is essential to bear in mind that the responsibility for reaching these financial and social goal lies on the MFI’s board and senior management and is not part of the risk management function. Accordingly, an MFI’s performance should remain independent from its risk management function in terms of ownership of risk, responsibility, recommendations, and decision-making. Nevertheless, the risk management function should include financial and social performance indicators in its risk reporting to ensure that the board and senior management are conducting systematic monitoring, including monitoring for adherence to key financial and social goals within established risk limits.

With regard to financial and social goal reporting, the risk management function should include the following indicators:

  1. Social Results – an MFI’s capacity to stay true to its social mission and attain its social goals
  2. Profitability – an MFI’s capacity to maintain or increase its current level of capital adequacy and attract new investors and shareholders while achieving its social goals
  3. Efficiency and Productivity – an MFI’s ability to achieve its goals in a cost-efficient manner.
  • Policies
  • Limits
  • Risk Management Tools
  • Risk Monitoring Tools
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Clear definition of the social objectives identified in the mission:
Clear definition of the social objectives identified in the mission:
Clear definition of the social objectives identified in the mission:
• “Whom”: whom is the MFI targeting (women, rural, vulnerable, excluded, poor, etc.)
• “Whom”: whom is the MFI targeting (women, rural, vulnerable, excluded, poor, etc.)
• “Whom”: whom is the MFI targeting (women, rural, vulnerable, excluded, poor, etc.)
• “How”: how is the MFI aiming to serve its clients (financial services; quality, comprehensive services; education; etc.)
• “How”: how is the MFI aiming to serve its clients (financial services; quality, comprehensive services; education; etc.)
• “How”: how is the MFI aiming to serve its clients (financial services; quality, comprehensive services; education; etc.)
• “For what”: what is the MFI’s change objective for its clients (financial inclusion, economic and social development, etc.)
• “For what”: what is the MFI’s change objective for its clients (financial inclusion, economic and social development, etc.)
• “For what”: what is the MFI’s change objective for its clients (financial inclusion, economic and social development, etc.)
Quality: variety and characteristics of products aligned to target clients’ needs
Quality: variety and characteristics of products aligned to target clients’ needs
Quality: variety and characteristics of products aligned to target clients’ needs
Financial Education: specific program in place for financial education of clients
Financial Education: specific program in place for financial education of clients
Financial Education: specific program in place for financial education of clients
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Limits for the social objectives identified in the mission:
Limits for the social objectives identified in the mission:
Limits for the social objectives identified in the mission:
• “Whom”
• “Whom”
• “Whom”
• “How”
• “How”
• “How”
• “For what”
• “For what”
• “For what”
Number of clients receiving financial education
Number of clients receiving financial education
Number of clients receiving financial education
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Not applicable
Not applicable
Not applicable
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Annual monitoring of social objectives identified in the mission:
Annual monitoring of social objectives identified in the mission:
Annual monitoring of social objectives identified in the mission:
• “Whom”
• “Whom”
• “Whom”
• “How”
• “How”
• “How”
• “For what”
• “For what”
• “For what”
  • Policies
  • Limits
  • Risk Management Tools
  • Risk Monitoring Tools
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Not applicable
Not applicable
Not applicable
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Limit for return on equity (ROE)
Limit for return on equity (ROE)
Limits for return on equity (ROE), both minimum and maximum
Limit for return on assets (ROA)
Limit for return on assets (ROA)
Limit for return on assets (ROA)
Limit for net portfolio over total assets, or unproductive assets over total assets
Limit for net portfolio over total assets, or unproductive assets over total assets
Limit for operational self-sufficiency (OSS)
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Not applicable
Not applicable
Not applicable
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Monthly monitoring of profitability indicators, including:
Monthly monitoring of profitability indicators, including:
Monthly monitoring of profitability indicators, including:
• ROE
• ROE
• ROE
• ROA
• ROA
• ROA
• Trend analysis
• Trend analysis
• Trend analysis
• Compared to limits
• Compared to limits
• Compared to limits and projections
• Stress-testing
• OSS
Monthly monitoring of net portfolio over total assets, or unproductive assets over total assets
Monthly monitoring of net portfolio over total assets, or unproductive assets over total assets
  • Policies
  • Limits
  • Risk Management Tools
  • Risk Monitoring Tools
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Not applicable
Not applicable
Not applicable
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Limits for efficiency and productivity indicators:
Limits for efficiency and productivity indicators:
Limits for efficiency and productivity indicators:
• Loan officer productivity (borrowers)
• Loan officer productivity (borrowers)
• Loan officer productivity (borrowers and gross portfolio)
• Operating expenses over gross portfolio
• Operating expenses over gross portfolio
• Operating expenses over gross portfolio
• Operating expenses over total assets
• Operating expenses over total assets
• Cost per borrower
• Cost per borrower
• Staff productivity (borrowers and gross portfolio)
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Not applicable
Not applicable
Not applicable
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Monthly monitoring of efficiency and productivity indicators, including:
Monthly monitoring of efficiency and productivity indicators, including:
Monthly monitoring of efficiency and productivity indicators, including:
• Trend analysis
• Trend analysis
• Trend analysis
• Compared to limits
• Compared to limits
• Compared to limits
• Operating expenses over gross portfolio
• Operating expenses over gross portfolio
• Operating expenses over gross portfolio
• Loan officer productivity (borrowers)
• Loan officer productivity (borrowers)
• Loan officer productivity (borrowers and gross portfolio)
• Operating expenses over total assets
• Operating expenses over total assets
• Cost per borrower
• Cost per borrower
• Staff productivity (borrowers and gross portfolio)