Micro Credit Program (Revolving Credit Fund)
| Snap Shot: Duration :June 1995 to Present; Source of Fund: Loan from BASIC Bank, AB Bank , MISEREOR (Donation) , AusAid (Donation) , DPS, Special Deposit, Beneficiaries Savings ; Geographical Location: Comilla, Feni, Gazipur, Brahman Baria |
ASSOCIATION FOR INTEGRATED DEVELOPMENT-COMILLA (AID- COMILLA)
(Non-profit Organization)
| Date of Declaration | Valid Till | Long Term Rating | Short Term Rating | Outlook |
| 22 December, 2018 | 21 December, 2019 | BBB | ST-3 | Stable |
Year of Establishment : 21 June, 1995
Type of Organization : Foundation (Non-profit) N
General Secretary : Mrs. Rokeya Begum Shafali
Total Asset : BDT 206.19 million (as on 30 June, 2018)
Banks : AB Bank Limited
Basic Bank Limited
Mercantile Bank Limited R
Bank Loan Limit : BDT 90.00 Million
Bank Loan Outstanding : BDT 74.49 million
Contact Analysts : Imtiaz Ahammad imtiaz@alpharating.com.bd Syed Tamjid Al Naim tamjid@alpharating.com.bd
RATING RATIONALE:
Alpha Credit Rating Limited (AlphaRating) affirms long term of “BBB” (pronounced as ‘triple B’) and short term rating of “ST-3” in favor of Association for Integrated Development-Comilla (AID- Comilla). The outlook for the rating is Stable.
AlphaRating considered business sector characteristics and outlook, competitive position of the foundation, operational activities, demand growth, entry barrier, market position, financial performance, quality of audited financial statements and management reports, management’s relationship with different stakeholders and their experience while deriving the rating. The above rating is based on the audited financial statements for the year ended 30 June 2016, 2017 and 2018 and other qualitative factors. AlphaRating also considered the loan facilities availed by the organization from AB Bank Limited, Basic Bank Limited and Mercantile Bank Limited, Comilla Branch while assigning the above rating.
Association for Integrated Development-Comilla (AID- Comilla) (here in after referred to as “AID’s” or “the organization”), a nonprofit and non-government organization (NGO) and working in the rural & slum areas of Comilla, Feni, Gazipur, Brahmanbaria and northern part of Bangladesh. The AID-Comilla improving people’s socioeconomic status of underprivileged men, women, & children in urban & rural areas through motivation, organizing of people, non-formal education, training, resource mobilization etc. AlphaRating considered surplus, increasing total assets, strong capital adequacy, and so on while assigning the above rating. AID’s having higher liquid fund and lower defensive interval which means the capacity to operate without any further external fund is much higher than previous years. AlphaRating also considered area coverage, high organizational risk, loan growth to members and all these issues have prevented us from assigning more than the above mentioned rating.
AID’s has been enjoying financing facility from AB Bank Limited, Basic Bank Limited and Mercantile Bank Limited, Comilla Branch. The purpose of the loan was to expand the micro finance program. As per information, total limit of the facilities are BDT 90.00 million and outstanding was BDT 74.49 million. As per information from banks, payment behavior of the organization has been satisfactory. AlphaRating could not find overall payment behavior of the organization. AlphaRating only considered above mentioned banking facilities availed by the organization.
ORGANIZATION PROFILE:
Background
Association for the Integrated Development-Comilla (AID-Comilla) is a Non-Government Organization. The NGO working in the rural & slum areas of Comilla, Feni, Gazipur, Brahmanbaria and northern part of Bangladesh. The AID-Comilla improving people’s socioeconomic status of underprivileged men, women, & children in urban & rural areas through motivation, organizing of people, non-formal education, training, resource mobilization etc. AID-Comilla established in December 1992 and start formal operation in June 1995. NGO operate by the active co-operation of some social workers who have long involvement in the field of development. The organization registered with the department of Social Service of the Government of the People’s Republic of Bangladesh in 1995 vide registration # Comi – 583/95. According to the regulation act 1978 of the Government AID-Comilla has duly been obtained the registration # from the NGO Affairs Bureau of the Government of the Peoples Republic of Bangladesh, vide registration # FDR 1145 in 1997. Location of the organization at Village: Raghupur, PO: Rajapara, Union: Jagannathpur, Upazila: Comilla Sadar, Comilla-3500.
Working Area
As on 30 June, 2018 the organization has carried on its activities within 09 upazila under 4 districts. The organization has spread its activity with 505 samities. The organization reported 9,958 members and extended its lending service to 7,566 borrowers.
MICRO CREDIT IN BANGLADESH:
The social development scene in Bangladesh is characterized by a strong presence of non-governmental organizations (NGOs). The NGOs emerged following the war of liberation to help the communities in distress as part of post-war rehabilitation. Afterwards, with assistance from foreign donor agencies, they expanded their activities to deliver a variety of services including microcredit, essential healthcare, informal education, women empowerment and rights advocacy. In some exceptional cases, an NGO may the identification of ‘NGO sector’ as a separate entity primarily register itself with the registrar of joint stock societies Acts as a non – refers to an institutional space. During early inception years it was purely work as nonprofit organization currently NGO’s has to have own source of income for-profit side by side contribution. Since the formation of the NGO Affairs functional space, where government agencies were substituted, Bureau (NAB) in 1990, the NGOs have to register with the bureau was important. Functional domains have in order to avail of foreign funds. For the purpose of our exercise, expanded into areas where there are other actors as well. Thus, we consider as NGOs all such organizations, which are outside NGOs do not anymore refer to a single work (function) space. The direct control of the government or semi- government agencies Instead, it is the participatory nature of their work with Pilot experiments into the provision of micro credit to small groups was made only towards the end of the 1970s. With the success of the Grameen Bank, the 1980s experienced a gradual acceptance of micro credit activities by NGOs. Temperature
The NGO Affairs Bureau (NAB) of the government ownership of collateral was a prerequisite for having access to organization of Bangladesh (GOB), which has to approve all foreign bank credit. One corollary of collateral -based lending practices grants to NGOs working in Bangladesh, released grants worth was that the poor were not bankable. The NGOs in Bangladesh about US$ 250 million in FY 1996-97 to 1,132 NGOs, of which and the Grameen Bank, established, to the contrary, that it is very 997 are local and 135 are foreign [NGO Affairs Bureau 1998]. As per NGO Affairs Bureau (NAB) dated November 30, 2014, currently 2,351 NGO’s are active in a different district of the country.
Microcredit services in Bangladesh are provided mainly by non-governmental organizations (NGOs) and microfinance institutions (MFIs), microfinance banks, government programs, nationalized commercial banks, and private commercial banks. According to Bangladesh Bank estimates, NGO-MFIs (estimated at 5,000 in number) are the largest providers of microcredit services in the country— serving 61 percent of all borrowers. 90 percent of microcredit clients are women and the average loan size is about BDT 4,000. The average interest rate on savings is 6 percent; the service charges on credit range from 10 to 12.50 percent for flat collection. The four main players in Bangladesh in terms of MFI members and market share are Grameen Bank, BRAC, ASA, and Proshika. However, the historically strong portfolio quality of these four MFIs declined in FY08 due to the effects of two floods and a cyclone.
The average annual growth rate in the microcredit sector in Bangladesh over the five years 2003–2008 was 23 percent. It was estimated to reach 25 percent annually over the next three years (2009–2012) as a result of growing demand for larger loan sizes. Despite its significant outreach—estimated at 60 percent of all Bangladeshi households microcredit assets are less than 2 percent of GDP, has increased only marginally relative to GDP since 2001. The total loan portfolio of the microcredit sector is estimated to exceed BDT 135.00 billion and total borrowers, to exceed 30 million. Although it is difficult to estimate the unique number of microcredit borrowers, taking into account their cross-indebtedness to different microcredit providers, they likely number 18 million. It is estimated that just over 60 percent of them have incomes below the poverty line. In the microcredit sector total loan outstanding is around BDT 200.00 billion (including Grameen Bank BDT 62.00 billion) and savings BDT 140.00 billion that have been rendering among 30 million (including 8 million clients from Grameen Bank) poor people which help them to be self-employed that accelerates overall economic development process of the country. Despite the fact that more than a thousand of institutions are operating microcredit programs, but only 10 large Microcredit Institutions (MFIs) and Grameen Bank represent 87% of total savings of the sector (around BDT 122.00 billion) and 81% of a total outstanding loan of the sector (around BDT 162.00 billion).
The State of Microcredit in Bangladesh
In the backdrop of global ‘double-dip’ recession and over-indebtedness crisis in microcredit sector in several countries, Bangladesh’s microfinance sector shows strong resilience and continues to contribute towards the enhancement of macroeconomic growth.
Table 1: Basic Statistics of NGO-MFIs in Bangladesh
| Particulars | June, 2011 | June, 2012 | June, 2013 | June, 2014 | June, 2015 |
| No. of Licensed NGO-MFIs | 576 | 590 | 649 | 742 | 753 |
| No. of Branches | 18,066 | 17,977 | 14,674 | 14730 | 15609 |
| No. of Employees | 111,828 | 108,654 | 110,734 | 109628 | 110781 |
| No. of Clients (Million) | 26.08 | 24.64 | 24.60 | 25.11 | 26.00 |
| No. of Borrowers (Million) | 20.65 | 19.31 | 19.27 | 19.42 | 20.35 |
| Amount of loan Outstanding (BDT in Million) | 1,73,797.60 | 211,320 | 257,010 | 282200 | 352410 |
| Amount of Savings (BDT in Million) | 63,304.44 | 75,206 | 93,990 | 106990 | 135410 |
*Total Licensed NGO-MFIs was 697 but only 676 submitted MIS report Source: MRA-MIS Database-2014
The sector had outstanding loans of BDT 278 billion disbursed to 19.98 million borrowers, and had accumulated BDT 112 billion as savings from around 25.17 million clients – over 93 percent of them are women – through more than 16,000 branches, by 676 NGO-MFIs licensed by MRA.
Table 2: Selected Indicators of NGO-MFIs in Bangladesh
| Particulars | June, 2010 | June, 2011 | June, 2012 | June, 2013 | June, 2014 |
| Savings per member (BDT) | 2,097.83 | 2,494.49 | 3,052.18 | 3,820.73 | 4,489 |
| Outstanding loan per borrower (BDT) | 7,558.92 | 8,807.69 | 10,941.63 | 13,337.31 | 13,917 |
| Borrower to client (member) ratio | 78.00% | 78.80% | 78.37% | 78.33% | 79.00 |
| Savings to outstanding loan ratio | 35.60% | 35.90% | 35.59% | 36.57% | 41.00% |
| Borrower per branch | 1,115 | 1,093.33 | 1,074.15 | 1,071.93 | 1,175 |
| Member per branch | 1,429 | 1,387.87 | 1,370.64 | 1,368.42 | 1,480 |
| Outstanding loan per branch (BDT in Millions) | 8.42 | 9.63 | 11.75 | 17.51 | 16.35 |
| Savings per branch (BDT in Millions) | 2.99 | 3.46 | 4.18 | 6.41 | 6.64 |
Fund Composition
Source of Fund |
June, 2015 BDT in Million |
% |
June, 2015 BDT in Million |
% |
June, 2015 BDT in Million |
% |
June, 2015 BDT in Million |
% |
June, 2015 BDT in Million |
% |
| Clients’ | 63,295.5 |
34.4 |
74,989.36 |
32.6 |
91,178.01 |
32.9 |
1,06,999 |
34.4 |
135,410.40 |
33. |
| Savings | 9 |
6 |
2 |
5 |
94 |
|||||
| Loan from | 31,767. |
17.3 |
33,576.45 |
14.6 |
34,072.27 |
12.3 |
34,523.50 |
11.0 |
37,769.68 |
9.4 |
| PKSF | 8 |
1 |
1 |
4 |
7 |
|||||
| Loan from | 23,577. |
12.8 |
32,652.41 |
14.2 |
42,699.37 |
15.4 |
51,495.90 |
16.4 |
68,574.20 |
17. |
| Commerci al banks | 9 |
4 |
0 |
3 |
7 |
19 |
||||
| Donors’ | 7,008.3 |
3.82 |
7,061.28 |
3.07 |
7,104.57 |
2.57 |
6,855.04 |
2.19 |
5,218.45 |
1.3 |
| Fund | 7 |
1 |
||||||||
| Cumulativ | 50,298. |
27.3 |
65,437.78 |
28.4 |
83,262.38 |
30.0 |
1,00,943.9 |
32.2 |
137,706.30 |
34. |
| e Surplus | 7 |
8 |
7 |
9 |
5 |
8 |
52 |
|||
| Other | 7,727.3 |
4.21 |
16,167.91 |
7.03 |
18,390.89 |
6.65 |
11,914.58 |
3.62 |
14242.07 |
3.57 |
| Funds | 2 |
|||||||||
| Total | 183,67 |
100 |
229,885.2 |
100 |
276,707.4 |
100 |
312,731.9 |
100 |
398,921.1 |
100.0 |
| 6 |
0 |
8 |
7 |
0 |
0 |
Source: MRA-MIS Database-2015
Commercial banks are recently considered a potential source of fund of microfinance, their share of the total source increased over the last three years. MRA has been putting in efforts to increase loans from commercial banks to the sector by introducing the banks to the NGO-MFIs. However, borrowing cost from commercial banks is very high – due to the high interest rate charged and inflation – which discourages NGO-MFIs to avail this as a source of fund. Previously donor driven NGOs are now trying to rely more and more on local sources of the fund with the decline in foreign funding, which stood at only 2.19 percent in June 2014.
ORGANIZATIONAL RISK ANALYSIS:
Credit Risk
AID’s is engaged in working in the rural & slum areas and offering improving people’s socioeconomic status of underprivileged men, women, & children in urban & rural areas through motivation, organizing of people, non-formal education, training, resource mobilization etc. One of the major risks of MF program is collection high frequency instalments ranging from week to months. The above risk is further fuelled by the loan default culture & overdue overlapping loans prevailing in the banking sector although the banking institutions are stronger entities to collect instalments due from clients through legal measures & selling collaterals. In contrast, the MF programs are being operated by the NGOs without collaterals and with high frequency of loan repayments. Normally, most MF organisers offer the incentive of further loan if there is no default in repaying the instalments. Despite no formal agreement, the above system works favourably in Bangladeshi context and assists those MFIs to maintain high recovery rate.
Operational Risk
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events or unforeseen catastrophes. Operational risk is inherent risk, which is particularly high for MFIs that handle high volume of small transactions daily such as AID’s. MFIs are usually not well controlled compared with traditional commercial banks issuing SME loans. Internal control & corporate governance here often inadequate & the professional qualification with analytical ability of staffs might not be equal to a standard of commercial banks due to lack of fund allocated to reach financial goals and improve organizational structure. This could result in theft of fund, loan disbursement to ineligible and all other sort of corruption. Moreover competition with other MFIs may affect the sustainability of the organization in financial term. Natural calamities like flood and cyclone could also wipe out total financial capability of those AID’s deal with such as poor & neglected people. Higher operational risk may damage reputation and give rise to legal risk.
Legal Risk
Legal risk for non-profit organization arises out of lobbying by the foundation, self- dealing, foreign corrupt practices act, grants to individuals outside approved proposals, breach of fiduciary duty, jeopardizing investment, minimum distribution requirement etc. Failure to comply with governance or involvement with any illegitimate and irrational activities might expose the organization to the significant legal threat.
Industry Risk
The current challenge of MFI-NGOs is whether they could run the program without subsidy, because the flow of donor fund is declining over the years. Since the main objective of micro-finance is to alleviate poverty, the question is whether they would be able to charge real cost of service on the recipients. If it charges full cost, what would happen to the other objective of outreaching the poorest of the poor? On the other hand if full cost is not charged, would they be financially sustainable in the long run? And the challenge for the government is to bring this huge unorganized industry under a uniform umbrella where this industry would get proper direction and support to run the business and at the same time serve the people who are the target group in such a way that they would be benefited in the long run and would be able to overcome their financial backwardness. Ultimately these institutions would become autonomous players in the main-stream economy.
Resistance from the Society
As most of the AID’s participants are mainly working in the rural & slum areas and offering improving people’s socioeconomic status of underprivileged men, women, & children in urban & rural areas through motivation, organizing of people, non-formal education, training, resource mobilization etc. Moreover, in Bangladesh men dominate and make all the decision over women. The way AID’s works will definitely remove the financial barrier of its female borrowers over time which may not be accepted by the men who rules the family hence it hurts their ego. As a result, they may take the money for their own use rather than letting it to invest for its intended purpose. Moreover religious fantasies and misinterpretation of religion in the society may work directly against women empowerment. If these social difficulties could not be removed to make the environment suitable for a significant portion of its borrower to remove their financial instability, AID’s mission will not succeed.
FINANCIAL RISK ANALYSIS:
While assessing the financial risk of the Organization, AlphaRating divided the financial portion into eight different criteria. Detailed analysis is presented below:
Uncovered Capital Ratio (Portfolio Quality and Vulnerability)
Exhibit 1: Selected Indicators: Association for Integrated Development-Comilla (AID- Comilla)
| FYE 30 June (BDT in millions) | 2018 | 2017 | 2016 |
| PAR>30 days | 14.60 | 10.90 | 10.66 |
| Less, Impairment allowances | 11.44 | 9.56 | 10.23 |
| Total Amount at Risk | 3.16 | 1.34 | 0.43 |
| Total Equity | 21.18 | 17.33 | 8.30 |
| Uncovered Capital Ratio (UCR) (%) | 14.92 | 7.73 | 5.18 |
The uncovered Capital Ratio (UCR) provides a more detailed indication of an MFI’s portfolio quality. UCR is a more revealing ratio to assess vulnerability and potential loss. Uncovered Capital Ratio (UCR) is calculated by obtaining the Portfolio at Risk (PAR) greater than thirty days minus impairment loss allowance divided by total capital. When considered in conjunction capital adequacy ratio, UCR allows an additional dimension for understanding capital sufficiency. A low ratio suggests better risk management, indicating the MFI is less susceptible to losses above what is already provisioned. Good practice is to maintain the UCR as low as possible, certainly less than 25 percent. As more extensive comparative data is analyzed with the help of more revealing benchmarks, effective use of the rational decision can be made.
In FY 2018, AID-Comila Uncovered Capital Ratio was 14.92%. It appears that the organization had less than adequate impairment allowance compared with the PAR>30 days. The organization already in the risk which is seen the above table. The allowance is quite insufficient that AID’s moderate ability to combat any classified loan. However, the ratio is based on the PAR>30 days which does not consider credit risk of those who have not made a scheduled payment for 30 days and no overdue. Positive balance of this ratio implies that amount of lower provision against PAR>30 days has increased over the years. Even though the MFI has been complying with MRA guideline for provision, there is a risk which is not to ensure the safety margin.
Income Analysis
Excess of income over expenditure is a calculation that measures the amount of total income that exceeds total expenses. In other words, it shows how much surplus operating income remaining in a particular year after covering all expenses incurred by a MFI. This ratio is calculated by subtracting total expenses from total revenue.
Exhibit 2: Selected Indicators: Association for Integrated Development-Comilla (AID- Comilla)
| FYE 30 June | 2018 | 2017 | 2016 |
| Income (BDT in millions) | 38.97 | 31.55 | 39.58 |
| Income Growth (%) | 23.52 | 20.29 | – |
| Operating Expense (BDT in millions) | 35.12 | 30.36 | 37.64 |
| Operating Expense Growth (%) | 15.68 | 19.34 | – |
| Operating Expense to Income (%) | 90.12 | 96.23 | 95.10 |
| Excess of Income Over Expenditure (BDT in millions) | 3.85 | 1.17 | 1.94 |
Income trend of AID’s reflects that total income has been increased each year. Each year, total income has been increased significantly mainly significant increase in service charge 24.23%, interest received from FDR 61.54% and others income 814.41% compare to the previous year which is the main reason for higher income of the organization. It is mention that, income growth appears to be increased due to all main sources of income has been increased gradually compare to the previous year. Each year operating expense also increased with the line of revenue. The organization was able to manage income to be excess over its expenditure in the years of consideration and the trend of it is increasing.
Asset Quality & Composition
Exhibit 3: Selected Indicators: Association for Integrated Development-Comilla (AID- Comilla)
| FYE 30 June | 2018 | 2017 | 2016 |
| Total Asset (BDT in millions) | 206.19 | 184.87 | 193.56 |
| Asset Growth (%) | 11.53 | (4.49) | – |
| Loan & Advance (BDT in millions) | 161.58 | 138.39 | 112.13 |
| Growth of Loan & Advance (%) | 16.76 | 23.42 | – |
From the financial statement, it is observed that total assets of Association for Integrated Development-Comilla (AID- Comilla) have increased by 11.53% in FY 2018. A significant portion of total assets of the organization are Fixed Assets 12.41%, Loan to members 78.36%, Investment on FDR 5.49%, Cash & Cash Equivalent 2.91% and others current assets 0.83%. A significant portion of total assets such as loan to members of the organization has also increased 16.76% during the period which has an insignificant impact on total assets growth.
The organization exponentially increased its current assets but loan to members which is shown current assets are the main reason to increased growth rate of total assets. Current assets compromise the investment of FDR, loan to members, deposit and cash & cash equivalent. However, loan to members appears to be increased by 16.76% compared to the previous financial year which is the main drive of an increase in total assets. The organization disbursed loan under microfinance purpose. In 2018, disbursement of those loan was BDT 291.56 million whereas in 2017 disbursement of loan was BDT 236.22 million. The amount ultimately affects the operational performance which shows the organization concentrate more into its loan approval process.
Capital Adequacy Ratio (Institutional Solvency)
Capital Adequacy Ratio (CAR) measures an institution’s solvency. The indicator provides information about the ability to meet long-term expenses and obligations as well as absorb unanticipated future commitments. CAR measures an institution’s resiliency against both expected and unexpected losses, which may result from endogenous and exogenous causes. It is in line with Basel II calculations. CAR uses total capital in the numerator as a complete picture of the MFI/s resources. This includes supplementary capital sources, such as loan loss reserves, asset reserves and subordinated debt. It subtracts goodwill to gauge tangible capital. The denominator is a risk-weighted aggregate of assets as riskier assets require the institution to hold higher capital reserves, including those as a factor to provide more precise solvency than a simple liquid ratio, in which current assets are compared with current liabilities.
Exhibit 4: Selected Indicators: Association for Integrated Development-Comilla (AID- Comilla)
| FYE 30 June (%) | 2018 | 2017 | 2016 |
| Capital Adequacy Ratio ( Equity / Risk Weighted Assets) | 13.57 | 12.50 | 5.72 |
| Capital Adequacy Ratio ( Equity / Total Assets) | 10.27 | 9.37 | 4.28 |
In 2018, AID’s Capital Adequacy Ratio was 10.27 percent (using risk unadjusted assets). The ratio has been increased in FY 2018. However, using risk-weighted assets Capital Adequacy Ratio is found to be 13.57 in 2018 which is also found to be increasing compared to the previous year but the percentage can be considered to be very lower in terms of general practice. It is assumed that risk weight of 75%, according to Bangladesh bank guideline, has been applied considering all parties are unrated.
CAR is particularly informative when compared to regional benchmarks. An appropriate level often depends upon the size and maturity of an MFI, as well as differing socio- political or economic contexts. National authorities in each country set minimum levels of capital for regulated institutions. In most jurisdictions, it is around 8-9 percent. In Bangladesh, it is currently 10 percent for financial institutions, which is going to be 12.5 percent by 2018 in accordance with Basel III implementation plan. However, AlphaRating did not found any benchmarks for MFI in Bangladesh context.
Sustainability
Operating self-sufficiency is a percentage (%), which indicates whether or not enough revenue has been earned to cover the Microfinance Institution’s (MFI’s) total costs which includes- operational expenses, loan loss provisions and financial costs. It is calculated by obtaining all operating income (loan + investment) and divides them by total expenses incurred (financial expense + loan loss provision +operating expense). Excess of income over expenditure margins are expressed as a percentage and, in effect, measure how much out of every Taka income of a MFI actually keeps in earnings and it is calculated by excess of income over expenditure divided by total income.
Exhibit 5: Selected Indicators: Association for Integrated Development-Comilla (AID- Comilla)
| FYE 30 June | 2018 | 2017 | 2016 |
| Operational Self Sufficiency (%) | 110.96 | 103.85 | 105.07 |
| Profit Margin (%) | 9.88 | 3.71 | 4.90 |
Operational Self Sufficiency ratio of AID’s stood over 100% means that it had surplus operating revenue after covering its operating costs. However, the increasing trend of the percentage indicates that its operating surplus was sufficient for operational self- sufficiency which has been substantiated by increasing growth in profit margin trend. As a result profit margin has also increase in FY 2018 which is a sign of operational sufficiency.
Adequacy of Resources
The defensive interval (months) is a financial metric that indicates the number of months that a MFI can operate in term of meeting its monthly expenses without needing to access noncurrent assets whose full value cannot be obtained within the current accounting year and additional funds or donation from outside after paying all its short term obligation. To calculate the defensive interval ratio, aggregate the amounts of all liquid assets and then divide by the average amount of monthly expenditures. The liquid funds indicator is similar to the defensive interval in its use but is more conservative in removing assets with restrictions on them from the calculation. The savings indicator measures the increase or decrease in the ability of an organization to add to its net assets. Values greater than one hundred percent indicates an increase in savings. The savings indicator is a simple way to determine if an organization is adding to or using up its net asset base. Debt Ratio is a financial ratio that indicates the percentage of a company’s assets that are provided via debt. This ratio is calculated by total assets divided by total debt obligation amount.
Exhibit 6: Selected Indicators: Association for Integrated Development-Comilla (AID- Comilla)
| FYE 30 June | 2018 | 2017 | 2016 |
| Defensive Interval (months) | 61.64 | 62.90 | 57.06 |
| Liquid Funds Indicator (months) | (1.51) | (3.32) | (1.94) |
| Savings Indicator (%) | 10.96 | 3.85 | 5.15 |
Defensive Interval Ratio measures the non-profit organization’s efficiency to operate if no additional funds are received in a particular year. It determines the number of months of the expense that can be covered by existing liquid assets. There is no correct answer to the number of months over which existing assets will provide sufficient funds to support MFIs operations. So we could get a better insight of this indicator by trend analysis.
Defensive interval ratio of FY 2018 reflects that the MFI will be able to continue its operation for more than 5 years if available reserves and securities fully support the average monthly expenditure. However, the defensive interval is currently appeared to be at slight decreasing trend but still it’s shows that, the organization has increased the proportionate level of current assets to support its increasing trend of average monthly expense. Liquid funds indicator ratio for FY 2018 denotes that AID’s is not capable to continue its operation for one month with all its liquid assets other than those has a restriction on them after paying all short-term obligations. However, increasing Savings Indicator of implies that MFIs ability to generate a surplus but still it is very low for the organization. Above ratios provide a true picture upon the availability of several years’ historic data. The output of above exhibit might vary upon expansion of organization’s operation further.
Foreign Currency Risk (Susceptibility to Shocks for Foreign Exchange)
The foreign currency risk ratio (Total Foreign Currency Assets- Total Foreign Currency Liabilities)/ Total Equity] measures the relationship between an MFI’s net foreign currency assets and its equity for each foreign currency on the statement of financial position. Foreign exchange risk exposure is more explicitly revealed when relative data is documented with due care and accuracy. Currently Association for Integrated Development-Comilla (AID- Comilla) has no foreign currency assets and is not involved with any foreign currency transaction except some of its donations.
The lower the foreign currency risk ratio a MFI maintains the more limited its vulnerability to changes in foreign currency values. The higher the foreign currency ratio is, the more risk the MFI faces, which may or may not lead to negative performance. Formal industry benchmark have yet to be established; however a rule of thumb of no more than 20% ceiling has been cited, although the amount will vary depending on currency stability and may be lower.
| AAA | Issuers or issues rated AAA represents the strongest credit quality relative to other Bangladeshi obligors |
| AA | Issuers or issues rated AA represents very strong credit quality relative to other Bangladeshi obligors |
| A | Issuers or issues rated A represents above average credit quality relative to other Bangladeshi obligors |
| BBB | Issuers or issues rated BBB represents average credit quality of Bangladeshi obligors |
| BB | Issuers or issues rated BB represents slightly below average credit quality relative to other Bangladeshi obligors |
| B | Issuers or issues rated B represents weak credit quality relative to other Bangladeshi obligors |
| CCC | Issuers or issues rated CCC represent very weak credit quality relative to other Bangladeshi obligors |
| CC & C | Issuers or issues rated CC and C both represent extremely weak credit quality relative to other Bangladeshi obligors. Rating of C will normally be assigned when an obligor is in technical default on certain commitments or obligations, but not yet in financial default. |
| D | Issuers or issues rated D have failed to meet their rated financial commitment on time or when due |