2. BALANCE SHEET
The Balance is a snapshot of the financial institution at a moment in time. It reflects what the financial institution owns and what is owed to it (assets), what it owes others (liabilities), and the difference between the two (equity or net worth). In a Balance Sheet, assets should always be equal to the sum of liabilities plus net worth/equity. When referring to Balance Sheet accounts, short term refers to any account or portion of an account that is due or matures within 12 months. Long-term refers to any account or portion of an account that is due or matures after 12 months.
Current Assets
B01 Cash:
The amount held in cash and currentaccounts (non-interest bearing) by the MFI.
B02 Deposits in financial institutions:
Cash held in commercial banks or, if applicable, the central bank by regulated institutions (prescribed by the law governing the institution). These balances are available to the organization on a demand basis but earn interest.
B03 Short-term investments:
Investments that mature within 12 months and earn interest income for the MFI.
B04 Gross loan portfolio:
The total sum of all the outstanding principal balance of the MFI’s loans including current, delinquent and restructured loans, but not loans that have been written off. Some MFIs choose to break down the components of the gross loan portfolio into performing or current loans, portfolio at risk and restructured loans. The Gross loan portfolio does not include interest receivable. Although some regulated MFIs may include accrued interest, the MFI should provide a note that provides a breakdown between the principal outstanding and interest accrued. The Gross loan portfolio is frequently referred to as the loan portfolio or loans outstanding (Note: these terms should not be used to refer to the Net loan portfolio described below). The Gross loan portfolio should not be confused with the value of the loans disbursed.
B05 Loan loss reserve:
The portion of the Gross loan portfolio that has been expensed (provisioned for) in anticipation of losses due to default. This item represents the cumulative value of the Loan loss provision expenses (from the Income Statement) less the cumulative value of loans written off. The Loan loss reserve is recorded as a negative asset on the Balance Sheet. It should be noted that the loan loss reserve is not a cash reserve, but rather an accounting entry to adjust for anticipated loan losses. The reserve accumulates from provision expenses related to the portfolio at risk or in some cases general provision expenses against the entire gross loan portfolio. The value of the Loan loss reserve should not be less than the value of loans anticipated to be written off.
B06 Net loan portfolio:
The Gross loan portfolio less the Loan loss reserve. (B04 – B05)
B07 Other short-term assets:
Other short-term assets not listed above that will be used or change form within the next 12 months, such as prepaid expenses like rent and insurance, accrued interest, accounts/fees receivable, etc.
B08 Total current assets:
Summation of all current assets. (B01 + B02 + B03 + B06 + B07) Non-Current Assets
B9 Long-term investments:
The amount held in long-term investments. These are investments not intended as a ready source of cash and include stocks, bonds and promissory notes that will be held for more than one year.
B10 Fixed assets:
Includes land and buildings, company vehicles, office equipment, etc. recorded at their initial cost at time of purchase.
B11 Accumulated depreciation:
Represents the sum of depreciation expenses recorded in the current and previous financial periods. It represents a decrease in the book value of fixed assets. (See Depreciation (Y16) on the Income Statement.)
B12 Net fixed assets:
The difference between the Fixed assets and Accumulated depreciation. (B10 - B11)
B13 Other long-term assets:
Other long-term assets not listed above, of value beyond 12 months.
B14 Total non-current assets:
Summation of Long-term assets (B09 + B12 + B13)
B15 Total assets:
Summation of Total current assets and Total long-term assets. (B08 + B14)
Current Liabilities
B16 Compulsory savings:
Also referred to as restricted savings, forced savings, Loan Insurance Funds (LIF), or compensating balances. These represent funds that must be contributed by borrowers as a condition to receiving a loan, sometimes as a percentage of the loan, and sometimes as a nominal amount. Compulsory savings are considered part of the loan product rather than savings product since they are tied to receiving loans. Compulsory savings may be either a deposit held by the MFI or facilitated savings accounts maintained outside of the MFI. Compulsory savings that are held with the MFI should be recorded on the Balance Sheet as liabilities. Compulsory savings that are held in facilitated savings accounts maintained outside of the MFI should not be recorded on the MFI’s Balance Sheet.
B17 Voluntary savings:
Savings that are not an obligatory part of accessing credit services. Voluntary savings services are provided to both borrowers and non-borrowers who can deposit and withdraw according to their needs. These are savings deposited with the MFI and should not include client’s deposits
maintained with other financial institutions that are not booked in the MFI’s name.
B18 Time deposits < = 1 year:
Deposits for which the depositor agrees not to withdraw any part of the deposit prior to the maturity date or the expiry of a specific time, in this case < = 1 year (unless the depositor is willing to forgo interest).
B19 Total short-term deposits:
Summation of Short-term deposit liabilities.(B16 + B17 + B18)
B20 Short-term debt (market rate):
The amount outstanding on all short-term borrowings on which a commercial (or market) rate of interest is charged.
B21 Short-term debt (subsidized rate):
The amount outstanding on all short-term borrowings on which a concessional (or below market) rate of interest is charged.
B22 Loans from the central bank:
The amount outstanding on all short-term borrowings from the central bank.
B23 Other current liabilities:
Any other liabilities due within 12 months such as interest payable on savings accounts or taxes due that are not listed above.
B24 Total current liabilities:
Summation of current liabilities.(B19 + B20 + B21 + B22 + B23).
Non-Current Liabilities
B25 Time deposits > 1 Year:
Deposits for which the depositor agrees not to withdraw any part of the deposit prior to the maturity date or the expiry of a specific time in this case > 1 year (unless the depositor is willing to forgo interest).
B26 Long-term debt (market rate):
The amount outstanding on all long-term borrowings on which a commercial rate (or market) rate of interest is paid.
B27 Long-term debt (subsidized rate):
The amount outstanding on all long-term borrowings on which a concessional (or below market) rate of interest is paid.
B28 Deferred income or restricted funds:
Donations provided to the MFI that are restricted in some way to a particular purpose or time frame. Theoretically if the MFI failed in its performance, the donor could recall these
funds. As the MFI provides the services agreed on and incurs expenses, the deferred revenue is reflected as grant revenue and used to cover these expenses.
B29 Other long-term liabilities:
Other long term liabilities that do not meet the above criteria and do not qualify as restricted funds.
B30 Total non-current liabilities:
Summation of long-term liabilities.(B25 + B26 + B27 + B28 + B29)
B31 Total liabilities:
Summation of Current liabilities and Long-term liabilities.
(B24 + B30)
Equity
B32 Capital from shareholders or member shares:
Amount of paid-up share capital fromshareholders or members.
B33 Donated equity:
Accumulated donations from prior years and the current year whether restricted or not, i.e. including all donations, regardless of their purpose (Y28). However, MFIs may use different methods for reporting donated equity; so for some, donated equity may include only donations for financing the loan portfolio or fixed assets. In this case all donations for operating expenses can be recorded on the Income Statement below Net income after taxes (Y25) and transferred to equity through retained earnings (B35).
B34 Reserves:
Other forms of equity other than paid up share capital or retained earnings. They may arise from a surplus on asset revaluation or capital contributions not financially registered as paid-up share capital. They could also be created out of net retained earnings for special purposes. If inflation
adjustments are incorporated within the MFI’s financial statements and carried forward from year to year, then in addition to creating an expense on the Income Statement, this will also generate a reserve in the balance sheet’s equity account. This reserve will reflect the amount of the MFI’s cumulative retained earnings that have been consumed by the effects of inflation.
B35 Retained surplus / (deficit) current year:
The surplus or deficit from MFI operations that has been retained by the institution in the current financial year. This is the sum of all of the current year’s periods’ Net income after taxes (Y25).
B36 Retained surplus / (deficit) prior periods:
The cumulative surplus or deficit from MFI operations that has been retained in all prior years, since the formation of the MFI.
B37 Retained surplus / (deficit):
Summation of retained surplus or deficit for the current and the past years.(B35 + B36)
B38 Other capital accounts:
Equity accounts other than paid up share capital, retained surplus / (deficit) or retained earnings. For example reserve credited from share premium.
B39 Total equity:
Summation of equity items.(B32 + B33 + B34 + B37 + B38)
B40 Total liabilities and equity:
Summation of Liabilities and Equity. (B31 + B39) This amount should equal Total assets (B15).