# Microfinance Institution Model Project a microfinance institution over seven years: loan book by group and individual product, branch and loan-officer economics, deposit and debt funding, capital adequacy, and the ratios that decide whether the MFI is operationally self-sufficient. - Canonical: https://finamodel.com/templates/microfinance - Excel download: https://finamodel.com/templates/microfinance.xlsx - Category: Credit - Model type: Lending / Credit - Difficulty: Intermediate - Audiences: Credit & risk, Bankers & advisors, MFI executives, DFI credit teams, Impact investors, Bank regulators - Tags: microfinance, mfi, loan-book, capital-adequacy, branch-ops ## Overview A microfinance institution (MFI) model projects the financial profile of a lender to underbanked borrowers - small ticket, short tenor, with a portfolio split between group (solidarity / village-bank) and individual loans. The two products have different yields, different average loan sizes, and different credit profiles, but in this template they share a single roll-forward: opening loan book → grow at a target growth rate → write-offs (negative) → net new disbursements (the plug) → closing loan book. Average balance flows into interest income; net new disbursements drive upfront fee income. Blended yield is portfolio-mix-weighted. Provisions are computed as average loan book × PAR > 30 days × LGD, so the income statement reflects expected credit losses rather than just realised write-offs. Branch operations scale separately: branches grow at a steady annual pace, loan officers scale with branches, and active loan count is derived from group and individual outstanding divided by average loan size. The officer-utilisation line surfaces the point where productivity becomes the binding constraint on book growth. Operating expense splits into branch cost, loan-officer compensation, and HQ overhead that grows with inflation. Funding is sized from the loan book - deposits and debt as ratios of book - and equity is the balancing plug, accumulating retained earnings on top of opening equity. Risk-weighted assets equal the loan book times a density assumption (so a 75% density on a $100M book gives $75M of RWA), and the capital adequacy ratio (equity / RWA) is compared against a target minimum. The Returns sheet then reports the headline ratios institutional investors and regulators care about: ROA, ROE, net interest margin, cost-to-income, operating self-sufficiency (OSS - revenue divided by all costs), PAR ratio, provision coverage, and per-branch productivity. The Checks sheet verifies the balance equation, sign of the loan book and CAR, the bound on PAR, and that the product mix sums to one. ## What's included - Portfolio mix between group and individual lending with separate yields and average loan sizes - Loan book roll-forward: opening, growth-driven target close, write-offs, net new disbursements, average balance - Branch and officer build-out with utilisation against active loan count - Income statement with interest income, upfront fees, deposit and debt funding cost, loan-loss provisions, tax - Funding mix sized from the loan book - deposits, debt, retained earnings - with capital adequacy versus a target - Returns sheet: ROA, ROE, NIM, cost-to-income, OSS, PAR ratio, provision coverage, per-branch productivity - Checks sheet - funding balance, loan-book sign, PAR bound, CAR sign, mix sum - Portfolio mix between group and individual lending, with separate yields and average loan sizes - Income statement with interest income, upfront fees, deposit and debt funding cost, loan-loss provisions and tax - Funding mix sized from the loan book - deposits, debt, retained earnings - with capital adequacy versus a target ratio - Returns sheet: ROA, ROE, NIM, cost-to-income, operating self-sufficiency (OSS), PAR ratio, provision coverage, per-branch productivity ## Microfinance Institution Model: How the Template Works This microfinance institution model projects a seven-year financial profile for an MFI, covering group and individual loan products, branch capacity, funding mix, capital adequacy and social performance. The underlying specification shows how portfolio dynamics, expected credit losses and balance-sheet mechanics link together. This page explains the key operating drivers, calculation flow and outputs so you can evaluate whether the template fits your analysis. ### What Drives the Model The model is driven by a compact set of operating assumptions that feed every sheet. Loan growth, per-product yields and turnover-based disbursements determine the loan book. - Branch capacity is driven by active loans, loans per officer and a utilisation target; required branches are calculated as the ceiling of active loans divided by officer capacity, with a minimum opening constraint. Funding assumptions include sight and term deposit rates, wholesale debt mix and scenario shocks. - Equity injections and dividend payout round out the capital drivers. A scenario selector toggles between base, PAR shock, rate shock and growth shock, adjusting loss and funding parameters dynamically. ### How Calculations Flow The calculation flow begins with the loan book roll-forward: closing book equals opening plus net disbursements minus write-offs. Gross disbursements are turnover-based, using average tenor to determine how often the portfolio revolves. - IFRS-9 provides a staged allowance: Stage 1 for performing loans, Stage 2 for 30–90 day past due, and Stage 3 for 91+ days, each with different loss assumptions. Provision expense reconciles the allowance roll with write-offs and recoveries. - Interest income uses average loan balances, while wholesale debt interest uses opening balances to avoid circular references. This symmetry maintains consistency across the income statement and balance sheet. ### What the Model Outputs Outputs include a full balance sheet, income statement and indirect cash flow statement. The returns section reports ROA, ROE, net interest margin, risk-adjusted NIM, cost-to-income, operational self-sufficiency and financial self-sufficiency, alongside portfolio yield, effective borrower cost and yield gap. - Branch economics and per-product net interest income contribution are also shown. The KPI sheet covers social performance such as active borrowers, percentage of women and rural clients, average loan to GNI and retention, plus Basel-style capital ratios (Tier 1, Tier 2, total CAR, headroom) and liquidity metrics. - A checks sheet validates balance sheet balancing, cash tie, equity roll and allowance roll. ### Practical Use and Scope Practically, the template helps assess whether an MFI becomes operationally self-sufficient and how capital adequacy evolves under different credit and funding conditions. The scenario selector allows quick switching between base, PAR shock, rate shock and growth shock to observe the impact on profitability and capital. - Sensitivity analysis provides static deltas to year-three net income for PAR doubling, a 200 basis point funding rate shock and a five percentage point growth reduction. The model is built for a single MFI over seven years, with quarterly or annual periods as assumed. - Downloadable previews are values-only, so formulas do not recalculate; the description here covers the underlying logic. Users should adapt assumptions to their own context. ## Built for MFI underwriting DFIs, impact funds and bank treasuries underwriting microfinance need to see the loan book, branch economics, funding mix and capital adequacy in one place. This template puts them on adjacent sheets that tie cleanly together. ## Designed for two-product portfolios Group and individual lending have different yields, ticket sizes and credit profiles. The model keeps them separate on the inputs and merges them via a blended yield, so a shift in mix flows straight through to NIM and provisioning. ## Audit-friendly mechanics Every driver is a named range. Every formula is one or two operations. The workbook passes static-value, self-reference, dead-assumption and circular-reference scans at 100%. ## Built for MFI underwriting DFIs, impact funds and bank treasuries underwriting microfinance need to see the loan book, branch economics, funding mix and capital adequacy in one place. This template puts them on adjacent sheets that tie cleanly together. ## Designed for two-product portfolios Group and individual lending have different yields, ticket sizes and credit profiles. The model keeps them separate on the inputs and merges them via a blended yield, so a shift in mix flows straight through to NIM and provisioning. ## Audit-friendly mechanics Every driver is a named range. Every formula is one or two operations. The workbook passes static-value, self-reference, dead-assumption and circular-reference scans at 100%. ## Workbook structure ### Cover Workbook overview, sheet legend, and tab-colour key for navigation. - Title and scope framing - Sheet-by-sheet purpose summary - Tab-colour legend ### Assumptions Every driver in one sheet: portfolio mix, yields, growth, credit, branch ops, funding, tax. - Group and individual loan share of book with average loan sizes - Group and individual yields plus upfront fee on disbursements - Annual book growth and opening loan book - PAR > 30, LGD, annual write-off rate - Opening branches, expansion pace, officers per branch, loans per officer, branch and officer cost - HQ opex with growth, deposit and debt ratios versus the loan book and their respective rates - Cash buffer ratio, target CAR, RWA density, income tax rate ### Loan_Book Outstanding portfolio roll-forward, flows, average balance, credit metrics and product split. - Opening, growth rate, target closing book - Write-offs (negative), net portfolio change, net new disbursements (plug) - Closing loan book and average balance - PAR > 30 days balance and expected loss - Group and individual outstanding from the mix, blended portfolio yield ### Income_Statement Revenue, funding cost, provisions, opex and tax. - Interest income = avg book × blended yield - Fee income = net new disbursements × upfront fee - Deposit and debt interest at their respective rates - Loan-loss provisions = expected loss - Branch, officer and HQ operating cost - Tax on positive PBT only, net income ### Branch_Ops Network, officers, productivity and operating cost. - Opening / new / closing branches and average branches - Loan officers as average branches × officers per branch - Loan capacity = officers × loans per officer - Active loan count from group and individual outstanding ÷ average loan size - Officer utilisation = active loans ÷ capacity - Branch and officer cost converted to $M for the income statement ### Funding Asset side, funding sources, capital adequacy. - Loan book and cash buffer = total assets - Deposits and debt as ratios of the loan book - Opening equity rolls forward; retained earnings plug to balance - Total funding equals total assets - checked on the same sheet - RWA = loan book × density; CAR = equity / RWA; leverage = assets / equity - CAR vs target line shows the regulatory headroom ### Returns Profitability, efficiency and productivity ratios. - ROA, ROE and NIM - Cost-to-income ratio and operating self-sufficiency (OSS) - PAR ratio and provision coverage - Loan book per branch, revenue per branch, cost per active loan ### Checks Validation rows confirming balance equations and bound conditions. - Funding balance check resolves to zero - Loan book non-negative check - PAR ratio within 0%-100% - CAR non-negative check - Group + Individual mix sums to 100% ### Cover Workbook overview, sheet legend, and tab-colour key for navigation. - Title and scope framing - Sheet-by-sheet purpose summary - Tab-colour legend ### Assumptions Every driver in one sheet: portfolio mix, yields, growth, credit, branch ops, funding, tax. - Group and individual loan share of book with average loan sizes - Group and individual yields plus upfront fee on disbursements - Annual book growth and opening loan book - PAR > 30, LGD, annual write-off rate - Opening branches, expansion pace, officers per branch, loans per officer, branch and officer cost - HQ opex with growth, deposit and debt ratios versus the loan book and their respective rates - Cash buffer ratio, target CAR, RWA density, income tax rate ### Loan_Book Outstanding portfolio roll-forward, flows, average balance, credit metrics and product split. - Opening, growth rate, target closing book - Write-offs (negative), net portfolio change, net new disbursements (plug) - Closing loan book and average balance - PAR > 30 days balance and expected loss - Group and individual outstanding from the mix, blended portfolio yield ### Income_Statement Revenue, funding cost, provisions, opex and tax. - Interest income = avg book × blended yield - Fee income = net new disbursements × upfront fee - Deposit and debt interest at their respective rates - Loan-loss provisions = expected loss - Branch, officer and HQ operating cost - Tax on positive PBT only, net income ### Branch_Ops Network, officers, productivity and operating cost. - Opening / new / closing branches and average branches - Loan officers as average branches × officers per branch - Loan capacity = officers × loans per officer - Active loan count from group and individual outstanding ÷ average loan size - Officer utilisation = active loans ÷ capacity - Branch and officer cost converted to $M for the income statement ### Funding Asset side, funding sources, capital adequacy. - Loan book and cash buffer = total assets - Deposits and debt as ratios of the loan book - Opening equity rolls forward; retained earnings plug to balance - Total funding equals total assets - checked on the same sheet - RWA = loan book × density; CAR = equity / RWA; leverage = assets / equity - CAR vs target line shows the regulatory headroom ### Returns Profitability, efficiency and productivity ratios. - ROA, ROE and NIM - Cost-to-income ratio and operating self-sufficiency (OSS) - PAR ratio and provision coverage - Loan book per branch, revenue per branch, cost per active loan ### Checks Validation rows confirming balance equations and bound conditions. - Funding balance check resolves to zero - Loan book non-negative check - PAR ratio within 0%-100% - CAR non-negative check - Group + Individual mix sums to 100% ## Features - **Two-product portfolio mix:** Group and individual lending sit alongside each other with their own yields and average loan sizes, then collapse to a blended yield that drives interest income. Flex the mix on Assumptions to see how a shift towards larger individual loans affects yield, productivity and provisioning. - **Branch and officer build-out tied to the book:** Branch count grows at a fixed pace, loan officers scale with branches, and active loan count is derived from outstanding by product divided by average loan size. The officer utilisation line shows how soon capacity becomes the binding constraint on growth. - **Capital adequacy with a target headroom line:** Risk-weighted assets are the loan book times a density assumption; CAR sits alongside a CAR-vs-target line so the buffer above the regulatory minimum is visible per year. ## Use cases - **DFI / impact-investor diligence:** Walk through the loan book economics, credit assumptions, and capital adequacy of a microfinance institution before underwriting a debt or equity ticket. - **MFI annual planning:** Use the branch and officer assumptions to size next year's network expansion, then stress the PAR and write-off rates to see how much headroom the model has before OSS slips below 100%. - **Regulator sensitivity:** Vary RWA density and target CAR to see how regulatory capital tightening flows through to the size of the loan book the existing equity base can support. ## Frequently asked questions ### What is a microfinance institution model? It is a lender model for an MFI - a financial institution that originates small, short-tenor loans to underbanked borrowers, usually split between group (solidarity / village-bank) and individual lending. The model projects the loan book, branch economics, funding mix and capital adequacy over a multi-year horizon. ### Does it cover both group and individual lending? Yes. Portfolio mix percentages plus per-product yields and average loan sizes drive a blended yield. Set Group Loans to 100% to model a pure group MFI, or invert to model an upmarket individual-lender. ### How are provisions calculated? Provisions = average loan book × PAR > 30 days × loss-given-default. PAR captures the at-risk balance, LGD converts it into expected loss. Write-offs are a separate, smaller flow on the loan book itself. ### Why is the capital adequacy ratio so high in the default run? The model balances funding by deriving retained earnings as the plug, on top of opening equity. With deposits and debt sized off the loan book, equity ends up roughly 30% of assets - high by commercial-bank standards but realistic for an MFI building capital before scaling debt. ### Can I extend the horizon beyond seven years? Yes - the builder is parameterised by NUM_PERIODS. Bump it and rerun and every sheet reflows. ## Related templates - [Direct Lending Fund Model](https://finamodel.com/templates/direct-lending-model) - [Bank Loan Analysis Model](https://finamodel.com/templates/bank-loan-model) - [Loan Portfolio CDR Model](https://finamodel.com/templates/loan-portfolio-cdr-model)