Assessing the viability of a rural microfinance network: the case of FONGS Finrural

2.2 Research questions

The present thesis will address three fundamental questions:

- How do financial performance, social performance and governance vary among FONGS FINRURAL affiliated associations?

- How do the different performances of the affiliated associations of FONGS FINRURAL affect the viability of the network?

- To what extent are linked financial performance, social performance and governance in the surveyed MFIs?

2.3 Methodology

Our methodology consisted essentially in:

- The use of internal documents such as minutes from board meetings, business plan, manual of procedures, other secondary sources data;

- The use of data bases and annual reports when they exist, financial reports, audited financial statements etc;

- Visits at basic associations and clients information.

- Observations

All these actions were carried out in the framework of the internship effectuated within the FONGS from May to August 2012.

2.3.1 Data collection

Quantitative and qualitative data were collected at 07 affiliated MFIs and at the FONGS headquarters level as well.

Quantitative data were collected by using the financial factsheets components, the ECHOS(c) tool for social performance data and the grid for assessing the quality of governance.

Observation, Semi-structured and unstructured interviews were used to collect qualitative data from main stakeholders of the MFIs.

Secondary data were collected through reports and existing literature.

2.3.2 Data analysis

The analysis of data was an integrated analysis of three keys elements of viability that are financial viability, socioeconomic viability and institutional viability. These three elements are respectively assessed through financial performance, social performance and governance analyses.

The financial performance has been assessed with the financial assessment factsheet^9(*). Four categories of fourteen indicators were analysed: the portfolio quality, the efficiency and productivity, the financial management and the profitability.

The social performance has been assessed with the ECHOS(c) Tool of Incofin. ECHOS(c) is Incofin Investment Management's in-house social performance evaluation tool. The version used was the 2012 one, which takes into account the most recent developments on social performance in the microfinance industry. It focuses on five dimensions: social mission, Outreach and Access, Customers services, Human resources, Environmental and social practices.

The quality of governance of the basic organizations as well as of the network has been assessed with the Aggregated Index of Governance. The rational is that this index not only combines different aspects of governance but also can be more easily because using particularly binary variables (Wele, 2009). It focuses on six variables: the respect of the regulation, the management autonomy, the information system quality, the board of directors. Some variables from the analysis framework of Charreaux (1996) have been transformed in binary variables and included in the Aggregate Index of Governance: direct control by shareholders, existence of internal and legal audit, existence of salaries bonuses and the financial intermediation.

For a better understanding of the drivers behind the disparity between associations and the network, we used descriptive analysis mainly based on frequency and mean. We used spearman coefficient of correlation to appreciate the linkages between financial performance, social performance and governance index in our analysis unit. This latter comprised 7 of the 9 MFIs affiliated to the network due mainly to the data availability and to the non-functioning of the two others the last two years. Besides, as the network as a whole is not yet fully involved in the financial intermediation, the effect of these missed MFIs on the network can be minimized.

* ⁹ Can be downloaded from www.microfact.org