Management evaluation is essential to analyze the good financial health of microfinance institutions. The microfinance industry should be viewed as any business. These are born, grow, mature and finally die, some first, others later.
Like any business, it must be constantly evaluated and see possible scenarios to avoid surprises in its development. One of those scenarios is related to liquidity in the business. That is, if there is no liquidity, there are no sales or production, therefore, the objectives are not met, there will be inadequate management due to misgovernment, the risks will affect the business and there will be no adequate controls.
All these factors impact the business and therefore, in the absence of basic elements, the business will have to close. Hence, management evaluation is key to the good financial health of any business, small or large.
The lack of liquidity in a company determines its death. So what should we do to stop this from happening? Business management evaluations must be made with third parties in order to detect possible failures in the management itself. How the governance of the business is working should be evaluated.
It must be known whether the policies and strategies that control the fulfillment of objectives and goals are being adequately established; as well as knowing if the management has implemented the management tools, such as the strategic, operational and business plans that have the strategies for achieving the objectives.
Likewise, it is necessary to know how the risks will be minimized and managed, and the regulatory instruments that serve as a guide for the execution of the planned. Also related to the objectives and management information systems aimed at making known the results of the plans, which must be communicated in a qualitative and quantitative way.
Regarding the application of risks, the analysis of trends in the behavior of liquidity indicators, leverage, debt, management, profitability, among other factors, should be applied.
We must know how sales, costs, productivity, among others, are evolving; Likewise, to what extent do controls serve to manage risks, as well as the level of transparency of accounting information and tax contingencies, the efficiency and effectiveness systems of processes and cost systems.
Finally, the risks of the computer system must be evaluated to see if they have a contingency plan to continue operating, level of security, among others. As a result of this evaluation, the risks that may impact greater financial losses should be determined, and types of controls should be suggested to minimize them.
The microfinance industry must know what its potential risks are in order to anticipate the events and prevent a claim from occurring. Hence the importance of preparing in advance.
While it is true that the microfinance industry is a business, it is at the service of entrepreneurial entrepreneurs, but microfinance is also a social tool that contributes to poverty reduction. Hence the importance of knowing how the health of the MFI is. Only when companies know about their weaknesses, then the plans will work to achieve the objectives by properly managing business risks.
