Business Planning and Financial Modeling for Microfinance Institutions: A Handbook Tony Sheldon and Charles Waterfield CGAP

Technical Tool Series No.2, November 1998 Among the technical tools that CGAP is developing for enhancing the capacity of microfinance institutions (MFIs) is the Business Planning and Financial Modeling for MFIs: A Handbook. The process of developing a business plan, and especially of creating detailed financial projections, helps institutions to understand factors that are key determinants of their success, such as the variables involved in designing financial products that both meet client needs and lead to institutional profitability. The business plan, and the financial projections become operating tools for the managers of microfinance institutions by comparing actual results to projected figures, the institution can monitor its progress in achieving goals. The Business Planning and Financial Modeling for MFIs Handbook takes readers through the process of developing a business plan for a microfinance institution. Part 1 provides a brief overview of the key elements of strategic planning: Articulating the missions and goals Defining markets and clients Analyzing the environment Performing an institutional assessment Developing a strategy. Part 2 covers the main elements of operational planning from the perspectives of developing detailed financial projections. Step-by-step projections are created from case study data using the Microfin model, an Excel-based financial modeling tool developed expressly for microfinance institutions. The steps in operational planning and financial modeling include: Defining financial products and services Specifying marketing channels Planning institutional resources and capacity Developing a financing strategy Analyzing financial projections and indicators The Business Planning and Financial Modeling for MFIs Handbook’s last chapter briefly discusses how to use the business plan and financial projections as ongoing management tools. Once readers have practiced with the Microfin model using the data provided in the case study, they can use the model to develop detailed financial projections for their own institutions. Readers of the handbook and users of the financial model are assumed to have a basic understanding of and experience in several key areas, including credit methodologies, financial management, and working with spreadsheet software. The handbook also includes several annexes with further information on the Microfin model. These explain how to install the software, present printouts from the model, list data requirements, and provide an exercise on modeling lending activity.

Although the Handbook for Business Planning and Financial Modeling is intended primarily for managers of MFIs, it can also serve as a key planning tool for other stakeholders of the institution, including other staff, board members, advisors, and funders. For a copy of the Business Planning and Financial Modeling for MFIs Handbook, please contact PACT Publications at, by phone at 212-697-6222 and by fax at 212-692-9748. PACT Publications also has a web site at