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 books@pactpub.org, by phone at 212-697-6222 and by fax at
212-692-9748. PACT Publications also has a web site at www.pactpub.com.