Cost allocation for multi-service micro-finance institutions
Helms, Brigit
Micro-finance institutions (MFIs) increasingly see financial viability as a core element of their business strategy. To implement this strategy, MFI managers must analyze their financial statements for indicators of profitability and efficiency. But which costs, revenues, and balance sheet items should be included in such analysis? This question can be complicated. This Occasional Paper presents a series of questions MFI managers should ask themselves about allocating costs and assets among cost centers. Using examples from the field and a hypothetical case called Microfem, the paper explores alternatives answers to these questions and considers the implications of cost allocation for the financial statements of multi-services MFIs using a non-integrated approach. The paper then explores the usefulness of cost allocation for financial analysis and management purposes. Next, other applications of cost allocation are briefly discussed. Finally, the paper presents a case study of Bangladesh Rural Advancement Committee (BRAC), one of the largest multi-purpose organizations involved in micro-finance in the world.
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