Financial performance is one of the indicators used to measure the success of a microfinance institution (MFI) in terms of its financial returns. It is often considered a yardstick used by investors to conduct due diligence and assess the status of an investment; it is also used as a tool by government supervisors to assess compliance with regulatory measures and monitor the overall health of the financial sector. Each country issues its own accounting standards and reporting format for its constituents; however, several common financial performance indicators are used by most MFIs and reported by MIX Market.
Sound finances and good returns are important indicators of success; however, social performance is another increasingly important benchmark used to assess many institutions. Institutions with a “double bottom line” approach measure both their financial and social performances to ensure that they not only make a profit but that they also positively benefit the lives of their clients.