Shareholders of licensed MFIs may have greater difficulty in putting together additional resources in the event of a call for additional capital mandated by the banking authority. Thus, it would be justifiable to support the case for a more conservative approach that sets a higher capital adequacy level for MFIs, in spite of the argument that higher levels result in less efficient use of capital.

- c. Global best practice experience of MFIs reporting their operating and financial performance data to the MicroBanking Bulletin provide clear empirical evidence to support more prudent capital adequacy standards for MFIs. As shown in Table 6 below, data from the MicroBanking Bulletin indicate that the ratio of unimpaired capital to average total assets ranges from a low of 20% to as much as 60% for MFIs in different regions, with different operational and organizational formats. The data also shows that the asset-to-capital leveraging of reporting MFIs, which would be much lower than the 10% to 15% capital adequacy level generally maintained by commercial banks, has enabled the MFIs to access borrowed funds at commercial rates as additional resources to fund their loan portfolios.

**Table 6. Financial Profde of Selected MFIs (In %)**

|**_Region_**|**_Capi4allassels_**|**_Operatingself-_**<br>**_sufficiency_**|**_Externalfunds/_**<br>**_loans0_**|
|---|---|---|---|
|Africa|51.6%|88.8%|51.7%|
|Asia<br>**...**<br> **.**.**.** <br>. ...**.**..<br>....**..** ..............|48.5|109.8<br>|40.7<br>..<br>.......**.**... ....|
|**_**_<br>_ __<br>____<br>Latin America|44.2|_<br>113.8|_<br>_<br>44.4|
|EasternEurope|54.2|107.4|146.5|
|**_Organizaoionalform_**|**_ais_**|||
|Bank|20.3|107.6|106.0|
|Non-BankFl|465|96.4|522|
|CreditUnion|34.7|109.3|67.7|
|NGO|59.5|106.4|41.6|

¢ External Funds/ Loans = Borrowed Funds @ commercial rates / Average Loan Portfolio _Source: The MicroBankine Bulletin. Issue no. 6 (April 2001), Tables A and B_

- The mandatory procedures for **recognition and classification of delinquent loans** are being reviewed for the possibility of taking into account the nature and cycles of microenterprises and small businesses; the characteristics of microfinance loans - especially in terms of acceptable collateral and repayment patterns; and the short-term maturity profile of microfinance loans

- **Provisioning for portfolio at risk** in the case of Ghana took into account the comparatively more numerous, smaller principal amount, and shorter maturity cycles of microfinance loans. "Basketbased" provisioning, instead of individual loan provisioning, was adopted as the acceptable approach. This basket-based loan classification and provisioning approach is more practical and less complicated and costly, compared to the prevailing practice of identifying, classifying and provisioning on an individual loan basis. In addition, the general reserve for microfinance loan losses, in the case of Ghana, is set at a level higher than that for regular commercial loans.

87. In working with a tiered structure of financial institutions and a tiered regulatory structure, the regulatory experiences of Ghana and the Philippine provide important lessons as regards the threshold levels of microfinance intermediation activities which trigger the need for external regulation.

26