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3 Liquidity Ratios for Microfinance

by Simon Goble on July 26, 2016

Topics: Microfinance | Microfinance Ratios

Maintaining sufficient liquidity is vitally important to any Microfinance Institution. Part of asset and liability management procedures is to ensure sufficient cash or cash equivalents are maintained to meet short term liabilities.

1. Cash Ratio

This ratio shows the level of unrestricted cash or cash equivalents available to cover short-term liabilities. This is a key ratio to ensure the MFI meets its short term obligations.

2. Savings Liquidity Ratio

This ratio demonstrates the amount of reserves available to meet withdrawals in demand deposit accounts. Too high a ratio may indicate large cash reserves and an inefficient allocation towards earning assets.

3. Loans to Deposits Ratio

This ratio measures the extent that deposits fund loans and provides good analysis of the role of deposits as a funding source.

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