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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