1. Debt to Equity Ratio
This ratio shows liabilities over equity and indicates how an MFI has leveraged its own funds to finance its loan portfolio. Excessive leveraging may indicate a risk issue in an MFI’s ability to absorb sudden losses.
2. Equity to Assets Ratio
This ratio provides a good indication of solvency and the ability of an MFI to meet its obligations and absorb sudden losses.
3. Capital Adequacy Ratio
By using total capital over risk weighted assets this is a better measure of equity to assets ratio and meets Basel II requirements.
4. Uncovered Capital Ratio
Shows the impairment loss allowance over capital and indicates the impact of potential portfolio losses on an MFI’s capital base.