Liquidity Management: A Toolkit for Microfinance Institutions
Bald, J.
Publication Date: 2000
Published by: GTZ - Deutsche Gesellschaft für Technische Zusammenarbeit GmbH
Document Type: Toolkit
The publication can be purchased from the PACT Publications Website.
What are the best methods of learning about and implementing liquidity management?
This toolkit explores the situation of finding a middle way between having too much or too little cash. It states that liquidity management is concerned with the short-term, cash flow consequences of all transactions across all of the currencies in which the bank operates:
- Honoring all cash outflow commitments on a daily and ongoing basis;
- Minimizing the cost of foregone earnings on idle liquidity;
- Satisfying minimum reserve requirements and other regulatory liquidity standards;
- Avoiding additional cost of emergency borrowing and forced liquidation of assets.
It addresses common issues about liquidity management including:
- How can a MFI in an agricultural community predict seasonal deposit variations resulting from crop production cycles?
- How does loan demand vary with macroeconomic cycles of boom and recession?
- How much of the funds in the "internal" account should a village bank keep in the vault and how much can be used for lending?
The toolkit is organized in modules designed as free-standing units that can be customized by selecting the relevant topics from the full scope of issues covered in the toolkit. Each has complete with learning objectives, a brief pre-test, practical exercises and a final multiple choice test. The material has been classified into three levels of difficulty indicated in the header of each page: basic, extended and advanced. The toolkit includes companion software in MS EXCEL.
The modules are - Module 1: basic introduction to liquidity management
- Module 2: how liquidity management integrates with the business strategy and the organizational planning process
- Module 3: approaches to measuring liquidity based on balance sheets
- Module 4: core functions of dynamic liquidity planning and the forecast of the cumulative cash position
- Module 5: adjustments to the basic cash flow plan - inflation, compulsory savings and required reserves
- Module 6: vault cash management. covering trade-offs between shipment frequency, average vault levels and cash demand
- Module 7: action variables of liquidity management on both the asset and the liability side such as "strategic" funding sources
- Module 8: provides a brief survey of risk management for financial institutions and the relationship between liquidity management and individual risk elements
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