Microfinance Internal Audit Checklist

Microfinance or microcredit can be defined as the type of financial service such as loans, saving accounts and insurances for unemployed or low-income but economically active individuals who otherwise would have no other access to financial services.

What are the objectives of Microfinance?

Main objectives of microfinance:

  • To provide financial services to the unemployed or low-income individuals or groups.
  • It encourages people to pursue small scale business safely.
  • It helps to generate a source of income.
  • It aims at gaining the trust of more and more people.

What is the criteria for Assets to qualify as Microfinance?

Criteria for the qualifying assets as microfinance is a non-deposit taking NBFC having not less than 85% of its assets: 

  • Loan disbursed by microfinance to a borrower with:
  • rural household annual income not exceeding Rs.1,00,000, or 
  • urban and semi-urban household income not exceeding Rs.1,60,000; 
  • Loan amount does not exceed: 
  • Rs.50,000 in the first cycle, and 
  • Rs.1,00,000 in subsequent cycles; 
  • Loan to be extended without collateral; 
  • Total indebtedness of the borrower does not exceed Rs.1,00,000; 
  • Tenure of the loan should not be less than 24 months for loan amount in excess of Rs.15,000 with prepayment without penalty; 
  • Aggregate amount of loan is not less than 50% of the total loans given by the microfinance; 
  • Loan is repayable on: 
  • weekly, 
  • fortnightly, or 
  • monthly instalments at the choice of the borrower.

Checklist for Internal Audit

Below are mentioned some of the checklists for internal audit in the department of microfinance:

  • Evaluating internal control
  • It ensures the accuracy of the information. 
  • It safeguards the resources against theft, fraud and other losses.
  • It controls the operating system.
  • Reviewing the accounts
  • It ensures that the procedures followed are effective.
  • It determines the adequate and efficient infrastructure enabling its accuracy.
  • Reviewing performance 
  • It ensures that the policies and guidelines are followed and implemented.
  • It also ensures the compliance with procedure specified.
  • It facilitates individual performance score.
  • It determines the plan, based on the performance, as a whole.
  • Preparing internal audit report
  • It provides a mode to cross check the accounts and data.
  • The conclusion and findings of the report, help draw the further course of action.
  • Areas for improvement come to notice and can be worked upon.
  • Audit checklist should emphasise on the issues such as-
  • Vouchers,
  • Cash book,
  • Financial statement prepared,
  • Progress report,
  • Membership enrolment register,
  • Daily collection register,
  • Movement register,
  • Welfare funds,
  • Member passbook verification,
  • Loan and advance register, etc.
  • Preparing audit program
  • It focuses on the objectivity.
  • It enables risk management.
  • It enables control management.
  • It ensures to conduct inquiries and investigations, in case of suspicion of conclusion drawn from the findings.
  • It entrusts with review of documentation ensuring efficiency.  
  • Reviewing audit program
  • It should be a multiple level review.
  • The creation and documentation of audit programs should be made from scratch as it focuses on areas that are not audited regularly.


Internal audits in microfinance can prove to be beneficial to the companies, such as identifying areas that need to be changed or reviewed, finding new risks, etc. For this to work the upper management must understand the findings and conclusions of audit reports in order to make all of the effort of planning and executing internal audits worthwhile. 

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