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| Volume 2, Issue 2: July '04 | ||||
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In This Issue REGISTER NOW for Middle East/Africa Region Microcredit Summit Meeting of Councils Archived Issues
Vol 2 Iss 1 June '04 |
Asia Pacific Region Microcredit Summit (APRMS) Presentation of Institutional Action Plans by Practitioner Organizations
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| One of the most important facets of the Microcredit Summit Campaign is the completion, implementation and sharing of Institutional Action Plans. And the premise of the Campaign is that by being frank and transparent about the challenges we face in reaching the goal of the Microcredit Summit, we will be better able to identify challenges and to share solutions. |
Ms. McKee: One of the most important facets of the Microcredit Summit Campaign is the completion, implementation and sharing of Institutional Action Plans. And the premise of the Campaign is that by being frank and transparent about the challenges we face in reaching the goal of the Microcredit Summit, we will be better able to identify challenges and to share solutions. … Today we're going to hear from two leading practitioners, and I think you'll understand as you listen to the presentations this morning, why these two have been chosen. Each of their institutions, in quite different ways, have set out a very bold vision, and I know that their leaders will be candid in sharing what have been the bumps along the road in trying to implement that vision and what they see as the challenges for the future...
Mr. Choudhury: Good morning ladies and gentlemen. ASA is hope—this is a Bengali word. Previously it was the Association for Social Advancement. We combined social advancement into financial services. That is why we changed our name also. Now I will present ASA's institutional action plan. Microfinance is recognized as one of the most important tools in global poverty alleviation. Formal banking institutions have traditionally been unable to provide wide scale financial services to the poor because they lack institutional capacity…to administer effectively, small loans with high transaction costs. In Bangladesh, less than 17% of the people access formal banking sector loans. A nonnformal sector that includes NGOs and cooperatives, has evolved to fill this gap. Microfinance providers like ASA…are proving that it is possible to be financially sustainable while providing small loans to poor clients.
| Microfinance providers like ASA…are proving that it is possible to be financially sustainable while providing small loans to poor clients. |
In 1978, ASA [was] established [as] an organization that would have a grassroots focus and developed consciousness raising and training program. Our objective at that time was to establish human rights in Bangladesh, not the credit and other things. But during the journey of 10 years [to] 1988, we changed a lot—from human rights to integrated development…Then during 1990-1991, we specialized as a pure financial service provider…. By early 1990, ASA had begun to focus on [the] microfinance program and initially reached a base of 50,000 members with $238,000 US dollars in loans. …In 1992, ASA begin to specialize in the provision of microfinance services defining its operational structure and developing its local delivery method and imagine its simple specialized innovative fast growing microfinance provider.
| ASA focused on becoming self reliant, sustainable and independent of donor grants, achieving these goals in 2000. |
ASA focused on becoming self reliant, sustainable and independent of donor grants, achieving these goals in 2000. The ASA method is very simple…ASA has [a] non-conventional way of doing things… The bookkeeping, auditing, everything is simple, because complicated way of doing microfinance—takes your time and it is costly. That is why we could reduce costs tremendously by simplifying our operations, simplifying our procedures, simplifying all the things. ASA presently [February 2004] serves a membership of 2.34 million, offering them a range of loans, open access savings, loan insurance and life insurance products. Except transfer of money, ASA did all these services. The organization has a total of 1,288 branches, and employs a staff of 8,065. The organization has a total revolving loan fund of $227 million US dollars as of December, 2003, which is made up of $106 million US dollars of ASA's own equity…and another $56 million US dollars from member savings [which] includes a life insurance fund. Another $60 million in loans from PKSF and $1.37 MM in loans from CORDAID. Total loan outstanding is approximately $175 million US dollars. ASA's financial self-sufficiency is 174 percent. The operating costs of ASA is 3.3% on loan disbursement. A recent survey reveals that for over five years the average household income of ASA members has increased by 20% per year.
Financial self-reliance is the key to ASA's success. ASA's model is widely recognized as among the most efficient, low cost operational system in [the] microfinance sector. ASA has achieved these goals by perfecting its streamlined, standardized, decentralized operational system….
| At the end of 2003, ASA had 2.25 million small loan clients and plans to increase this number to 3.5 million by 2005. |
ASA's achievements in the context of Microcredit Summit's core theme of reaching the poorest— all the members of ASA's small loans are among that category. ASA's small loan is for the poor whose income is less than a dollar [a day]. ASA's basic loan program offers small loans to women only, whose monthly income does not exceed $52 US dollars and owns less than a half-acre of land. And with this money, the poor women generate income. ASA's small loan product has a standardized weekly repayment, and a fixed term of one year, making it easy to understand. Clients are attracted to this product because it is predictable and hassle free. At the end of 2003, ASA had 2.25 million small loan clients and plans to increase this number to 3.5 million by 2005. Besides these small loan borrowers, these are mostly women in the rural areas, we have another product we call it small business loans. ASA's small business program offers loan to both men and women who have demonstrated their competence in business but lack capital. These loans are usually extended to members capable of handling a little bit bigger amounts of capital—initial size $250 dollars to $350 dollars. The term of loan is one year through weekly repayments at the end of 2003, ASA has 80,000+ such clients and plans to increase this number to 90,000 by 2005.
…In the past, …ASA was faced with two obstacles to reaching the very hard core [poor]: 1) the high risk of farm hard core poor and 2) the geographical location of this type of people. ASA has a new flexible loan product for these hard core poor who are living in the remotest villages, where we are not able to go frequently. These poor people are not willing to borrow ASA's standard loan of $100 or more. They are willing to borrow $50 or $40, but they are afraid of paying weekly. They cannot pay weekly, because for them it is too quick [a] turnover. That is why ASA designed the product for the very hard core poor: small amounts of loans and installment is either monthly or 3 months or at their time—because these poor people will raise chickens or goats or pigs. How they will repay the loan in weekly installments? And for them, the traditional branch concept has been changed. We are going nearer to their houses, we designed a mini-branch concept, where two staff will stay there and they will operate from the doorstep of the poor….Now, they are embracing microcredit because this is nearest to their houses, the amount is small. Whatever repayment schedule, they are comfortable, they can pay. This is the new innovation in ASA in September [2003].
Then we have another program we call the small entrepreneurship loan. By self-employment of the women and by covering only hard core poor, there has not been any growth in the economy which most government officials and most people are willing to see…ASA designed the entrepreneurship program for creating jobs for the hard core. These entrepreneurs can borrow from $1,000 to $3,000. They will pay monthly, because of their cash flow—most of them are doing production, they can sell it. They have product in the market they can pay monthly, without collateral—only thing is they will sign a post-dated check to the lender…ASA is trying to reach 100,000 new clients for entrepreneurship development.
The number two theme of the Microcredit Summit: Reaching and empowering women. All of you know that most of the NGOs and institutions, those who are doing microfinance, their coverage is from 75% to 95% women. The empowerment of women means they have excess income now in their hands. They can…participate in the decision making process in their families. They can participate in some of the decision making in the society. Now we find from our own experiences, when there is a divorce event, husbands go back to take a wife, because a wife is no more a burden, they are an asset. They produce every day income. This is the most empowering thing in rural Bangladesh…This is the empowerment component.
Number three: Building Financially Self-Sufficient Institutions. This is the Microcredit Summit's goal. If your institution is not self-sufficient, if your institution does not exist, how will you help the poor? This is really a concern for all of us. If we are sustainable, we will be able to provide services more and more, to the poor. The percent of sustainability here means, for microfinance institutions, we must cover our costs. This is the sustainability. Number two, there is a flow of funds to our institutions. These are the two big elements of financial sustainability. ASA achieved that long before. Not only ASA, but there are several institutions they also achieved that. But ASA sustainability is highest—174 percent. Big surplus—Why? Do [we] charge more interest? No, our service charge is only 15%. Do [we] pay less to [our] staff? No. Then what have you done? We have done methodological change in operating small loans. Operating small loans in a small way, in a standardized way, reduces cost drastically. That is why we achieved this sustainability.…
| The key to ASA's model is standardization and decentralization. Everything is standard. |
The key to ASA's model is standardization and decentralization. Everything is standard. Sometimes people are very critical of ASA, they think in ASA all are robots, they cannot think. Correct. For the time being they are robots. The day will come they will be intellectuals. If they are not robots, if you don't standardize…[you] need much more control, need much more management capacity, need much more supervision. That means these are costly. To avoid costs, ASA standardized many things. That is why [our] cost is less.
Second, decentralization. There is no beaurocratic way of loan approval, to loan transfer, fund transfer from the head [office]. All are decentralized at the branch level. The branch manager can decide everything at his desk. How will he decide everything, because he is not a professional and qualified man? We provide him a manual. In this manual, everything is written. When he will come to the office, where he will sit. All details are written. He will just read his book and do his job. That means he can decide everything, because all [that is] written in the book [was] already decided by high level, professional people in the headquarters…If he needs to change, he cannot change. He will inform head office—from head office, there will be a brain storming session then there will be change. This will be in the manual. By reading manual, they can do like a professional staff. This decentralization also reduces cost tremendously. They don't need to send their documents to us for decision…
Number four: Ensuring a positive measurable impact on the life of the client. Because many people think that microfinance has no impact—only we are giving and we are taking….I am not here to please others—World Bank, UNDP, no. I am for pleasing my borrowers…[If] they are happy, I am happy…Last week we conducted a survey. From this survey, I'll give you a detailed change in income: 93% of the rural people could change their income; 87% urban. The total 91%, there is a small change in income. The average daily household income: when they started in 1998, their income was 1.60 dollars, now it is 2.62 dollars. That means in five years they could increase one dollar. Each year, 20 cents. This is ASA's borrowers only, not others…
… In our context and culture, people don't believe in others. But we have complete decentralization. That means confidence along with guidance. Portfolio at risk is one of the lowest in the world. Less than half. Low cost methodology: 3.30 per dollar lent—one of the lowest in the world. Financial sustainability—174%, one of the highest in the world. It can grow very rapidly, because all are simple…from a few thousand, now we reached 2.5 million in 10 years. The growth is very spectacular.
ASA has sold its model..[It] can even be replicated outside Bangladesh. With its participation in the UNDP Micro Start program in the Philippines and Nigeria, as well as we have the partnership with West Bengal NGO…and Social Fund for Development in Yemen. We proved that it can work outside Bangladesh. If institutions wish to replicate ASA's cost effective outreach, they must concentrate on [several] key objectives.
…The leaders of the institutions must have firm determination…and willing to innovate—microfinance should be a homegrown thing. Not dependent on consultants, experts, foreigners, World Bank, etc. It should be a homegrown thing. Whatever little education I have, maybe I'm not very good in English, or Bangla or mathematics, but I will try my own way. I will have a teacher here that I will consult from time to time with those who have some expertise, but don't depend on them. If you depend on them, they will create a long-term dependency. You will not be able to come out from their dependency…
Number four: The leaders of microfinance institution in any country, they must work together and with the government officials, to create an amiable and favorable environment, conducive to effective microfinance. Because though our leaders are critical, but they are helping us. They are critical in the plenary, but in the beginning, they are very friendly. They offered money through PKSF. Like that you can create a friendly government who will criticize you in the big meeting but support you in the small meeting…These four things, if you can adopt, and I hope you will be able to do very accelerated microfinance in your own context…