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| Volume 2, Issue 3: August '04 | ||||
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In This Issue Workshop Discussion - Successful Management Strategies to Reduce Cost and Improve Efficiency REGISTER NOW for Middle East/Africa Region Microcredit Summit Meeting of Councils Archived Issues
Vol 2 Iss 2 July '04 |
Workshop Discussion - Successful Management Strategies to Reduce Cost and Improve EfficiencyPresentation by Professor H.I. Latifee, Managing Director, Grameen Trust, Bangladesh
…Microfinance institution management should be committed to providing and have the capacity to provide financial services to the poor at the least cost. This is only possible if it has a dedicated full time leadership and efficient and effective management system, a strategic plan and professional staff. A clear understanding of the vision and the mission of the microfinance program is very important on the part of all concerned. If the vision is a poverty-free world and if the mission is to reduce poverty with microcredit, we should know how to do it at the least cost and with what degree of efficiency and at what speed… Whether the cost reduction strategies are appropriate or not will depend on the efficiency of the management, and the management efficiency as a whole can be achieved and improved by providing necessary training to the staff, reviewing things regularly and setting key performance standards keeping in mind the industry standards. The cost of training, targeting and measuring impact may be considered and incurred in a way that is cost effective. To keep these and other costs within limits and to prevent fraud and forgeries, internal audit systems should be introduced. External auditing is also useful for transparency and verification. Computerization of accounting and management information systems plays a significant role in cost reduction. It provides analytical monitoring and reporting options at comparative costs, and improves the system as a whole. It is well known that by increasing the scale of operation, costs decrease -- there is a cost saving. However, whether the program will really enjoy the benefit of economy of scale will depend on the aggregate level of cost structure and revenue structure. It will depend on the appropriateness of the strategies for the reduction of financial expenses and amount of interest earning. How cost can be successfully reduced can be learned from the innovative approaches of the best practices like Grameen. In Grameen Bank for instance each field staff is well trained to provide financial services to 500 active borrowers, and each branch is required to mobilize enough deposits to meet this demand for onlending funds. Computerization of MIS and accounting systems, also helps Grameen in reducing its costs at all levels; it has computerized 95% of its 1196 office branches serving more than 3.1 million borrowers. It has connected most of the loans through internet, and thus reduced the cost of communication and data transfer. Changes in retirement policy, transportation and traveling, purchasing and procurement, and above all, the redesigning of the loan and saving products and introduction of loan insurance savings funds under the Grameen Generalised system or Grameen Bank II, as it is popularly known, have contributed a lot in cost reduction of Grameen operations. Given the continuous efforts for reducing costs, increasing efficiency, and attaining self-sufficiency, the new Grameen Bank branches are expected to reach the break-even point within the first six months of operation. It is evident from experiences of successful microfinance institutions that the strategies for reducing cost and improving efficiency cannot be developed overnight. It is a continuous process. The question is whether it is necessary to reinvent the wheel for this or we should learn from the experiences of others and be innovative in improving the system through our creativity and collaborative efforts. This is our own decision. We can go either way, considering the cost of time and resources that we have. Given our access to the experience of leading practitioners we can develop appropriate strategies to effectively reduce our cost and improve our efficiency to provide financial services to the poor on a sustainable basis. |