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Workshop Discussion - Successful Management Strategies to Reduce Cost and Improve Efficiency

Plenary Session – Policies, Regulation, Governance and Systems that Promote Sustainable Financial Institutions for Poor and the Poorest.

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Workshop Discussion - Successful Management Strategies to Reduce Cost and Improve Efficiency

Presentation by Ms. Sadaffe Abid, Manager Microfinance Programme of Kashf Foundation

…Here are some of the efficiency drivers that we have applied in our work that I would like to share with you. Firstly, and most importantly, I think it's the management's commitment to cost-effectiveness and efficiency that's got to happen, that's the only way the change will actually filter down to the level of the client. So linking our mission with sustainability, viability, and efficiency, then bringing it down to the level of the organizations or having a lean structure and making sure that you've got proper systems in place. Some of the HR Strategies have already been talked about and that's what Kashf picked up also. But, interestingly enough, we are still not at the stage where I can say we can hire 1,000 people in one day, that's still a challenge; but we have developed a good recruitment training, job shadowing for our staff, this again becomes very important because microfinance is labor intensive: you've got to make sure your staff is motivated and committed, so having regular team-building exercises, regular contact, especially when you are growing, becomes very important. Well-established, clear performance benchmarks in all careers and at all levels, so every staff knows what is expected, what is good performance, what is bad performance, and how they can improve.

Simple demand-driven products -- Kashf offers a productive loan which is common amongst the group lending methodologies. Then we have a consumption loan, which is what we call the “credit card for the poor.” The poor can use this for any emergency they [have] in the family, so for illness, health, or for fees. And we also offer insurance to our clients; moreover, as has been talked about, having clear guidelines, so your staff again know the operational procedures for managing all the products, the reporting channels have been clearly articulated, and are redefined from time to time. Cost and productivity benchmarks have also been clearly established. When we started out, our loan officers were managing about 200 clients, and now I'm happy to share with you that in mature branches our staff manage about 600 clients.

In microfinance, having strong monitoring systems again, becomes key, particularly if you are planning to expand, so we've got strong systems in place from peers monitoring each other, these are the loan officers to the branch managers, area managers, and the quality assurance team at the head office level. We follow a cookie cutter approach, which is just keep it simple, keep it standardized, and implement it in all your branches. The results, very briefly, are 7,200 clients in June 2001, now as I shared with you, we are at about 60,000 clients. The portfolio at risk has been within standard; so less than 1%, you can see the operational self-sufficiency and financial self-sufficiency of the program has increased dramatically and this is again because the management had a vision to control the costs.

It's very important for the management, the top management, to have a strong buy-in to efficiency and for it to be linked clearly with the mission of the institution….it's really about changing the philosophy and culture of the institution. Changes must go all the way down to your clients, or your client must also gain at the end of the day, and the management must be open and willing to take risks, even if you introduce a system today, that does not remain static, it's very important to innovate and continually question yourself. And, adequate time must be provided for staff training. That's what we learned from my experience, given the culture of every country is very different, it's important for you to give enough time so people get acquainted with new things. Some of the challenges that I think still continue to remain for microfinance in terms of efficiency are as follows: Training of staff -- we initially started with a training program of six months, we realized that was very costly and tried one month, and even that was not adequate for us, and now we're doing three months -- so that continues to be a challenge. How do you improve on that front?

Growth and new markets -- this is another challenge that we face when you are working in new markets it's almost as if Kashf was born today -- so we have to educate our clients, tell them about credit discipline, all the norms and principles, that is a challenge. Then as we know, one main challenge is standardization versus customization. While you talk about innovation, about customization, where do you strike the balance? A quick point on what a lot of MFIs follow is the zero tolerance approach towards delinquency. This, again, has a heavy cost attached to it. Where is the balance?

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