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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 Mr. Raman Uberoi, Director, Financial Sectors Ratings, CRISIL, India
…What we did before I came here was to actually do an analysis of some of the MFIs that we evaluated, and coming from what has been spoken about in this conference of how we need to improve efficiency so that actual credit that goes to the poor is at the most cost competitive pricing…We tried to evaluate twelve MFI's. We broke them into two groups: group A and group B. Group A included companies whose cost structure was weak to moderate. And group B had better cost structure. And then we tried to evaluate and see the differences to see why the group B companies did much better than group A companies. …Look at group A, is 24% yields and group B is 19% yields, so yields are much lower, and which is linked to the expense ratio- the expenses of group A are much much higher- twice that of group B companies, and which is resulting in the operational self-sufficency (OSS). The OSS for group B is about 150% compared to less than 100% for group A companies. …These companies have a minimum three year track record so that initial operating costs are taken care of, and do not make the study irrelevant, so we actually have seen that costs for borrowing for MFIs have increased, for group A they've increased from about 7.5 to 9.9, and for group B from 8.5 to 10.6.
And then we tried to evaluate some of the reasons why these things, why are group B companies efficient. One: size of loan account has a very positive impact on the operating efficiency. Group B has a size loan of a $109 US dollars compared to $89 for group A. …Here is some analysis that we did on employee productivity. Group B went from 202 to 414 active loan accounts; we're talking about active loan accounts where you actually deal on a regular basis, not just loan accounts which are inactive now. Whereas Group A, in 2003 had 188, so you can see more than twice the efficiency in group B. Active loan accounts per branch, it's about over 1600 for group B and about 1450 for group A. Also, higher proportion of interest earning assets has been a key reason why group B companies have performed well…. So what are the key operating factors of group B? They either have unique lending mechanisms, or the staff productivity is much bigger. The loan documentation, monitoring mechanisms are superior, which results in improved productivity. The blend of lending mechanism and sharing of operational expenses across various divisions. The inferences that we drew from this and the strategies accordingly-- loan delivery and collection mechanism is extremely important, how you monitor and limitations of this, identifying target group to avoid duplication of efforts, is also key whether you are promoting your own MFI and self help groups, or you can share with others, other NGOs and others which have been promoted by other institutions. In answering non fund based income, we've also seen some of the group B companies actually have some non fund based income that I think Ms. Abid mentioned about insurance, so we have entities who sell insurance products, to these we would sell fertilizers, seeds, not only does it result in improving your fee structure, but also you'll build a great franchise among the people whom your lending to. And investing in technology. |