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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

Questions and Answers for Plenary Panelists

Question: Prof. Latifee, you have mentioned different operational cost reducing strategies in your paper, very precisely: specifying the cost, reducible sectors. But you have not mentioned any microfinance investment strategies, like ASA has mentioned, regarding operational staff based clients or loan portfolios. Would you please clarify about your strategies regarding loan portfolios or client targets, or some steps to be taken in the future, like this with a view to reducing the cost of the microfinance operation management? …

Latifee: I have mentioned in the paper while referring to Grameen Bank operation that each staff is required to serve 500 active members, so by that it means that you can imagine how much staff/client ratio will be there. About portfolio management, as you know Grameen redesigned the whole system, and introduced- it has diversified loan portfolio before, but it has minimized that number, loan product now. The prime loan in Grameen is known as the basic loan which can be taken for any income earning activities.

And then in addition to basic loan, Grameen has also, it was before as well, housing loan, education loan, and micro enterprise loan. And, there have been developed several strategies to increase the loan size that qualifies each borrower on the basis of his or her performance, of the existing loan that she can get more and more subsequent loans, even within the same loan period one can get another loan. And gradually, she can increase the amount of her loans. So by that actually what is done on the one hand you are increasing the volume of loan outstanding, and you are earning more. And on the other hand, Grameen is also introduce before it was weekly compulsory saving, now it is there but in addition to that, Grameen has produced a number of saving products, which is sort of incentive package for the borrowers they are saving more and Grameen is now providing 100 percent of its loan outstanding from saving sources. So these are the strategies that Grameen has introduced. And also to take care of the less productive staff, Grameen has produced a voluntary retirement system, if someone feels that after 10 years he/she will go on retirement, she has a structured retirement benefit. So, that kind of policy, and as mentioned in my paper this is not something that you do once for all, it is a continuous process, you go on with the process, and you develop your studies to improve the system.

Question: Does ASA provide business development services in addition to the financial service. If yes, what type of strategies do you use to reduce the cost of business developments because it is very costly.

Kumar Roy: Regarding the business development services -- we don't directly provide any business development services to them, we rather link with other institutions, to get those kind of services. But we have our own type of business development services, meaning that, when we provide a loan to a client, we try to give some guidelines, or to assist them in how to make this business a profitable one. It's not a traditional training For example, if one borrower would like to raise some cows. And if it is a big one, that means 5 or 10 cows, than we send this borrower to a private entrepreneur, where she can learn how to rear, or how to manage this type of farm. So we don't directly provide any business development services to them, but link the private entrepreneur with an institution, to get that kind of service…

Question: I heard from ASA when somebody raised the very pertinent question of quality. It was said [by ASA] that we are reaching the numbers, so quality is not a priority. Do you have a quality commitment when you are talking about numbers? Do cost reduction measures hamper the quality for the clients in some way?

Abid: I think quality is really reflected in the product that we offer to our clients, so it's already in-built in the product design features and also other key elements like repeat services, turnover time that you have to your clients, the courteous service that you extend to your clients, how you make them feel friendly and comfortable when they come to the branch. So it's all of these factors that build to quality.

Question: Panelists, particularly those that might have added individual lending products to their portfolio, can you comment on the particular efficiency issues that rise in making that shift or in diversifying to individual lending?

Amy De Los Santos: TSPI in the Philippines started with individual lending, our full use, used to be ninety percent individual and 10 percent group lending about 10 years ago. Now we have changed it: now it is 90 % group lending, and ten percent individual. Lately we have been having problems with small enterprise loan. We define this as 50,000 pesos and above, that's about $250 and above--So we have changed our direction to expanding our group lending.

Question: Ms. Sadaffe Abid, you have managed to reduce the portfolio at risk quite significantly from the year 2001 to the year 2003. Could you please share with us, the reason behind this success?

Sadaffe Abid: There are series of factors that go into improving your portfolio quality. First of all, having a clear definition of delinquency, educating your staff on it. The very first day we recruit staff members, we clarify our stance on portfolio, money must come back on time, what are the rules and methods available. Of course all of us do face delinquency, I think if we say that we've never chased delinquent clients, it would not be accurate. But you actually train your staff how to manage it.

Question: With respect to staff improvement and efficiency, what initiatives have been taken by Grameen and ASA, because it is very limited to reduce the overhead cost of the microfinance with respect to staff development and human resource development.

Prof Latifee: On the question of staff training or capacity building. Actually Grameen puts a lot of importance on developing professional staff because of the new technology and it's specialized technology. If the staff does not know what to do, how to do, well, he cannot or she cannot perform the job. So Grameen recruits some staff, it has a staff training program, and the training program can be broadly divided into two types. One is induction training, just immediately after recruitment. And then continuous on the job training. The uniqueness in the Grameen training program is nothing like traditional or conventional training course, as we say, okay—talk to the training institute, give lectures, give handouts, and take exams. The Grameen training is sort of learning by doing things. Guidelines are given, questions are given--what to do and they go to the field, where they do these things. And on the job training, as you know, that industry is not a stagnant in assessing position. It is developing, keeping the staff development of the organization and use programs and strategies and techniques that always meeting, explain circulars and other things, so the aim is to double up the professional staff. But they are skilled, they have the knowledge, they are creative, and they are troubleshooters. So that's how Grameen maintains a professional staff so that their productivity is as high as possible.

Question: To my mind, for cost conservation and efficiency, you need a good MIS system, a good IT solution. What are the strategies being followed by Grameen and ASA?

Latifee: …At the moment, 95% of Grameen branches are totally computerized. And these have facilitated Grameen, in keeping the records correctly and also in reducing the cost of maintaining and sharing information, and monitoring the whole operation. So, computerization is the answer for that. Computerization of branches, and Grameen actually in the beginning, engaged one computer person in each branch. But now it has redesigned the whole system. At the area level, there is the information center, and all that data is gathered there and then from there to the zonal office, and they analyze and give the information to the management so that they can take the necessary action on the basis of information available with Grameen.

Kumar Roy: …Regarding monitoring, we have 3 layers of monitors. A first layer, I told you, the branch manager is the initial monitor, then we have this thick structure and district officers visit at least one branch per day, and monitor all the transactions and these things. And then we have central monitors, each month, each central monitor has to stay in the field level at least 10-15 days and monitor at least 3-4 branches per visit. So we have this three-tier monitoring system. And it's a regular basis they send the report to the management and the management takes the decisions accordingly.