Financing the poor

By the early 1990s, ASA had begun to focus on microfinance programmes, and initially reached a base of 50,322 clients with $238,000 in loans. In 1992, it began to specialise in the provision of microfinance services, refining its operational structure and developing its low-cost delivery method and emerging as a simple specialised, innovative, fastest growing microfinance service provider. It focused on becoming self-reliant, sustainable and independent of donor grants and achieved this goal in 2000.

ASA presently serves a membership of 2.34 million, offering them a range of loan, open- access savings, loan insurance and life insurance products. The organisation has a total of 1,288 branches and staff of 8,065. It has a total Revolving Loan Fund (RLF) of $227 million as of December 2003, made up of $106 million its own equity (including reserve), $56 million from members' savings (including life insurance fund), $60 million in loans from PKSF, and $1.37 million in loans from CORDAID. Total loan outstanding is approximately US$175 million. Financial Self-Sufficiency (FSS) currently stands at 174 per cent and operating cost 3.3 per cent on loan disbursement. A recent survey suggests that over the past five years, the average daily household income of members has increased by 20 cents per year.

Financial self-reliance is the key to ASA's success. Its model is widely recognised as among the most efficient, low cost operational systems in the microfinance sector. It has achieved this goal by perfecting its streamlined, standardised, and decentralised operational system. This operational success has given the organisation the capability to expand its outreach, and work towards the goal of reaching 4.2 million clients by 2005.

Achievements vis-a-vis Microcredit Summit's core themes
Theme 1: Reaching the poorest:
ASA offers financial services to 2.34 million poor and poorest families whose daily average income was around US$ one. Its average loan size at the end of 2003 was US $148 (Rate of conversion: US $1= Tk 58). All loans are made to individuals, without collateral or group liability component. The service charge is calculated flat on the principal of the loan.

Small loan programme:ASA's basic loan programme offers Small Loans to women whose monthly income does not exceed $52 and who own less than 0.5 acres of cultivatable land. Initial loan values range from $105 to $345 in urban areas and from $70 to $110 in rural areas. Typical income generating activities of Small Loan clients include paddy husking, livestock rearing, handicraft products, small trading, and fishing.

Small Loan product has a standardised weekly repayment schedule 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, it had 2.25 million Small Loan clients, and plans to increase this number to 3.50 million by 2005.

Small business loan programme: ASA's Small Business Programme offers loans to men and women who have demonstrated a competence in business but lack capital necessary for expansion. These loans are usually extended to members capable of handling a bigger amount of capital. Initial loan size is US$250 - US$350. The term of loan is one year through weekly repayment. At the end of 2003 it had 80,862 clients and plans to increase this number to 90,000 by 2005.

Flexible loan programme: Reaching the risk-averse poor: In the past, NGOs that have tried to target the poorest members of society in Bangladesh have been faced with two obstacles: the high risk-aversion of some hard-core poor and the geographic isolation of others. ASA's new Flexible Loan, introduced in December 2003, offers a product that appeals to the hard-core poor. It is opening new mini-branches that will allow this product to be delivered cost-effectively in remote areas. This innovative strategy ensures broad-based outreach while maintaining institutional viability.

The Flexible Loan product offers small loans of US $18- $70, with a monthly, bi-monthly or one-time repayment schedule, and a term of 1-6 months. The staff provide clients with practical business development services in the form of advice and basic training in specific ventures.

It is opening new low-cost mini-branches that will operate alongside its regular branches. It plans to open 500 mini-branches in 2004, with this number growing to 1,000 by 2005.

It currently has 4,526 Flexible Loan clients, and plans to recruit 565,000 Flexible Loan clients by the end of 2005.

SEL Programme: Larger loans have spin-off impacts: ASA believes small, productive enterprises can create employment opportunities for the poorest of the poor. Introduced in 2003, its SEL programme offers larger loans of US $520 to $2,600 to medium sized enterprises. It plans to expand this programme, graduating current successful Small Loan Clients and recruiting new clients. Its goal is to graduate one woman member from each of its Small Loan groups -- an effort that could result in the creation of 100,000 new jobs for the hard-core poor. At the end of December 2003, it had 2,839 SEL clients, and plans to expand this number to 50,000 by 2005.

Theme 2: Reaching and empowering women:
All of ASA's Small Loan clients are women. Women benefit from their participation in the programmes in two ways: the income generated by their projects supplements household income and they gain increased bargaining power as they are able to make a larger financial contribution to the household. In addition, the Small Loan delivery methodology allows women to form and build a support network and sense of community without sharing the economic burden of other group members' loans.

Theme 3: Building financially self-sufficient institutions:
ASA firmly believes that an institution must be sustainable if it is to provide benefit to its clients in the long run. It is constantly looking for new and innovative ways to improve its operations. The organisation has been financially self-sufficient since 1996, and currently operates free of donor grants. It is now expanding its product line, developing new products and reaching new segments of the population. The capital for this expansion comes from both its own revenue and interest-bearing loans taken from PKSF, Bangladesh's apex microfinance funding organisation.

The keys to ASA's model are standardisation and decentralisation. It has outlined all of its procedures in a simple written manual. The manual clearly outlines everything from loan application steps, record-keeping procedures and staff responsibilities to allowable office expenses. The manual makes bookkeeping processes simple and easy to understand, thereby eliminating the need for specialised accounting and bookkeeping staff. Its training methodology focuses on practical experience and learning-by-doing, reducing recruitment and staffing costs. It hires staff with education appropriate to their responsibilities.

Mid-level managers are based in the field, allowing them to work closely with their subordinates and facilitating fast and effective decision-making. It has developed effective internal control mechanisms that include frequent rotating of Loan Officers within a branch; regular field visits by senior management and the presence of a strong, field-based audit division. External audits are conducted yearly by PKSF, ACNABIN and SHIRAZ KHAN BASAK (CA firm).

Financial self-sufficiency and operational capacity are crucial if an organisation is to expand outreach and deliver financial products to the hard-core poor cost-effectively. Its model shows that financial self-sufficiency and reaching the poorest of the poor are not incompatible goals.

Theme 4: Ensuring a positive measurable impact on the lives of the clients and their families:
Findings of an impact assessment conducted in September 2003 reflect that 94 per cent of both rural and urban respondents have increased their capital since 1998. The average value of capital increased from US $132 to $299 (127%) in rural areas and from $159 to $401 (152%) in urban areas.

The data on clients' savings balances provides further evidence of asset accumulation. The average savings balance increased from $15 to $35 (125%). The increase in savings was higher (133%) in rural areas than in urban areas (111%). 91 per cent of respondents indicated that their incomes had increased since 1998. Average monthly household income increased from $ 47 to $75 for rural respondents and from $57 to $98 for urban respondents.

Conclusion
ASA is among the world's most efficient microfinance service providers, with an extremely low cost per money lent of 3.3 per cent, and a high Loan Officer productivity of 461 clients per LO. Its rate of recovery has been over 99 per cent since 1992, and its staff and client discipline ensures a low rate of delinquency. With this effective operational structure and efficient service delivery model, it is well placed to reach its goal of serving 4.2 million of Bangladesh's poor by 2005.

The organisation has shown that its model can be applied outside Bangladesh with its participation in the UNDP's MicroStart programme in the Philippines and Nigeria, as well as through its partnerships with institutions in West Bengal and Yemen.

Institutions intending to replicate its cost-effective outreach, need to concentrate on four key factors:

The leaders of the institution must have a firm determination and be willing to innovate. Microfinance operational procedures must be simple and standardised (methodology must be cost-effective) and policy should be client-focussed and friendly. Institutions must have access to a reliable source of capital for on lending. The leaders of microfinance institutions must work together and with government officials to create an enabling and favourable environment conducive to effective microfinance operation.

Md. Shafiqual Haque Choudhury is Managing Director of ASA.