Managing cost effective micro finance operations

Micro-finance through institutional arrangement is a recent innovation for poverty reduction among the poor. Small loans, or micro-credit as such is not new, but prevails in several countries through individual arrangements with money lenders. The concept of money lending has been institutionalised, rationalised and reformed for sustainability of both the borrowers and the lenders. The concept of co-operative society or a credit union-type of social arrangement of the poor for thrift deposits and borrowing was the initial inter-mediation of non-collateral credit services to the poor. Performance and outreach was not satisfactory due to the different style of management involved.

A new concept in credit delivery has been introduced by Grameen Bank. They started with a banking as opposed to a co-operative approach. Grameen's determination to reform money lending to the poor was successful. Another remarkable achievement in micro-credit was by ASA, another Bangladeshi NGO. ASA is a step ahead of other institutions in demonstrating that micro-credit can be sustainable within a short period of time.

Self-sustainability is the fruit of ASA's willingness to experiment with innovative, less complex management systems. The micro-finance sector, nonetheless, is still overwhelmingly dependent on government and donor grants and subsidies. This false sense of comfort and support should be abandoned for more socially accountable operations.

Innovativeness and willingness to learn: Stagnation of management practices effectively strangles the creativity of an entire organisation. Hence, innovation is key and willingness to learn from others' innovations.

ASA's innovations in micro-finance management are its simple and alternative book keeping, documentation procedures, standardisation and common use of facilities, and standardised reporting. The resulting efficiency cuts costs tremendously. Besides innovative management, care should be taken to ensure effective and efficient utilisation of funds and to encourage decentralised decision making with proper and accountable guidelines. These efficiency factors not only save time and money, but are also crucial to maintaining social accountability.

Continuity: A mutual sense of trust is central to continuous, dependable services. Members need to be aware that their performance and prosperity is integral to the perpetuation of ASA's services for themselves and others. Individual member security through continued access to credit, and group and organisational security through continued repayment are the mutual benefit of a stable, close-knit group.

Flexibility: During implementation of micro-finance services, organisations may face various problems at different stages. In such cases, policy flexibility and modification are required. Field level workshops for problem identification and possible solutions should guide the development of new policies or modifications of existing ones. A flexible policy atmosphere which allows for continuous improvements and adaptation to new situations is the core of organisational dynamism.

Enabling environment: Initial implementation of microcredit may not be well received by groups who find their interests threatened. They are often hostile to changes in status quo. An organisation's group members should be thoroughly convinced of the programme's benefit in order to create a positive atmosphere. Other corners of society are gradually convinced as the positive effects become self-evident.

Traditional recruitment vs. innovative recruitment: For quick recruitment, ASA advertises in the national dailies asking the aspirant applicants to appear for a test within 10 days. Applicants with the requisite qualifications along with necessary documents appear for an interview. No interview letter is issued. No secretarial work is necessary.

On the interview date 20 applicants are brought into one room for an hour. Two interviewers observe their physical fitness and ask questions about poverty, credit and various aspects of development. All participants get the chance to reply. Quick response, alertness, expression capacity, attentiveness and sharpness are observed. 4-5 of 20 candidates are selected, and on the same day the results are hung outside the office giving their training place and date. Within a day 600 applicants can be examined and the required numbers selected and informed. No paper work is involved in the process.

No donor-driven training methodology: ASA has discarded long donor-driven theoretical training. Straightforward on the job orientation courses are arranged. A newly recruited staff are assigned to an experienced staff member in order to see how he is working. After five days of observation with some brief theoretical orientation, the newly selected staff can perform their job independently. For regular guidance a detailed manual is available in each branch office. After a week the newly selected staff are engaged in actual work. Within a week ASA can train 1500 newly selected staff. There is a cost to the experienced staff member, who must take time to time the new employees.

Traditional credit delivery vs. decentralised credit operation: Guidelines for group formation, loan size, repayment amounts, and who will get credit and when, are well documented in the ASA manual. Loan applications and loan approvals are prepared and approved by branch level staff. Fund withdrawal is also carried out by branch level staff, who are co-signatories to the bank account. Credit is disbursed after three months of observation, savings and demonstrated discipline by borrowers.

Simple and standardised bookkeeping, accounting and operations: All units have more or less the same coverage of around 1500 clients. All units have four LOs, one Branch Manager (BM) and one peon-cum-cook. There is one standard table for the four LOs and a desk for the BM. All offices are of the same size and have the same number of rooms. Each office has one cupboard. All LOs keep their own records and accounting under the same formats. All BMs keep all accounts themselves following the prescribed form and written instructions. No branch office of ASA has either an accountant, cashier or an office assistant. Most NGOs need those two/three staff for their unit/branch offices.

Innovative middle management: Generally, middle management do their jobs working with papers and documents. All subordinate offices such as branch offices are supposed to send their papers and documents, and the BM reports to the District Office. In ASA the District Manager is based with the field and sits in the Branch office around in the District Team. He supervises, checks, scrutinises and guides. All functions are done and completed in the Branch office itself. He does not need an assistant or any other logistic support other than his motorcycle.

Resource management: Resources are very scarce. ASA resource management is done by providing a fixed ceiling for spending. Loan funds are also used in a planned manner so that excess funds do not stay idle in the bank account. Surpluses of one branch are transferred to another branch. Every day credit distributions are done so that no funds remain in a non-interest bearing bank account. With one unit of money ASA does the work of two units through a revolving effect due to weekly instalment collection and immediate disbursement. ASA also mobilises savings. After one year one unit of money has done the work of three units. Hence, ASA manages a large number of borrowers with a small amount of funds.

Resource mobilisation: Resource mobilisation depends on successful and cost effective operation. Without exception, very successful MFIs generate both donor grants as well as commercial funds. Neither type of fund is always sufficient to cover borrowers' demands. ASA generates voluntary savings from clients. These small amounts collectively create a large amount. ASA can on-lend the fund to new borrowers: 21 per cent of ASA's total fund is mobilised from savers' deposits. These funds require no time, no application, no bureaucratic decision. Only people's confidence is needed. Safe, convenient and flexible savings services generate more funds for on-lending.

Written manual: All details of operation and management, reporting format etc. are written in a manual so that staff can do day to day work with confidence and without direct supervision from ASA's Head office.

High recovery rate: Staff members know that their salaries come from ASA's income. Hence staff are very sincere and committed to loan recovery.

Achieving cost effectiveness: An ASA branch is managed in such a manner that it can cover its costs at the end of its 7th or 8th month.

There are two types of resources essential for an MFI: (1) Funds, and (2) Knowledge. Acquisition of these resources is sometimes difficult. ASA is trying to solve funding problems in two ways: (1) through efficient and cost-effective operations which help to generate income, loans from commercial sources, or soft credit windows; and (2) through mobilising savings from members.

The second valuable resource, knowledge, is acquired by ASA through learning-by-doing approach. But everyone cannot be an innovator. Here networking needs to play an important role. Arranging for outside exposure to successful institutions, sharing experiences and documents, is helpful so that others can learn how best to scale-up their work sustainably. Exchange visits can be arranged to share best practices.

Md. Shafiqul Haque Choudhury is Managing Director, ASA.