best practices, challanges and issues in micro finance (ganes

8/14/2019 Best Practices, Challanges and Issues in Micro Finance (Ganes

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Best Practices, Challenges andBest Practices, Challenges and

Issues in MicrofinanceIssues in Microfinance

Basics of Microfinance Training ProgramBasics of Microfinance Training Program(Organized by ADRA-Nepal)(Organized by ADRA-Nepal)

(July 24 August 1, 2006)(July 24 August 1, 2006)


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Need of following Best PracticesNeed of following Best Practices

Subsidized funds are decliningSubsidized funds are declining

Competition among MFIs is increasingCompetition among MFIs is increasing

Apply appropriate lending methodologiesApply appropriate lending methodologies


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Best Practices

Build effective Management

Information System (MIS)

Reach large number of clients

(Vision for growth)

Promote savings, diversify

savings products

Offer services that fit the clientsneeds, diversify loan products

Simplify loan products to

reduce operational cost

Motivate clients to repay loans,

focus on high repayments

Attain financial sustainability by

charging sufficient interest rates

Involve clients when designing

services / products

Governanceand

institutionallinkage

Targetclientsproperly

HumanResource

Development


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ChallengesChallenges

During 1980s to 1990s there was aDuring 1980s to 1990s there was a

conventional belief amongst bankers and toconventional belief amongst bankers and to

some extent amongst the developmentsome extent amongst the development

credit providers too. The challenges arecredit providers too. The challenges are

given belowgiven below


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The challenges coming from the first twoThe challenges coming from the first twoconventional beliefs were overcome asconventional beliefs were overcome as GrameenGrameen

BankBank, Bangladesh and, Bangladesh and ACCION InternationalACCION International andandBancosolBancosol in Latin America achieved the highin Latin America achieved the highrepayment of over 95%.repayment of over 95%.

The achievement in this area was primarilyThe achievement in this area was primarilybecause of;because of;

Properly designing the loan productsProperly designing the loan products

Training the clients on the credit programTraining the clients on the credit program Strong monitoring systemStrong monitoring system

Simple repayment procedures.Simple repayment procedures.


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The challenges coming from the third conventionalThe challenges coming from the third conventionalbelief that MFIs can not cover costs needed a basicbelief that MFIs can not cover costs needed a basicunderstanding within the industry on level of costunderstanding within the industry on level of cost

recovery.recovery.

During 1990s there was general consensus that costDuring 1990s there was general consensus that costrecovery has following three levels:recovery has following three levels:

Subsidy DependentSubsidy Dependent Operational Self-sufficiencyOperational Self-sufficiency Financial Self-sufficiencyFinancial Self-sufficiency

During last part of 1990s and 2000s, a substantialDuring last part of 1990s and 2000s, a substantial

number of microfinance programs were able to covernumber of microfinance programs were able to covertheir operational and financial costs. An example oftheir operational and financial costs. An example ofAssociation for Social Advancement (ASA),Association for Social Advancement (ASA),Bangladesh of being able to cover the costs of aBangladesh of being able to cover the costs of abranch within 9 months of its operation.branch within 9 months of its operation.


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The challenges coming from theThe challenges coming from theconventional belief that MFIs can notconventional belief that MFIs can not

access commercial funding and MFIs canaccess commercial funding and MFIs can

not access equity investments still remainsnot access equity investments still remainsas major challenges to a majority of MFIs.as major challenges to a majority of MFIs.


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IssuesIssues

The issues in microfinance differ from theThe issues in microfinance differ from theperspective of the person/institution who views it.perspective of the person/institution who views it.For a gender activist the main issue will be equityFor a gender activist the main issue will be equity

and control over the resources, for practitioner itand control over the resources, for practitioner itmay be sustainability and /or improper regulation,may be sustainability and /or improper regulation,for promoters it may be penetrating depth and /orfor promoters it may be penetrating depth and /orincreasing breath.increasing breath.

Here are some of the issues.Here are some of the issues.


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Issues in MFIs ManagementIssues in MFIs Management


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Institutional Capacity Issues:Institutional Capacity Issues:

Business PlanningBusiness PlanningAn MFI needs to be able to translate its strategic visionAn MFI needs to be able to translate its strategic visioninto a set of operational plansinto a set of operational plans

Product DevelopmentProduct Development

An MFI must be able to diversify beyond its originalAn MFI must be able to diversify beyond its originalcredit products and price them on the basis of operatingcredit products and price them on the basis of operatingand financial costs and demand in the marketplaceand financial costs and demand in the marketplace

Human Resource ManagementHuman Resource ManagementAcquisitionAcquisition

MotivationMotivation

Maintenance/skill upgradingMaintenance/skill upgrading


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ContdContd

Management Information systemsManagement Information systemsAs MFIs grow one of their greatest limitations is oftenAs MFIs grow one of their greatest limitations is often

their Management Information System. It is imperativetheir Management Information System. It is imperative

that an MFI have adequate information systemsthat an MFI have adequate information systems

financial and human resource managementfinancial and human resource management

Efficiency and Productivity EnhancementEfficiency and Productivity Enhancement

MFIs must be able to operate in a way that bestMFIs must be able to operate in a way that bestcombines standardization, decentralization, andcombines standardization, decentralization, and

incentives to achieve the greatest output with the leastincentives to achieve the greatest output with the least

costcost


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Let usLet us identify variousidentify various

issuesissues that your institutionsthat your institutionsare facing during the courseare facing during the course

of MF service deliveryof MF service delivery


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Discuss and identify various issuesDiscuss and identify various issues

related to the management of MF servicesrelated to the management of MF servicesin your institutions and list themin your institutions and list them

according to their priorityaccording to their priority

Time: 30 MinutesTime: 30 Minutes

Group Presentations:Group Presentations:

Time: 10 Minutes to each groupTime: 10 Minutes to each group


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Summary of Presentation:Summary of Presentation:

Combine the issues of all the groupsCombine the issues of all the groups

and present aand present a consolidated listconsolidated list ofof

issuesissues


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best practices, challanges and issues in micro finance (ganes

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