Group II:

 

INSTITUTIONAL CAPACITY DEVELOPMENT

OF MICROFINANCE INSTITUTION

 

Members:

Mr. Mohammad Nazirwan (Indonesia)

Mr. Shabbir Ahmed Chowdhury (Bangladesh)

Mr. Pearson Kalungulungu (Zambia)

Mr. Luis Miguel Artieda (Peru)

Ms. Nevine Badar El-Din (Egypt)

Ms. Natalia Ita Septiana (Indonesia)


CONTENTS:

 

1. Organization and Governance

2. Financial Methodology

3. Risk Management and Internal Supervision

4. Marketing

5. Funding

6. Management Information System (MIS)

7. Human Resource Development and Training

8. Technical Assistance

 

1.     Organization and Governance

The first step every Microfinance Institution (MFI) should take in order to develop its capacity to meet its clients needs, in a sustainable and profitable basis, is to clearly establish/define its Strategic Guideline and institutional structure that would enable the achievement of such capacity.

Establishing the institutional Strategic Guidelines is critical because it allows the MFI to organize all its activities around a few clear, solid and coherent statements. Those statements are the output of a process known as Strategic Planning, in which the institution analyses the critical factors surrounding its business, both internal (strengths and weaknesses) and external (opportunities and threats).

Once having analyzed these factors, strategic guidelines are established so as to take advantage of the strengths and opportunities, minimize the weaknesses and overcome the threats. Basic structures are described as follows.

Strategic guideline:

-          Vision: Represents the higher long-term goal the institution wants to achieve. It can be conceptualized as the institutional dream or as the way MFI’s founders hope it would be in the future.

key question: “What is the future position and status I want for my MFI?”

-          Mission: More specific than the vision, it encloses, in general, the scope of action and the methods the institution is going to use in order to fulfil its vision.

key question: “What should my MFI do in order to reach that condition?”

-          Objectives: Even more specific than the mission, objectives should describe the main institutional action plan aimed at accomplishing the mission. For each action plan measurable indicators on the fulfilment of specific goals should be defined.

It is important to point out that in the definition of the Strategic Guidelines, the reality of the MFI clients should be taken into consideration. For that reason, it is crucial to perform a Market Survey, in order to validate its assumptions and consequently be ensured that the stated vision, mission and objectives correspond to market reality.

 

Institutional Structure

Having stated the Strategic Guidelines and analysed the market, the MFI should analyse if its structure is the most appropriate one, otherwise, the MFI should consider either changing its structure (if possible) or redefining its strategic guidelines.

Before analysing the specific structure or organization type, it is necessary to evaluate the current MFIs’ regulatory status for its appropriateness. Indeed, one of the main concerns about Institutional Structure is regulation. Regulated Institutions are normally allowed to raise funds from a wide range of sources (public funds, private funds, capital markets, and savings, among others). On the other hand, Non Regulated Institutions are mostly only dependent on few sources.

Regulated / Formal

Non Regulated / Informal

-          Government owned Institution

-          Government leaded Project

-          NGO

-          Cooperatives

-          Specialized Banking

-          Commercial bank down-scaling

-          NGO

-          Cooperatives

-          Net working (ROSCA, Individuals)

 

Regulated institutions needs to accomplish a number of strict rules and indicators which would otherwise be impossible to meet in certain markets because of the lack of information. For that reason, especially in the poorest markets, Non Regulated institutions have some advantages over Regulated Institutions.

After validating the institutional regulatory status, it is necessary to explore the specific type of organization in order to equip it with all the elements the MFI have analysed up to this point, such us its Strategic Guidelines, its target market and its regulatory status.

Every specific type of organization has different characteristics in terms of flexibility in the decision making, adaptability to the changing situations, readiness to perform internal control actions, among others. Some of the more common types of organization are the divisional shape, flat, networking and star structure.

 

Good Corporate Governance

The concept of Good Corporate Governance relates to how to fulfil the duties assigned to each leading position inside the MFI, in order to achieve a high level of efficiency and transparency needed to meet the institutional goals on a sustainable basis.

Once the MFI strategic guidelines and institutional structure are established, it is necessary to clearly and transparently define the role and responsibilities of the MFI’s main decision makers. It is also necessary to establish the policies and procedure to properly testing and selecting those positions, which are described below:

Position

Role and Responsibilities

Ownership (shareholders)

-          Issuing the initial capital required to establish the MFI

Stakeholders

-          Using the institutional resources in order to accomplish the Strategic Planning goals

Board of Directors (BOD)

-          Manage MFIs business and affairs

-          Decision making

Board of Committees (BOC)

-          Monitoring the committees.

Committees, (i.e. audit committee.)

-          Specific Decision making

Ombudsman

-          Independent

-          Report directly to public about the performance of the previously mentioned positions.

 

2.  Financial Methodology

The financial sector approach is the most effective platform to poverty alleviation and developing the needs of our communities. In general microfinance approaches include:

-          Minimalist approach (financial intermediation) where mainly only financial services are offered.

-          Maximalist (financial intermediation and social intervention) where both financial and non financial (health, illiteracy, etc.) services are offered. The minimalist approach offers cost advantages for the MFI and allows it to maintain a clear focus, whereas the maximalist approach responds effectively to the demand of the client in that the MFI may develop a simple product that can be easily managed and understood by the clients. The range of products and services that are commonly provided and their delivery channels are as follows:

Financial and social services can be delivered through:

-          Individual 

Depends on the MFIs and clients needs, this approach is usually based on a personal knowledge of the borrowers, where simple collaterals, like cheque or ID is sufficient as a form of guarantee for the loan. The loan size and terms are to be set according to the business needs and cash flow of the borrower.  

-          Group

Based on ROSCA Idea, group guarantee is considered instead of other collaterals In this context, institutional transaction cost is reduced granting that should any member defaults all other members will also lose access to repeated loan.

-          Solidarity Group

Micro entrepreneurs form a group to guarantee each other. The group should select its own members and leader with no external influence. Similarly, if any member defaults all the other members will also lose access to repeated loan.

Financial Product and Services

-          Loan (money borrowed for income generation).

-          Savings (for investment, retirement, seasonal variations)

-    Insurance (death, health, etc.)

-          Remittance (payment services including the transfer of funds from one area to another to minimize risk on the client).

-          Payments(MFI must have a relationship with at least one bank to provide this service)

-          Financial product and services that do not require ongoing subsidies.

 

Social Development Services

These are services that focus on improving the well-being of micro entrepreneurs and they are likely to require ongoing subsidies. Among these services are:

-          Training (for all levels of management, staff and clients)

-          Health and HIV services ( health awareness and its impact on micro credit)

-          Education (illiteracy eradication)

-          Disaster management services (awareness in case of disasters, like earthquakes, etc.)

 

Loan

Loan is simply the disbursement of an amount of money for the client for income generation. This could be done with a subsidised interest rate (below market rate) or  market interest rate.

Setting the interest rate appropriately is important for the sustainability of the MFI as the interest calculated has to cover all costs of the MFI.

Loan Types:

This refers to where the loan shall be channelled.

-          Working capital

-          Investment

-          Housing loan

-          Consumption loan

-          Emergency loan

Loan terms

The loan term is one of the most important variables in microfinance. It refers to the period of time which the entire loan must be repaid. It could be a short term (up to 1 year) or a long term (1-5 years) depending on the MFI loan term policy and the type of product offered.

Loan size

The loan size usually depends on the client’s capacity and type of product. A suggested loan size for poverty lending is set between US$ 50 and US$ 300, while that for micro entrepreneurs is set around US$ 6000.

Repayment

There are many variations to calculate repayment periods, as it will depend on the product the institutional approach and policy. Depends on the agreement between the client and MFI, a daily term maybe arranged. However, weekly repayment has proven to be efficient in the group lending approach, where the payments are made in the weekly group meetings, while monthly payment may be more appropriate for individual lending. Seasonal repayments are likely to be implemented with agricultural loans.

Disbursement and collection

This can be done either by the officer at the field technique where the loan officer collects and disburses the money for clients in their premises or by the office technique where the customer goes to the MFI to collect and repay his loan.

Eligibility criteria:

-          Clear understanding of the debt capacity

-          Capacity to utilize the loan

-          Track record of the customer

-          Type of the business

-          Collateral

-          Group collateral

-          Information sharing and Credit Bureau

 

Saving

In general, there are two generic saving products that are popular in microfinance:

-          Compulsory

-          Voluntary

Compulsory saving

Compulsory account must link to credit which including:

- Pre credit Savings a period of time

- Post credit saving

Amount:

-  No limitation but it should be incentive-based.

- There should be a minimum balance.

Savings withdrawal:

-          at the end of credit dues

-          according to MFI policies and procedures

Interest Rate:

-          No interest

-          Below market rate

-          Market rate

Voluntary Savings

Voluntary savings are mostly provided by regulated MFI or member based services such as cooperative, credit union etc. The services include:

-          Checking accounts.

-          Time deposits.

-          Savings

Checking Accounts:

-          individual and business entity

-          minimum balance

-          no limit of maximum balance

-          no limit of withdrawal and deposit

-          interest rate (market) based on the balance

-          cheque book

-          signature verification

-          can be a part of clearing house (depending on the regulation system

Time Deposit:

-          individual entity

-          maturity 1, 3, 6,12, 24, 36 months

-          interest rate according to maturity (market rate)

-          Incentives (prize, lottery, death benefits)

-          Minimum balance

-          No limit on maximum balance

-          Penalty system for withdrawal before due or maturity

-          Signature verification and identification

Pass Book Savings:

-          Individual and entity

-          Interest rate (market) based on balance or fixed rate

-          Minimum balance

-          No limit as maximum balance

-          No limit of withdrawal

-          Incentives (prize, lottery, death benefits)

-          Identification (signature and fingerprints)

 

3.     Risk Management and Internal Supervision

Risk Management

Risk management is a systematic approach to identify, measure, monitor and manage business risks in an institution, while internal control comprises the institutional mechanism to monitor risks before and after operation.

As a part of the financial system, microfinance exposure to risk may not be as complicated as banking or other financial institution. However, several risk factors that would affect the sustainability of MFI, including:

-          Operational risk: exposure of risks in the event of failure in system, human error (either intentional or unintentional), natural disaster and so forth.

-          Credit risk: exposure of risks because of clients’ failure to comply with the credit contracts condition.  These risks could appear from institutional side such as improper selection, violating the procedures, fraud, lax monitoring, or from the clients’ side, such as moral hazard, other conditions beyond clients’ control. Credit risk is the key risk that MFIs must manage to be sustainable; therefore it is very important that MFIs monitor their portfolio quality closely and take appropriate action where necessary. 

-          Exchange rate risk: risks due to fluctuation in exchange rates between countries.  These risks appear when the source of funds are in the form of foreign currencies

-          Liquidity risk: risks which emerge when the MFI has a shortage of cash (cash flow problem) that causes it to fail to meet with the demand of client (saving and deposit withdrawal) and other financial obligations. It is important for MFIs to maintain adequate cash reserves to protect themselves against such crisis.

-          Political risk: risks resulting from political instability in a country. These risks are mostly out of the control of MFI and clients

-          Interest rate risk: financial loss from changes in the MFI interest rates as a result of differences in the timing of rate changes and the timing of cash flows. MFIs greatest interest rate risk arise when the cost of funds increases faster than adjustment in lending rates. Therefore, prompt adjustment of interest rates according to specific market needs would help to avoid exposure to such risk.

Risk management framework:

-          Identify and assess risk.

-          Develop own strategy to measure risk.

-          Design procedure to mitigate risk.

-          Assign responsibility.

-          Evaluate results.

-          Revise policies and procedures.

Internal Control and Supervision

Internal control refers to certain procedures and activities which are designed to control internal activities and verify the efficiency and effectiveness of any financial operation to assure the reliability and completeness of financial and management information that comply with applicable laws and regulations, and suggest corrective measures for any such discrepancies.

Methodology

-          Onsite supervision through direct interaction with field staff or clients 

-          Off site supervision through reporting system

-          Internal audit (a routine ex-post appraisal of an MFI operation and financial report.

Technique

Various internal control techniques can be implemented, eg sampling, cross checking, interviews, comparisons, observation and unscheduled visits

Internal audit organization:

-          Separate unit report directly to BOD

-          Dedicated and experienced staff reporting directly to management.

Role and function of the internal auditor:

-          To maintain the procedures in order and make sure that the financial information is accurate.

-          To make sure that the internal and external regulations are implemented.

-          To ensure progress towards goals and objectives

-          Present to BOD and provide suggestion and solution and corrective measures to them.

 

4.  Marketing

MFIs have until recently been dominated by a “product driven approach” rather than “market driven” because of the followings:

-          They are seen more as poverty alleviation organizations as opposed to developing commercial institutions that serve poor clients

-          They have been driven by donors that are not commercially or business minded

-          They have developed from a trend rather than market conditions

-          They have not taken more ownership and control of their businesses since they are dependent on donors.

The “product driven approach” that is based on the assumption that “one fits all” has its consequences on MFIs, such as

-          Product failure, evidenced by high delinquency and customer desertion.

-          Lack of impact of services on customers

The “market driven approach” seeks to link what customers want and need  with the type of products and services that an MFI offers and the way they are delivered.

There are several advantages for an MFI for adopting the market-driven approach, such as:

-          Keeping pace with changes in the market

-          Riding the waves of economic up-and-down turns

-          Keeping ahead of competition

-          Selling products and services that customers want.

-          Managing growth and achieve outreach and financial performance targets.

-          Realizing tangible impact on customers

However, there are costs of using the market-driven  approach, such as:

-          Staff and management time

-          Consultants’ time

-          Time lags

 

Marketing Process         

There are seven steps in the marketing and product design process, as follows:

-        Define and segment market

-        Assess market attractiveness

-        Assess competitive advantages

-        Define product design

-        Develop product operational plan

-        Pilot test

-        Revise and commercialise

 

Market Segmentation and Targeting

In segmenting the market MFI should identify and state which target market that it intends to serve.  Segmentation can be done through:

Poverty concept:

-          Below the poverty line: Destitute and ultra poor

-          With in the poverty line: Labouring poor

-          Above the poverty line: Self employee poor and economically active poor

Micro enterprise:

-          Start up micro enterprise

-          Existing micro enterprise

-          Growing micro enterprise

-          Graduate micro enterprise (SME)

Geography:

-          Urban

-          Sub-urban

-          Rural

Gender:

-          Women

-          Men

Other

-          Post conflict

-          HIV

-          Minority and ethnic

 

Market Segment Attractiveness

The attractiveness of a market segment include:

-          Segment size in terms of number of potential clients in a given geographic location.

-          Growth opportunities for clients within a segment

-          Location of clients within the segment

-          Distances between clients – densities

-          Accessibility of clients throughout the year

-          Fitted with organization vision and mission

-          Existence of other providers and support services (communication, electricity, etc.)

An MFI could measure the attractiveness of each market segment by using various variables. Shown below is how an MFI in East Africa measures the attractiveness of a market segment.

Indicator

Very unattractive

Unattractive

Neither/Nor

Attractive

Very attractive

Weight

Number of enterprises

<5 per area

5-15 per area

15-50 per area

50-200 per area

>200 per area

25%

Concentration of enterprises

1-2 per cluster

2-10 per cluster

10-20 per cluster

20-50 per cluster

> 50 per cluster

25%

Growth potential

Negative growth

0-5%

5-20%

20-50%

>50%

25%

Access to main business centre

Secondary or tertiary road

>6h sandy road

4-6h sandy road

2-4h with tar or good sandy road

<2h with tar road

25%

Sore

-5

-3

0

3

5

100%

Source: Micro Save Africa

Each attractive segment is score for its competitive and comparative advantage as illustrated by the example below.

Advantage

Weak

Medium

Strong

Competition

 

 

X

Prior experience with client base

 

 

X

Consistent with vision and mission

 

 

X

Source: Micro Save Africa

The MFI in this case has a strong competitive and comparative advantage in this market segment because:

-          There are no competitors

-          The MFI has prior experience with the client base

-          The segment fits into the MFI’s vision and mission.

The MFI is therefore likely to decide serving this segment.

 

Positioning

Customers looking for goods and services have particular needs that are important in deciding whether or not to buy.  Positioning a product or service enable customers to make a quick connection between what they need and what product or service the MFI offers, e.g., “I need a quick loan, I will go to Micro bank because they offer quick loans”.

Effective positioning has four steps, as follows:

-          Identify the priorities of a customer

-          Select one or two of these priorities

-          Design your products or services around these priorities

-          Communicate messages to your target customers about how you can meet their priorities better than any other competitor.         

Effective positioning requires one further activity, actually delivering the type and quality of service that you have communicated to your customers.

 

Marketing Research

Market research is the process of collecting information about customers, the market, and the MFI strengths and weaknesses so as to better understand the marketing process.

Market research is essential for an MFI in order to obtain information on:

-          Market environment

-          Customer needs

-          Competition and substitutes used by customers

-          Organization strengths and weaknesses

This information will help an MFI to have a well planned and monitored strategy required to achieve its objectives.

Sources of information for an MFI may include:

-          Internal records, such as loan ledgers, customer files, etc.

-          Filed officers

-          Competition

-          Economic publications

-          Clients, etc.

Market research methods include:

-          Surveys, which involves conducting interviews guided by a questionnaire.

-          Participatory rural Appraisal (PRA),

-          Participatory Learning Action (PLA) and

-          Focus Groups, which involves holding group discussions with clients to obtain information on a topic of interest.

 

5.     Funding

Funding is one of the main concerns every sustainable MFI have to address in order to develop its institutional capacity to serve its clients, achieve its goals and be sustainable. Indeed, funds are needed to support the MFIs core activities, such as:

 

Use of Funds           

-          Loan portfolio: This is the principal use for MFIs’ resources because it allows them to accomplish its role as financial intermediaries, which mobilize and efficiently allocate funds in order to foster development. Loan portfolio products include all the financial products considered in the “Financial Methodology” section of this document.

-          Investment: Capital needed to increase the physical efficiency of the MFI, including improvement in infrastructure, equipment, security systems, in one word, the viability of the institution itself.

-          Human Resources Development: Capital needed to increase the human efficiency of the MFI, including all hierarchy levels).

-          Operation and administration costs in the case of subsidized loans.

 

Sources of Funding

As show in the table below funding can be generated from both internal and external sources. Internal sources are needed to give long-term sustainability to the MFI. External sources are also useful and, specially for growth strategies.

Internal

External

Grants

(no interest)

Subsidized

(interest below market)

Market Conditions

(market interest)

-          Savings

-          Retain earnings

-          Capital from the owner.

-          IPO.

-          Charity

-          Donors

-          Government

-          Donors

 

-          Commercial market (Banks)

-          Capital markets

 

Funding from internal sources is related with long-term sustainability because its shows that the MFI is capable to support a significant part of its business with self-generated resources. This gives them protection against instability related to donors or other external sources.  Furthermore, in many cases, external sources are not enough, specially

Practical Case

EDPYME PROEMPRESA

Because of regulatory constraints, Peruvian EDPYMES depend on public and private funds at high costs. Even in those conditions, EDPYMES have shown a remarkable evolution. Their growth path is comparable with that of the most important Peruvian MFIs, their joint outstanding loan portfolio have grown 49% a year and its total number of clients 42% a year since 1998.

This performance is even more valuable if it is taken into consideration that EDPYMES are prohibited by law to raise funds from savings and its minimum equity is excessively low (US$ 250,000), impeding EDPYMES to benefit from scale economies and thus reduce its financial costs.

EDPYME PREMPRESA is one of the most successful EDPYMES, even in the presence of such restrictions, since it is now regulated, it has to be profitable enough to show the mentioned performance and to accomplish the same indicators as commercial banks in terms of profitability, liquidity, quality of assets, efficiency, and security, among others.

The proposals

In order to take advantage of the proven efficiency of this institutions, most Peruvian microfinance stakeholders, practitioners and researchers are now proposing a correction of current regulatory inconsistencies, mainly pursuing the widening of EDPYMES funding sources to consequently allow them to enhance its already successful performance in a sustainable basis. Main proposals are the following:

·         Eliminate the prohibition to raise savings.

·         Raise the minimum equity to US $ 1’000,000).

·         Allowing EDPYMES to jointly issue bonds, granted by COFIDE in order to reduce both risk and cost.

subsidized funds and grants. In such cases, savings represents an efficient funding alternative because its costs are bellow the market’s active rates.

If the MFI relies only on subsidized funds and grants, it is endangered of collapsing in the case of sudden absence of such funds. For that reason, the more accessible MFI could be to the market and savings, the more plausible it would be to achieve profitability, and thus sustainability and the chance to keep accomplishing its long-term strategic guidelines which mainly aimed at fostering social and economic development.

 

6.     Management Information System (MIS)

Microfinance institutions, whether manually or computerized, deal with large amounts of important data and information, such as client information, financial transactions, portfolio statistics and so forth all of which must be maintained, manipulated and managed for decision making, monitoring and supervision. Management information system (MIS) is a system which involve in generating and manipulating data to become valuable information for an organization.  In many ways, MIS is a factor for the success of MFI. Through good MIS, MFI will be able to access and analyze information more efficiently and to streamline and shorten the flow of information for timely decision-making.

There is a lot of information generated by MFI, although not all of these are important.  Basically, MIS should provide information on:

-          Accounting system that provide daily transaction, profit and loss, balance sheet, cash flow which are required by MFI for monitoring and supervising as well as decision making

-          Loan portfolio including number of borrower, loan outstanding, calculation of portfolio at risk (PAR), loan provision, loan size, loan disbursement, report on write off loan, recovery loan sheet, number of borrower/credit staff and portfolio/staff etc.  

-          Saving report (particularly for MFI which provide savings services).  Information would needed encompass the number of saver and amount of saving for each type of saving account

-          Impact database particularly on clients’ economic well being (income, saving, socio-condition and so forth) before and after joining the microfinance program

-          Other information such as number of employee, number of networks and information on fixed assets including buildings, vehicles, equipments etc.

 

Flow of Information and Reporting System

In general, the flow of information is initially generated by field offices, before it transfers to regional office, and in many cases, directly to the head office, particularly for small MFI.  At the regional office, information from field offices is consolidated before it is delivered to the head office.  Furthermore at the head office, information is analyzed for internal purposes before being sent to external bodies. 

Similarly to other financial institution, reporting system in microfinance can be done daily, weekly, monthly, quarterly and annually. The rule of thumb is that the more important the information, the more frequent it should be provided.

 

Users of MIS        

Practically, MIS is designed for internal and external purposes.  Internally, MIS will help front line staff to monitor loan portfolio, client records and understand the business.  For the manager, MIS is a perfect devise for monitoring and supervising activities.  In addition, MIS is also important for external parties such as government, regulators, donors and other stakeholders.  

Internal:   

-          Frontline workers

-          Mid level management

-          Top management (BOD)

External:

-          Government

-          Donors

-          Central bank

MIS at Bank Rakyat Indonesia

BRI is a largest bank in Indonesia in term of network. It encompasses Head office, 15 regional offices, 10 regional audit units, 324 branches, 120 sub-branches and more than 4000 BRI-Unit and villages service post.  Indeed, to manage such big organization is complicated as well as in managing the flow of information.   Typically, the flow of MIS in BRI started from BRI-Unit to branch.  In the branch, the information will be consolidated then distribute to regional office, head office (some of information), as well as to the Central Bank.  The flow of information at BRI is depicted in diagram below.

7.     Human Resource Development and Training

Human Resource Development is a part of capacity development. Capacity development refers to the development and enhancement of the already existing capacity of the MFI for better performance. Capacity refers to the ability of MFI and the staff in the organization to perform function, solve problems and define and achieve their objectives effectively, efficiently and in a sustainable manner,

Human resource management plays one of the most important roles in microfinance. The result of the activities of the MFI are accomplished through its the staffs. Management of human resources thereby plays a very crucial role in MFI. It activities should be treated as an investment. HRM in a wider context encompasses the following:

 

Recruitment Policy and Procedures

Every MFI should develop and publish its recruitment policy and procedure and should circulate it among the staff. This will create transparency among all concern about the MFI recruitment policy.

 

Career Development    

MFI need to attract bright people. This will enhance productivity and efficiency of the MFI. In order to attract the high flyer, the MFI should have career development path for the staff. Publicizing the career path is very important for the new recruits to remain loyal to the MFI. MFI should possess career path for its staff and disseminate them through training, meetings and publications.

 

Benefit and Condition

Like career path, the MFI should develop a personnel handbook where the benefits like salary package and other conditions like health, provident fund, gratuity, life insurance and leave etc. should be clearly defined.

 

Reward and Punishment

The personnel handbook should clearly specify the rewards and punishments. The transparency will motivate staff for doing good work and deter them from doing anything wrong.

 

Pension Policy

Pension policy is seen as an incentive by most of the staff joining an MFI. The personnel policy should therefore clearly spell out such policies.

 

Training

Training is seen as a most important vehicle for achieving the goals of the organization. Training is generally in house and on the job (OJT). Both are important to an MFI. Training should be organized for the Board of Directors, Staff members and clients. They are conducted by using different methodologies and the level of the training differs from each other.

Training for the Staff:

The following level of training can be thought:

-          Orientation/Induction training: This training should be given to the staff just after recruitment and before the deployment. So that they have some understanding of the organisation and programs.

-          Basic training: After joining, the staff in the field are to be sent for basic training after 6 or 12 months. Basic training may be given on “basic” microfinance practices such as savings and credit management, operation and management of microfinance.

-          Development training: After the basic training, staff should be given training on development. The course may cover contemporary development issues, target clients, development approaches etc. This may be offered a year after the basic training.

-          Advance training: Courses like financial management, sub sector analysis, macro economic issues, financial ration analysis etc. may be given in the second or third year depending on the organization policy.

-          Professional training: Professional training are given to make staff more professional in the MF business. Courses like Gender, Portfolio and delinquency management, business development, marketing, strategic planning, PRA and product development etc. may be given to staff depending on the organizational policy and procedure.

For the Management, the following training may be offered:

-          Business strategy: This course may cover subjects like strategic thinking for the business (microfinance) and future projection. On specific business, it may focus on feasibility study, product, marketing, competition, pricing, raw materials etc.

-          Strategic planning: This is for identifying the strategic issue of the organization, such as “How it will look like in the coming future?” 

-          Good corporate governance: Here too, the participation of management and staff is also important. However the management should take a priority in undergoing such training.

-          Gender training

For client/ program participants:

-          Training on Feasibility study: The target client should need to know the skill on how to make a feasibility study of a project before taking credit fro MFI

-          Training on Business and marketing plan: Business and marketing planning is a most important skill a client should posses. The MFI should provide such training to its clients so that they are able to face the problem and overcome them.

-          Basic Accounting Training: Accounts keeping by the client is very important. The client should be able to understand the concepts of cash in-flow and out-flow, receipt and expenditure.

-          Production and sub sector training: Borrower invests their money in different sub-sector like poultry, fisheries, livestock and in agriculture. They should be provided with the skill and management training on the above subjects so that they could generate higher income and also create employment in the market

-          Family program training, health & nutrition, HIV training, gender training etc: Other than these, there may be lot of other courses the clients should be provided with so that they can maintain their health and use the surplus of the business in an intelligent way.

 

8.      Technical Assistance

Technical assistance involves capacity building of an organization and may be short-term of long-term. Technical assistance is very critical for new organizations that need to build viable microfinance programs. It is important to include a budget on capacity building in an MFI’s business plan.

An external consultant is normally engaged to assist an organization in institutional development and program design and implementation.

MFI may require technical assistance in various specific areas, including:

-          Strategic and business planning

-          Marketing, market research, product development

-          Institutional evaluation and assessment

-          Impact assessment

-          Policy and procedures manuals (personnel, credit and savings, internal controls and accounting)

-          ICT including MIS

Training curriculum development and delivery