Day 2
Session 1:
Climate Setting
Facilitator: Mr. Shabbir
Ahmed Chowdhury
Course Coordinator Mr. Shabbir Ahmed Chowdhury Introduced 2nd day training by welcoming participants with “AGUN”, where ‘A’ stands for ‘Assalamualikum’, ‘G’ for ‘Good Morning’ and ‘N’ for ‘Namasthay’. He asked participants to recall one important learning each of them learnt from yesterday’s sessions. Participants mentioned following as their key learning:
1. I learn many new ideas about MF.
2. I like to share my ideas on MF.
3. I felt encourage from yesterday’s session.
4. I learnt new perspectives on MF, specially the Grameen Bank – 2.
5. I learnt how different new movement going in MF.
6. I learnt many new ideas from resource persons and participants.
7. Market potential of microfinance products.
8. Presentation from Indonesia was interesting to me.
9. I international perspective of development, specially the MF programme.
10. Grameen Bank - 2, I expect more participatory training today.
11. Everything discussed was interesting to me, since I am very new to this field.
12. Resource persons’ kept the things very simple, it was interesting to me.
13. Introducing a bit difficult, Learn MF, GB, more today
14. GB phone issue was a new learning to me. Also very happy being able to talk with my wife
15. I felt bad last day and night, went to doctor. However session was good. Sharing of country experiences was interesting to me. Good that handouts were distributed.
16. Learnt many new things.
17. Presentation on GB-2 was nice to me.
18. I realized how is the microfinance is contextual.
19. Good day yesterday, I learnt GB-2.
20. I am very new to MF and I learnt a lot from yesterday’s session.
21. Yesterday discussion was interesting to me. I learnt challenges in microfinance.
Facilitator thanked all in the training room for their cooperation to make yesterday’s session learning worthy, despite of small problems related to venue. He hoped today’s session will be more participatory and interesting. He requested all participants to feel free in asking questions; depicting some points are not clear.
Before handover the session to next facilitator, he checked the today’s schedule with participants; which are – Market Research for Product Development, Delinquency Management, Financial Ratio Analysis, Microcredit Interest Rates, and Experience Sharing on PKSF.
Session 2:
Market Research for Product Development
Facilitator: Ms. Madhurantika
Moulick
Session started by welcoming participants and introducing topic of discussion. Several questions were put to the floor at the onset of the session for discussion. Participatory discussion was held on different questions to make the topic cleared as much as possible.
With whom are most activities of NGOs?
- With poor and vulnerable.
- Poor are of different categories.
Do we covering all categories of poor by our MF services?
We are not reaching poorest of the poor, responded by many participants.
However, in reply some examples came out indicating some initiatives coming forward to reach the poorest of the poor. ASA took special program for the poorest of the poor having some special features. BRAC also started ultra poor program with special features, and there are many other organizations trying to device new products and services to reach poorest of the poor and the effort is continuing in India, Bangladesh, Srilanka, Nepal, Pakistan, and other countries in the world.
Why poor take loans?
- They take loans for different events and purposes.
- Sometime for income generation and sometime for consumption or for expenditure.
Why Market Research for Product Development?
There was a consensus that in most cases the products and services the NGO-MFIs are offering not appropriate to the need of the poor and the poorest. In most cases loan products are not supportive for the loanee. It is therefore, the basic reason for why we need market research to develop more appropriate financial services and products for the poor and the poorest considering their socio-economic profile and characteristics.
What is the market and where is the MF market?
A place where things or goods are used to sale is a market, or it is a place where entrepreneurs sale their products. In this context relevant discussion went for a while and then it conversed to microfinance market. In this regard, it was decided that community is the market for microfinance, with whom NGO-MFIs are working with their MF products and services like savings, credit, training, etc. In this stage, it was highlighted that in a market there are sellers, buyers and transaction. Then the facilitator showed a definition of market.
“The set of all actual and potential buyers of a market offer.” – Philip Kotler
Nature of MF Market
Microfinance market is very much competitive and creative; we have to thing everyday how to reach our poor and the poorest clients, their demands, our efficiency to make the services and products low cost, best suitable for a given geographical area and given group of participants, products need to be designed in such way so that it fits to the specific geographical area and the client groups. Overlapping is also a common feature in MF market.
What Changes we observed in MF Market and Why?
Discussion also held on the changes occurs in MF services and products design and delivery mechanisms. Participants responded with following ideas:
- Changes occurs in response to demands from participants,
- Increased competition among providers,
- We need to focus on clients’ characteristics,
- Ensure clients satisfaction and impacts on their livelihood’
- Changes in other external factors like donor preference, etc.
What are products and services do we have in MF Market?
Participants were asked to define a MF product. They defined product from their own perspective. At the end of discussion, facilitator showed a definition of product according to Philip Kotler.
“Anything that can be offered in a market to satisfy a want or need.” – Philip Kotler
Ideas sought from the participants about the most common MF products. Following products name came out through discussion.
- Different loan products
- Different savings products
- Different insurance products
- Different TA (Technical Assistance) products
A debate was held at this stage distinguishing products and services. In this context, question arose whether training is a product or service. It was explained that training could be a product depending on context and how it is blended.
Interlinking of products and markets
Facilitator explained the interlinking of MF products and markets showing the following diagram in the PP Slides. Facilitator elaborated the diagram citing various examples and question-answer process. The discussion on the diagram eventually leaded to the importance of market research.
Product development – Cyclical Process
Facilitator cheeked with participants’ experiences on product development. Facilitator then explained the steps in market research and product development, which are as follows:
- Generating Idea
- Identify research issue
- Develop research plan
- Undertake research
- Analyse data
- Develop concept
- Pilot test the product
- Collect feedback
- Launch Product
Why develop new products?
Participants’ opinions were checked by putting a few questions in this regard. Facilitator explain the reasons for developing new products in light of the following points:
- Responds to client needs and preferences
- Reduce delinquency rates
- Deepen and broaden outreach / growth
- Raise new sources of capital
- Retain good clients / reduce dropout rates
- Help clients manage risk and vulnerability
- Operational and financial sustainability
Difference between Qualitative and Quantitative research
Next discussion was concentrated on quantitative and qualitative research.
Qualitative:
- Semi or unstructured questioning; questions and answers are not predetermined.
- Sample group demographically similar.
- Output: consumer works and descriptions.
- Conduct by a highly trained professional moderator, who understand the brief: - the research issue, discussion, guide, etc.
- In depth understanding of consumer behaviour and motivation.
Quantitative:
- Structured questionnaire; questions and range for answers predetermined
- Statistically representative of the population
- Output: Statistics, as analysed by computer
- Conducted by enumerators highly trained in consistency and accuracy of asking questions
Use of qualitative research
Facilitator explained the use of qualitative research showing PP slides. Relevant discussion was made giving relevant examples. The most highlighted points were:
Explanation of behaviour and attitudes for:
- Understanding clients and their perceptions of the MFI and its services/products.
- Explore drop-out and delinquency problems and issues
- Explore consumer language
- Explore the “financial landscape”
- To find out reasons why clients behave or think in a certain way
- Why they prefer one product to another, whey they prefer a particular MFI to another, etc.
Limitation of Qualitative Research
Facilitator explained the limitations using PP slides. The most emphasized points were:
- Results are susceptible to misuse rather than any inherent shortcomings.
- There is the great temptation among many managers to accept small-sample, exploratory results, as sufficient for their purposes because they are so compelling.
- The dangers in accepting the unstructured output of qualitative research:
- The results are not necessarily representative of the would be population and hence cannot be projected
- An analyst with a particular point of view may interpret the thoughts and comments selectively to support that view.
Facilitator cited various examples to clear each limitations showing PP slide. It was highlighted that PRA tools are mainly used for qualitative research.
The Eight P’s of Product
For developing new products and promoting them to the community eight different aspects should be considered, which the facilitator explained by showing PP slides. Different examples came out from the participants to identify and clarify 8 Ps.
Eight P’s for Product
Development
Note: Facilitator distributed a
handout covering all the broad heading and detail points of the topic she
discussed. Participants are requested to review that handout when reading this
proceeding on the session 2 of the day 2.
Session 3:
Delinquency
Management
Facilitator: Mr. Emrul Hasan
Facilitator invited the participants to the session and requested them to feel free ask any question related to the contents to be discussed.
What is delinquency?
Session discussion started with the question – what is delinquency. Participants’ described the term by different key words like:
- Delay
- Default
- Problems
- Not repay in schedule time
- Virus
- Deficiency
- Overdue
- Decreasing trend, etc.
Facilitator explained the term delinquency using OHP. Other relevant questions came out spontaneous in the floor related to delinquency issue, each of which discussed participatory manner taking participants view.
When we called a loan is delinquent?
Payment is not come on time, meaning when the due date for paying an instalment is passed, then we called that loan as delinquent loan. Facilitator elaborately discussed the term showing OHP and providing relevant examples.
What is the effect of delinquency?
It may eat up the MF portfolio; gradually take the MF to a risk situation regarding loan fund management. Facilitator elaborately discussed the issue showing OHP giving relevant examples.
What are causes that help increase delinquency in your organization?
Participants were asked to share their experiences on the causes of delinquency. A number of points came out from the participants which are as given below:
- Wrong selection of clients.
- Not having non-financial products.
- Loan is not utilized properly.
- Under finance.
- Over finance.
- Misuse of funds.
- Weaknesses of group management.
- Fraud.
- Investment of loan in non-profitable economic activities.
- Credit procedure.
- Lack of monitoring and supervisions.
- Faulty repayment schedule.
- Migration.
Facilitator explained the cause more elaborately giving relevant examples.
What are the Results/Effects of Delinquency?
Participants asked to share experiences, and they mentioned the following points:
- Operating cost increased.
- Income will decrease.
- Stagnant of portfolio.
- Cashflow shortfall.
- Organizational liabilities increase.
- Asset goes down.
- Staff moral decrease.
- Cost of loan loss.
Facilitator elaborately discussed the effects of delinquency showing OHP giving more examples.
What is difference between delinquency and defaulter?
Participants discussed the points and agreed that instalments not paid within schedule time are delinquent loans and phenomenon is called as delinquency. But when the entire loan period is expired but a loanee did not pay the loan instalments then he or she is considered as defaulter and the total outstanding with him or her is the default loan.
What is portfolio outstanding?
Loan balance in the field, or the principal
amount of loan balances outstanding. Why interest is not part of portfolio,
because it not original part of the capital.
How are the organizations calculating the delinquency?
Facilitator asked participants to share their present practices of calculating delinquency. After listen to practices of different organizations, it was mentioned that delinquency mainly calculate based on on-time repayment by the borrowers. NGO-MFIs some how keep track of their loan instalments not paid by the loanees on time and using this information they used to calculate delinquency.
Portfolio at risk
Facilitator asked participants how they define portfolio at risk. Some of them define the term correctly as ‘sum of all loans with delinquency divided by total outstanding is the portfolio at risk’. After a short discussion, facilitator showed the formula of delinquency on the OHP and explain step by step.
Principal outstanding on all loans
With payments at least (1, 31….days) past due
Total outstanding portfolio
Group exercise on calculating Portfolio at risk
After discussion on portfolio at risk, participants were allowed to have a small group exercise to calculate portfolio at risk using a pre-designed exercise sheet. They did the group exercise for a while and back onto plenary with result of the exercise.
What is Income Statement?
Participants asked if they are familiar with income statement. Some of them shared what they understand by income statement. According to participants’ view the income statement is the description of income and expenses at given period and it gives the picture whether an organization making profit or loss. Facilitator showed the outline or structure of an income statement and explained it column by column.
What is Balance Sheet?
Participants were invited to define balance sheet. Some participants define It saying that it is a statement of assets and liabilities of an MF organization. Outstanding loan portfolio is the most important asset in the balance sheet, because it earns income. On the other hand, savings in the most crucial liabilities for NFO-FMIs.
Exercise on income statement and balance sheet for loan loss provision, reserve and write-off calculation
Participants in small groups did an exercise to calculate loan loss provision, loan loss reserve and write-off using a pre-prepared income statement and balance sheet. Participants did the group work for a while and came back to the plenary with their results.
The session on delinquency management ended here. The facilitator had another continuing session on financial ratio calculation, which was decided to hold after the session on ‘Microcredit Interest Rate’. Facilitator distributed handouts on this session chronologically to the participants. So they are requested to look the handouts while reading this proceeding.
Session 4:
Microcredit
Interest Rate
Facilirtator: Ms. Sharda
Naidoo
Session started with a question to the participants to give the interest rate of their MF programme. Participants mentioned their interest rates, which are as shown below.
15%, 24%, 10-12 %, 12-16%, 12-18%, 7-10%, 15%, 20%, 15%, 24%, 20%, 10-16%, 20%, 12-20%.
It indicated that different interest rates exist among different NGO-MFIs. In can be noted here that some organizations calculate interest using reducing balance method and some calculate their interest rate using flat method.
What are the expenses (costs) in your organizations related to operation of Microfinance Programme?
- Stationary
- Staff Salary
- Utilities
- Insurance
- Maintenance
- Audit fees
- Transportation cost
- Buying vehicle
- Interest on borrowed funds
- Interest paying on member savings
- Office rent
- Communication cost
- Furniture and fixture
- Bed debts
- Depreciation
- Loan loss provision
- Subsistence (daily allowance)
- Training cost
- Consultants
- Entertainment
- Equipment costs
From where MF incomes come?
§ Interest.
- Services charge.
- Sales of pass books and loan forms.
- Donor grants (also considered as a kind of income).
Role-play
A role-play performed by the participants in two episodes on the importance of interest and setting interest rate at a sustainable level.
In the first episode of the role-play, two participants showed organizational sustainability linked to interest and its rate. They performed the role-play indicating how donor is interested to see the development activities are designed on cost recovery basis.
A second episode of the role-play also shown by another two participants. In this episode, a donor and NGO director was interacted showing they are agree to make development initiatives more sustainable by introducing some mechanism for cost recovery. NGO director seeks funding support from the donor for MF activities. Donor is like to give fund but not free of cost but with some interest. NGO director like to receive the money without any interest, but finally he realized that such situation has been changed.
Then it was discussed how cost recovery is happened in MF programme of NGOs. The answer was through ‘interest’.
Discussion on Interest
Participants’ opinions checked on interest. It was agreed that interest is the primary source of income for NGO-MFIs. For 2 reasons interest is important, one is that NGO-MFIs cover all costs from interest income and the second is that NGO-MFIs move toward sustainability because of interest. Setting interest rate appropriately is the to make the MF programme sustainable in a NGO.
Types of Interest Rate
Participants asked to explain if they know about different types of interest. Participants mentioned three types of interest rates exist in the NGO-MFIs for loans from their microcredit programme. The interest rates are:
- Nominal Interest Rate
- Real Interest Rate
Relevant discussions were held to describe three types of interest. Necessary examples also provided by the participants and the facilitator to make the concepts clearer.
How to set interest rate?
Participants were asked how they set interest rate in real situation. Replies were that to set interest rate, expenses for operating MF programme and other associated expenses should be considered first. In this regard, following categories of expenses were identified by the participants, which must be considered while setting the interest rate.
- Administrative Expenses
- Cost of funds
- Loan losses
- Capitalization (rate at which the portfolio is growing each year).
At this stage a formula was shown by a participant how to set nominal interest rate, which was then elaborated further by the facilitator.
Facilitator: Mr. Fazlul Kader, Manager Operation PKSF
Introduced participants with the presenter. Next he explained the emergence, operational mechanism, structure,
governance, role and functions of PKSP. He mentioned that PKSF is a second tier
organization, adopted a strategy for creating and developing more MF
organizations in the country. It provides MF services to the first tier
organizations, which in turn provides microfinance services directly to the
grassroots poor. PKSF incorporated institutional development approach along
with its financial services. PKSP providing funds to ASA,
BRAC, PROSHIKA, etc. big NGOs as well as many small NGOs (more than ---) in
It covers 30% of the total MF sector, by which it covers 3.7 million
borrowers directly and 5.6 million borrowers indirectly in
PKSF is an independent queasy govt. organization, which function very independently with own decision, management structure, and policy procedure. In legal aspects, PKSF is a “company limited by guarantee” meaning “company not for profit” and registered under the Companies Act of 1913/1994 with the Registrar of Joint Stock Companies. The legal structure of PKSF allows flexibility, authority and power to take programme and implement them throughout the country.
At the end short presentation structure, governance, functions, role, responsibilities and present status in term of NGOs and loans, a question answer session was held for some time. The following questions were asked to presenter.
Is PKSF is an apex organization for NGOs?
No. It is not an Apex organization for NGOs but a apex financing institution.
What is the source of fund for PKSF?
It started with govt. endowment of 1.7 billion taka in 1990. Later on it borrowed fund from World Bank.
Why not finance ministry doing these activities? Why separate organization?
For govt. to provide such services that are providing by PKSF is completely impossible. Ministry of finance is mainly dealing with regulatory issues, policies, and many others related functions. So providing finance to NGOs and collect the loans is not possible by Finance Ministry.
Is it autonomous and how are the decisions made?
Yes. It is completely an autonomous queasy government institution. It runs by its own policy procedure and management system.
How are lending decisions taken in PKSF?
Prescribe formats are used for loan proposal to NGOs. Staffs also visit fields. If the NGOs qualify after field visit, the proposal is forwarded to the governing body for approval. Once a NGO is selected and the governing body approves first loan, the next loans approves automatically by internal staff, no need to go to the board or governing body again and again – unless there is happened something serious. He mentioned that PKSF is very
In this regard, he drew reference about “Gonosabia” in Srilanka, which was a similar organization like PKSF started 6 months before PKSF with the support and prescription from World Bank. But it failed to sustain finally.
There is any program for capacity building of partner NGOs?
Yes. PKSF is providing all sorts of supports from very beginning to its partner NGOs for developing their institutional capacity in management and financial system development.
What are the PKSF’s roles in developing MFIs?
- Financing
- Institutional development
- Policy Formulation
- Linkage
- System Development
- Training
- Social and financial audits of MFIs, etc.
- No. PKSF is working independently.
- Each and every decision is taken by PKSF.
- Govt. nominates a director and some board members nothing else.
- It is a company for non-profit
Did PKSF face any difficulties with World Bank for their policies?
- Our experience with WB is very good
- They were supportive to us
- They learn much more from us
- PSKF was developed very efficiently, so there was no scope for applying structural adjustment policy within PKSF.
Why do PKSF giving loan to organizations where operating in an issue?
Over lapping issue has been seen differently by different persons, and it has created as a result of unplanned growth and functions of NGOs.
Insufficient loan supply forced the borrower to deal with many NGOs for their financial needs.
In this regard, our concern should be to remain careful to the increase of unsustainable debts of the poor borrowers. PKSF is under way to develop an overlapping policy. It will also start credit rating rigorously.
What is the Write-off policy of PKSF?
- PKSF have to yet device a write off policy.
- Presently PKSF have a debt management reserve.
What are the PKSF’s income sources?
Interest from loan is the main source of income, which constitutes 70% of its total income. Other 30% comes from non-lending sources.
At what rate PKSF received loan from WB? At what rate it gives loan to NGOs?
PKSF received loan at 1% and provide loans to large NGOs at 7% and small NGOs at 4%. PKSF is above 200 times financially self-sufficient at this set up of interest rate.
Review of the Day 2
and
Participants’ Feedback
Facilitator: Mr. Shabbir Ahmed Chowdhury
Before conclusion the participants’ comments were sough on today’s performance. They asked to make only one comment 2nd day’s training and learning. Participants and the facilitators mentioned the following points:
- Interesting but imbalance.
- Sometime confusing.
- Day was good; interest rate calculation was interesting.
- Meaning of portfolio learned newly.
- Learning and calculating saving products.
- Product design.
- It was a very good day; marketing content was interesting.
- Training was participatory; marketing and interest calculation enjoyed.
- Good exercises.
- Exercise on balance sheet interesting; many issues that are going from outside countries gradually understandable.
- Very good day; learnt many new things.
- Theory and practice combined together, too many contents, time is short.
- Experienced trainers; marketing and PKSF experience was interesting.
- Good day, I heard about Tangail Sharee that I would need to buy for my wife.
- Shardha explained interest rate interestingly within short time.
- Interest calculation, marketing, delinquency, etc. were interesting. Time was less
- Interest setting system seemed interesting to me.
- Policy issues of microfinance.
- I learn how to calculate PAR and analyse it.
- Many new information, marketing, etc. were interesting.
- Good revision, time was very short.
- We have immense knowledge but time is very short.
- Overall a good day
- Time is very short.