Making Micro finance Work: Managing for Improved Performance. Geneva, International Labour Office, 2006

442 Pages·14.009 MB·English

by  Churchill C., Frankiewicz C. (сост.),

MAKING MICROFINANCE WORK
Managing for Improved Performance
Craig Churchill and Cheryl Frankiewicz
RECEIVED
1 3 HOV 2006
I International
I i asaour Office
l |l O INFORM _.JJ1
International Labour Office - Geneva
Copyright © International Labour Organization 2006
First published 2006
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Making Micro finance Work: Managing for Improved Performance
Geneva, International Labour Office, 2006
ISBN 92-2-118657-1 & 978-92-2-118657-1 (print)
ISBN 92-2-118658-X & 978-92-2-118658-8 (web pdf)
ISBN 92-2-118659-8 & 978-92-2-118659-5 (CD-ROM)
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Introduction to Microfinance Man
Contents
Acknowledgements v
Foreword vi
Acronyms ix
I Introduction to Microfinance Management
1 The Manager's Mandate 2
2 Financial Services and the Poor 18
3 Institutional Options 27
4 Strategic Direction 50
II Markets and Marketing
9
Introduction 61
5 Microfinance Market Research 63
6 Product Development 79
7 Communicating Value 95
8 Customer Service 116
9 Customer Loyalty 127
III Managing Risks
Introduction to Risk Management 144
Credit Risk 155
Staff Fraud and Security Risk 168
External Risks 182
IV I Organizational Architecture
Jt Introduction 198
/\ , 14 Human Resource Management 200
#
• • • || • 15 Institutional Culture 228
16
Jt 111 Jt Organizational Structure 239
' ' 17 Using Organizational Architecture to Manage Growth. . 255
V > Towards Greater Efficiency and Productivity
18 Understanding Efficiency and Productivity 277
19 Performance Incentives 286
20 New Technologies 298
21 Managing Change 317
22 Costing and Pricing 337
23 Plans, Budgets and Reports 352
24 Managing Performance 377
Bibliography 391
Index 399
IV
Introduction to Microfinance Manage
>
Acknowledgements
This book is the work of many hands, some that have contributed direcdy to this publication,
while others have contributed indirecdy. Much of the material presented here has been devel-
oped by other organizations and other authors, who have generously allowed us to repackage
and recycle their ideas and tools. For their contributions, we are extremely grateful to the fol-
lowing organizations;
• ACCIÓN International • MicroFinance Network
• CARE • MicroSave
• SEEP Network
• CGAP
• M EDA • USAID
• Microfinance Information exchange
• World Bank
In addition, a number of willing volunteers have contributed new material to the book. We
would like to thank Linda Deelen, Coumba Diop, Judith van Doom, Sabrina de Gobbi,
Guillemette Jaffrin, Esther Lee, Elizabeth Lisle and Peter Tomlinson for their contributions
large and small. Thanks also to Bernd Balkenhol of the ILO's Social Finance Programme,
who has generously allowed his staff to work on this project.
The extensive involvement of Petronella Chigara, both in the development of this manual and
the trainers' guide, has been invaluable. We are extremely appreciative of her pedagogical
insights and guidance.
This course has been tested with over two hundred microfinance managers and two dozen
trainers in Uganda, Zambia, Zimbabwe, Macedonia, Kosovo, Albania and Viet Nam, many of
whom have provided useful feedback and suggestions on the content of this manual and the
course delivery. While too many to name individually, you know who you are and we thank
you whole-heartedly for your assistance.
The course has been under development for a couple of years. During that time, a number of
donors have contributed directly and indirectly to its development. The bulk of the support
has come from AGFUND and the Italian Government. In addition, smaller indirect contri-
butions have come from the IFC's SEED project in the Balkans, USAID's SPEED project in
Uganda, the Microfinance Center (MFC) and two ILO projects: BDS Zambia and Risk-man-
aging Financial Services in Viet Nam funded by the French government.
We should like to thank the staff at the ILO's International Training Centre (ITCILO) in
Turin for their support and assistance; in particular, Denise Zoccola, Valeria Morra, Matteo
Montesano and Michèle McClure, for their work with the layout and design; plus Laura Carta
and Cristiana Aclis for their administrative support. Thanks also to Rosemary Beattie in
Geneva for her meticulous copy editing and assistance with the bibliography and index.
Finally, a huge thanks to Peter Tomlinson for managing the development of this course, and
patching together funding to make it possible, as well as for his patience and mentoring.
Craig Churchill Cheryl Frankiewicz
Social Finance Programme Independent Consultant
V
Foreword
This is a management course. It is not intended to make anyone an expert at anything. Instead
it provides a broad overview, covering most key issues that are relevant for microfinance
managers. Individually, many of the topics in this book could be addressed in a one- or two-
week course—for example, MicroSave has a six-day course on market research, while this book
covers that material in just 15 pages. This course provides managers with a valuable introduc-
tion to the key management issues with which they need to be familiar and assists them in
identifying areas that they would like to explore in more detail in the future.
This course also exposes managers to microfinance experiences from around the world. Man-
agers often get stuck in a rut, bogged down with their day-to-day responsibilities, unable to see
the forest through the trees. This course gets them out of their offices and challenges them to
consider alternative approaches and question their assumptions.
Much of the material in the training manual has been adapted from existing resources. Conse-
quently, this book is an indispensable resource that brings together lessons from numerous
microfinance institutions (MFIs) operating in a range of environments. The experiences
are presented clearly and concisely so that the information is readily accessible to time-
constrained managers. Even though the book is useful on its own, it is even more valuable
when digested through the two-week training, which gives participants an opportunity to
practice with numerous tools and resources, and to consider dozens of additional case studies.
Why the ILO?
The International Labour Organization is a specialized agency of the United Nations that
promotes social justice and internationally recognized human and labour rights. The ILO has
a unique tripartite structure, with workers and employers participating as equal partners with
governments in its governance. The ILO formulates international labour standards in the
form of Conventions and Recommendations setting minimum standards of basic labour
rights: freedom of association, the right to organize, collective bargaining, the abolition of
forced labour and child labour, equality of opportunity and treatment, and other standards
regulating conditions across the entire spectrum of work-related issues.
To assist governments and social partners in applying the Conventions and Recommenda-
tions, the ILO provides technical assistance in a number of fields, including: vocational train-
ing, employment policy, labour administration, industrial relations, management
development, cooperatives, social security, and occupational safety and health.
This course brings together two areas of ILO expertise and concern: management and
microfinance. The ILO has a long history of involvement in improving management prac-
tices, as this is an important strategy for improving labour relations and working conditions.
In addition, the ILO is keen to promote employment, including self-employment, while
ensuring that workers and their families have sufficient social protection. Microfinance is
therefore an important strategy for the ILO, as financial services for the poor contribute to
both employment creation and social protection objectives. This management course is a nat-
VI
Introduction to Microfinance M
ural complement to other training packages created by the Social Finance Programme and
ITCILO, including leasing, microinsurance and guarantee funds.
Intended Audience
The course is designed for middle and senior managers in microfinance institutions. In rapidly
growing organizations in a relatively young industry, microfinance managers are often pro-
moted into management positions without sufficient training. They are forced to learn on the
job, through trial and error. This course is intended to help microfinance managers, new and
old, to better understand their jobs and to obtain additional tools and resources to manage for
improved performance.
Overview of the Course
This book contains 24 modules organized into five parts:
I. Introduction to microfinance management. The introductory part covers four topics
that essentially address different aspects of the course title: Making Microfinance Work:
Managing for Improved Performance. Module 1 describes the managers' mandate, including
the four functions of management, different management styles and the characteristics of
effective managers. Module 2 tackles the microfinance thread, briefly introducing the
range of financial services that are relevant to the low-income market. The rest of the sec-
tion sets the stage and context for improving performance. Module 3 considers the for-
mal, semi-formal and informal institutional options through which microfinance can be
delivered. It highlights that managers can choose to transition from one institutional type
to another, or partner with other types to accomplish goals and overcome environmental
challenges. Module 4 considers the MFI's strategic direction, including the critical issues
of vision, mission, values and objectives that collectively define the performance that
managers should seek to achieve.
II. Markets and marketing. With the second set of modules, the manual begins to intro-
duce tools and strategies that managers can use to improve performance. Microfinance
begins and ends with the client. MFIs will not be able to meet their goals without identify-
ing an appropriate target market (Module 5), and developing and delivering products to
meet the market's needs (Module 6). Module 7 helps managers communicate the value
embodied in their products and services. To further promote a customer orientation.
Module 8 offers practical guidance for providing outstanding customer service and Mod-
ule 9 guides readers to the ultimate objective: customer loyalty.
III. Managing risks. While delivering valuable products that stimulate loyalty, managers
need to ensure that they are enduring a tolerable level of risk. Module 10 introduces a risk
framework to holistically evaluate the risks to which MFIs might be vulnerable, as well as
a system for managing those risks. Module 11 discusses strategies to prevent delinquency
from occurring and, if it does occur, to rectify the situation. Using a similar prevention
and detection approach. Module 12 provides guidance on managing staff fraud and secu-
rity risks. Module 13, the last in this part, introduces strategies for managing external risks
that an MFI cannot control, but for which it needs to prepare.
VI
IV. Organizational architecture. A microfinance institution needs to be built in the same
way an architect designs and constructs a building. It needs a plan that combines the
design of the organization with the people who flesh out that structure, while considering
how they interact with each other and with those outside the organization. This manual
uses the metaphor of an organization's architecture to describe three issues that should
be addressed collectively when striving to improve performance: how to enhance human
resource management (Module 14); how to proactively shape the institutional culture
(Module 15); and how to design an effective organizational structure (Module 16). Tying
these three topics together. Module 17 explores the use of organizational architecture to
manage growth.
V. Towards greater efficiency and productivity. The last part introduces various strate-
gies for enhancing efficiency and productivity in an effort to minimize the trade-offs that
MFIs invariably face as they try to provide valuable financial services over the long term.
After introducing the concepts and measurements of efficiency and productivity (Mod-
ule 18), this section examines the enhancement strategies of performance incentives
(Module 19), new technologies (Module 20), and change management (Module 21). To
further enhance efficiency, Module 22 describes techniques for allocating costs and
determining prices, and Module 23 illustrates the importance of plans, budgets and
reports. Module 24 revisits the manager's mandate presented in the first module, consid-
ers the challenges that managers might experience as they endeavour to fulfil that man-
date, and summarizes the tools presented in this book that can help them to overcome
those challenges.
While this manual covers a wide range of topics, there are still a few key management issues
that are not addressed, including financial management and accounting, resource
mobilization, and the systems side of managing information. These are omitted because they
are more technical topics for which a brief overview would perhaps be more confusing than
helpful.
By covering so many topics in a relatively short publication, this book runs the risk of leaving
some readers wanting for more detañ. Consequently each chapter concludes with a list of
additional reading material, much of which is available on the Internet, where curious manag-
ers can explore topics in more depth.
VI
Introduction to Microfinance Manag
I'
Acronyms
ABA Alexandria Business Association (Egypt)
ABC Activity-based costing
ABCD Anticipate objections, benefitize, categorize, develop plans
ACB Akiba Commercial Bank (Tanzania)
ACLEDA Association of Cambodian Local Economic Development Agencies
ACP Acción Communitaria del Perú
ADEMI Asociación para el Desarrollo de Microempresas (Dominican
Republic)
AE Administrative expense rate
AFMIN Africa Microfinance Network
AGFUND Arab Gulf Programme for United Nations Development
Organizations
AIDS Acquired Immunodeficiency Syndrome
AIMS Assessing the impact of microenterprise services
AMFIU Association of Microfinance Institutions of Uganda
AROA Adjusted return on assets
ASA Association for Social Advancement (Bangladesh)
ASA Activists for Social Alternatives (India)
ASCA Accumulating savings and credit association
ATH A Toda Hora
ATM Automatic teller machines
BAAC The Bank for Agriculture and Agricultural Cooperatives (Thailand)
BASIX Bharatiya Samruddhi Finance Ltd. (India)
BCS Banco Caja Social (Colombia)
BDS Business Development Services
BEME Banestado Microempresa (Chile)
BRI Bank Rakyat Indonesia
BURO Bangladesh Unemployed Rehabilitation Organization
CA Cost allocation
CAMEL Capital adequacy, Asset quality. Management, Earnings, and
Liquidity management
CARD Centre for Agricultural Research and Development (Philippines)
CARD MRI CARD Mutually Reinforcing Institutions (Philippines)
CARE Cooperative for Assistance and Relief Everywhere, Inc.
IX
CD
Certificate of deposit
CEO Chief executive officer
CEP
Capital Aid Fund for the Employment of the Poor (Viet Nam)
CF Cost of funds rate
CFC Commercial finance company
CFS
Community financial services
CGAP Consultative Group to Assist the Poorest
CMAC Cajas Municipales de Ahorro y Crédito (Peru)
COFIDE
Corporación Financiera de Desarrollo (Peru)
CRIF
Community Reinvestment Fund
CRS Catholic Relief Services
EBRD European Bank for Reconstruction and Development
EDPYME
Entidades de Desarrollo para la Pequeña y Microempresa (Peru)
EG Enterprise group
ESOP Employee stock ownership programme
FFP
Private financial funds (Bolivia)
FGD Focus group discussion
FINCA Foundation for International Community Assistance
FOCCAS Foundation for Credit and Community Assistance (Uganda)
FS Financial services
FSA
Financial service association
FSS Financial self-sufficiency
FUCAC
Federación Uruguaya de Cooperativas de Ahorro y Créditos
(Uruguay)
FUNDES
Fundación para el Desarrollo Sostenible (Colombia)
GNP
Gross national product
HIV Human immunodeficiency virus
HR
Human resources
HRM
Human resource management
ID
Identification
IFC International Finance Corporation
11 Investment income
International Labour Organization
ILO
ISO
The International Organization for Standardization
IVR
Interactive voice response
X