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Occasional Papers: Vol:1 December 1998 No.1
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to Main Foreword
- Dr. Salehuddin Ahmed,
Managing Director Sources of Fund for MFIs :
Micro-Savings and Market Linkage - Mosharraf Hossain Khan
Programme Officers Role in Managing Microcredit Programe
: An Operational Guideline for Inspection and Decision Making - Md.
Shaikhul Islam Overlapping Problem in Microcredit
Operations - Md. Hasan Khaled An Analytical
Discussion on Performance Evaluation of Training by Quantifiable Target sand
Measures - Abdus samad Mallick Quality
in Training Management - Md. Mosleh Uddin Sadeque
| FOREWORD
PKSF staff
members, in spite of their very busy schedule of work, write short papers for
seminars workshops and for operational use. Since the authors cannot devote enough
time to write papers, these may not meet high academic standard in both form and
content, but these have great practical value because these are based on operational
experiences. Considering this, PKSF has decided to publish papers written by its
staff members occasionally in a publication titled "The Microcredit Review".
In the course of time, PKSF hopes to make it into a regular journal on microcredit
and open it to the contributors outside PKSF. PKSF would solicit advice and co-operation
in this respect from the readers and others concerned. Dr.
Salehuddin Ahmed Managing Director |

SOURCES
OF FUND FOR MFIs : MICRO-SAVINGS AND MARKET LINKAGE -
Mosharraf Hossain Khan
BACKGROUND
AND INTRODUCTION A
significant development in the Bangladesh rural finance sector in the last two
decades has been the prominence of NGOs in dispensing micro-credit for non-farm
activities. The Dheki Loan Scheme (Paddy Husking Program) launched by the Bangladesh
Bank in 1978 formed the basis for the subsequent prominent NGO intervention in
micro-credit- the Swanirvar Credit Program while the Grameen Bank Project launched
by the Bangladesh Bank simultaneously turned to be the world famous Grameen Bank.
Bangladesh is now probably known world-wide more for its innovative approach in
micro-credit than for any other count. The importance and focus Bangladesh received
during the Micro-Credit Summit held in U.S.A in 1997 has amply corroborated the
above statement. CHARACTERISTIC
FEATURES OF NGO INTERVENTION IN MICRO-CREDIT The
NGOs and the Grameen Bank have made commendable achievement in poverty alleviation
through creating income generating opportunities for the rural poor by providing
micro-credit with special focus on women. Their performances in creating employment
opportunity for the rural poor and alleviation of poverty are considered far better
than those of the formal banks on many counts; the characteristic features of
their micro-credit program being: collateral
free credit with simplified documentation and flexible terms and conditions; high
rate of recovery of credit ensured through close supervision of end-use; the recovery
percentage of the loans disbursed by these agencies ranges between 95% to 100%;
provision
of strict group exercise (viz. weekly meetings, savings mobilisation, repayment
of weekly instalments etc.) and awareness raising training on various aspects
of social discrimination, human development and sometimes on functional literacy
preceding and following credit; most
of the members/loanees (about 80-85%) are women; amount
of loan varies from Taka 2000 to Taka 10000; interest
ranges around 15% on flat rate (some with declining) basis - the effective being
almost double; finances
mostly non-farm instant Income Generating Activities (IGAs); target
to poor men or women owning less than 0.50 acre of cultivable land or having total
asset of the value of less than one acre of land in the locality; short
term loan repayable within 1 (one) year in weekly instalment; focus
on cohesive groups in contrast to bank's individual approach; the peer pressure-
the main theme of the group approach- acts as a driving force in ensuring timely
repayment of credit; credit
preceded by skill development training, where necessary, and followed by marketing
support to the entrepreneurs unlike the banks having no such forward & backward
linkage provisions; forced
savings by members with a view to generating own investible fund of the members
and gradually lessening dependence on credit; simultaneous
intervention in other areas like health, sanitation and community development
etc. to improve overall living condition of the group members. The
above is a generalised statement of widely common features of micro-credit program
run by the NGOs most commonly known as the Micro Finance Institutions (MFIs).
The norms/procedures and the area of intervention varies between MFIs depending
on the scale of operation and the approach ('Credit only' or 'Credit plus'). SOURCES
OF FUND FOR MFIs: The
major sources of fund for the MFIs comprise of the following : External
Donors grants Internal
Savings of members Sponsors
Equity and others (including
interest and service charge.) Loans
from national agencies The
NGO activities in this part of the globe mostly started with welfare and relief
oriented missionary objectives backed by external donors grant. Part of this grant
and/or surplus income has been being used as revolving loan fund for undertaking
income generating activities by the grassroots members. This fund still constitutes
the major portion of loanable fund of the MFIs. The sponsors' equity and ploughed
back earning also form significant part of the loanable fund. A recent publication
of Credit & Development Forum (CDF) a network of MFIs reveals the following
status of sources of fund for 351 MFIs as on 31.12.96 (Taka in million).
Member
savings
| : | 1656
| (20.41%) |
Loan
from PKSF & bank | : | 961
| (11.83%) |
Foreign donation | : | 3888
| (47.90%) |
Sponsors
Equity & ploughed back income | : | 1612
| (19.86%) |
Total
| : | 8117
| (100%). |
Meanwhile the emergence of the Palli Karma-Sahayak Foundation (PKSF) as second
tier institution to provide fund to the NGOs has added a new dimension to the
above issue. PKSF was created by the govt. as a non-profit organisation registered
under Companies Act in May, 1990. The objective of the organisation is to undertake
and promote various activities aimed at poverty alleviation. PKSF has, at present,
been working as an apex financing organisation for the NGOs (termed - Partner
Organisations) running micro-credit programme in rural areas. PKSF has a mandate
for undertaking wide ranging activities for poverty alleviation including capacity
building of it's Partner Organisations (POs). The performance of PKSF as on 31st
March 1998 in respect of NGO enrolment, loan disbursement and recovery is shown
in Annex -1. The POs of PKSF serving about one million beneficiaries are classified
into two categories based on their area coverage and focus/dimension of activities.
The large ones are under BIPOOL (Big Partner Organisations Operating in Large
areas) category and the small ones are under OOSA (Organisations Operating in
Small Areas) category. Out of the total 164 POs, 3 are under BIPOOL while the
rest 161 are under OOSA. PKSFs programme is spread over about 21000 villages
in 1728 Unions under 313 Thanas of 58 districts. The above coverage of PKSF is
however, meagre in comparison to the large scale demand of fund for poverty alleviation.
Considering the above
limited coverage by PKSF, gradual shrinkage of outside fund & difficulties
faced by the donors to fuel the increasing demand of fund of the MFIs, the savings
form the most important part of the loanable fund followed by credit from other
national agencies. The paper attempts to examine the issues concerning capital
accumulation through savings mobilisation and through linkage for funding from
the formal financial institutions. Part 1 of the paper would be dealing with savings
and Part 2 with the linkage issues.
PART-
1 : SAVINGS 1.1
CURRENT STATUS AND RATIONALE It
is commonly recognized that rapid economic development of an underdeveloped country
like Bangladesh requires a high rate of capital formation which in its turn requires
a high rate of domestic savings. Also, the savings is considered as one of the
important tools in ensuring long term sustainability of any micro-credit program
and it is from this consideration that savings form an integral part in the MFI
intervention in poverty alleviation. The
rural poor people of this country have age old history of savings in various forms.
The well known among such forms are the `MOOSTI CHAL' (a handful of rice set aside
at the time of cooking) or the petty savings by the kids in mud pots (`banks')
or cash savings of the elderly people in the holes made in the bamboo poles of
their thatched houses. A World Bank study in 1996 reveals the following potentials
of rural households to save: "There
is significant evidence showing that rural households in all income classes can
and do save non-trivial amounts. Survey results indicate that on average households
save over 22% of their incomes. Although not all households are able to save (27%
were deficit households), a large proportion of the population does so in various
forms. These alternative forms are often inefficient as they incur significant
transaction costs and risk capital losses. Over the past decade, the success of
MBIs (Member Based Institutions-the NGOs) in raising deposits from the assetless
households demonstrates the thrift that the poor are capable of. This potential
for deposit mobilization, however, remains largely unexploited." The
formal financial institutions of our country failed to tap large portion of these
savings due to their operational constraints and deficiencies in focus in the
rural areas. The institutional form of these small savings or what we now term
the micro-savings is a recent phenomenon owing it's emergence to NGO intervention
in the micro-finance Program. The above World Bank Study also reveals the following
state of financial services in terms of micro-savings available to the rural poor: "MBIs
(Member Based Institutions- the NGOs) require involuntary deposits from their
members, but do not accept non-member or voluntary deposits. PSIs (Public Sector
Institutions-the Banks) have not also focused sufficient efforts on this aspect
of financial intermediation. Survey results show that of the 82% of the sample
living close to a bank, only 37% had deposit accounts. This fell to 11% for households
living far from the bank. Over 88% of the depositors surveyed lived within one
mile of the bank. Total deposits of the bank branches is also strongly influenced
by their proximity to urban and business centers. Limited access is confirmed
by an analysis of transaction costs, of which time cost and conveyance are the
most significant components. The importance of access is also demonstrated by
the fact that less than half of the savings deposit holders and less than 30%
of term deposit holders were aware of the prevailing interest rates in their accounts."
The
NGO involvement in savings mobilization is, of course, not a one way traffic of
simple benevolent intervention only to help the rural poor in their own capital
accumulation. In most of the cases the NGOs started collecting savings from all
members to give credit facilities to some and solidify own existence meeting the
initial expenditures from the margin of interests till any donor commitment is
received. There are instances where the NGOs started collecting savings from the
members of public against promise to give them loans later on and ultimately vanished
from the area lock stalk and barrel defalcating all the petty savings of the poor
members. These mushroom institutions are popularly known as "Hai Hai Company"
(fake NGO) in colloquial terms. However, in honest view, the MFIs intervention
in savings collection is considered to be yielding, among others, the following
specific benefits: inculcating
gainful savings habit among poor members; savings
considered as 'old age security` and `cushion' against exigency; linking
the members with institutions; forming
capital base for the micro-savers as well as for the MFIs enhancing their capacities
towards sustainability of intervention; savings
acting as one of the cementing factors in maintaining group solidarity; savings
considered as a meaningful issue worth-discussing in group meetings; increased
contribution to overall national savings. 1.2
FORMS OF SAVINGS In
general terms, the savings fund of a Micro-finance Institution comprises of the
following: Involuntary
or forced savings from members Voluntary
savings from members Voluntary
savings from non-members Other
Charges/deductions at the time of loan disbursement.
1.2.1
The Involuntary savings comprise the bulk of the savings mobilized by the MFIs.
The method of collection of these savings, of course, is not uniform. In most
of the cases the members have to deposit a fixed amount (previously it was Taka
1-2 and now it is Taka 5-10) along with the weekly installments of loans. Sometimes
the amount may remain fixed within a samity and varying within the organization.
In most of the cases there is a lower threshold limit (Taka 2 or 5) but the upper
limit is open. Some of the MFIs collect the savings on monthly basis. The other
prominent form of involuntary savings is to attach the pro rata requirement of
savings with the quantum and frequency of loans. In this case the requirement
is expressed in terms of percentage e.g., 5% of loan asked for/sanctioned for
first time loan, 10% for second time loan and so on. 1.2.2
The voluntary form of savings mostly allows open access and flexible mode of transactions
where the members can deposit and withdraw any amount as if dealing with a bank.
The inaccessibility and remoteness of the bank branches on the one hand and the
confidence reposed on and nearness of the MFIs alongwith their flexibility/simplicity
in transactions on the other is all the magic in drawing huge number of small
savers to the latter. Although the flexible and open access savings facilities
has been being tested as recent phenomenon by some of the MFIs in our country,
this approach has proved very effective in quick capital accumulation elsewhere
in the globe. One of the largest MFIs has recently extended this savings service
to non-members as well. 1.2.3
In addition to the above voluntary and forced savings, some MFIs collect
other charges from the members mostly at the time of disbursement of loans. These
are collected in the name of Insurance Fund, Welfare Fund, Group Solidarity Fund,
Emergency Fund etc. and charged in terms of percentage with quantum of loans.
Although these funds are not termed as savings but they are designated to be used
for welfare of the group as a whole. Some MFIs keep these funds separate from
savings while there are some others keeping these funds mixed with the savings. 1.3.
THE ISSUES It
is observed from above that the members of the MFIs have to save mandatorily on
weekly basis to ensure their eligibility for credit and other services from the
MFIs. A theoretical calculation would deduce that a MFI having 10000 members collect
minimum of Taka 50,000 @ Taka 5 per member per week. This would approximate to
Taka 0.2 million per month. Annex -2 shows the total amount of savings collected
by top 20 MFIs of the country with average per member savings. This is quite a
figure taken together but this is a meagre amount of taka 5 or taka 20 per month
or few hundred in total to an individual member who is ready to part with this
petty amount in exchange of the direly needed credit at an increasingly higher
amount vis-a-vis considering the high cost of fund from other sources. This perception
of savings among majority of the poor members have paved the way for exploitation
with and misuse of the micro-savings at grassroots level breeding some important
issues of concern. Harvesting on the members' perception of micro-savings as a
"cost of credit' or some form of 'levy', the MFIs do generally keep this
fund idle in the bank account or invest in micro-credit or other high income earning
investments. But are the micro-savers being paid legitimate dividend or are their
interests protected? These and some other issues which need to be resolved to
give impetus to savings mobilisation protecting the interest of the savers &
for setting some standards in dealing with the micro-savings are discussed detailing
various stages of savings mobilisation like collection, maintenance, access use
& payment of dividend etc. in following sections. 1.3.1
COLLECTION The
term collection has been used here perceiving the savings as a function of provider
of credit rather than the micro-savers. Different MFIs use different methods of
collection of savings the commonly used practices are : weekly
installments @ Taka 5-10 deposited in weekly meetings with the loan installments;
weekly savings installments
collected on monthly basis; uniform
installments deposited by all members irrespective of capacity; members
depositing variable amounts according to capacity with the minimum ceiling remaining
fixed and compulsory; new
members requiring higher amount of savings to equate with the balance of savings
of old members gradually; savings
collected as a proportion of loan applied for and expressed in percentage;
transfer ("purchase/sale")
of savings between new and `deserting' members; In
all the instances the savings are collected from the enrolled members of the MFIs
excepting, of course, a few instances where savings are collected from the non-members
as a recent phenomenon. Whatever
be the method of collection it should be transparent and at standardized rate
fixed recognizing the savings capability and investment requirement of the poor
members. Variable rates also breed scope for corruption/malpractice by unscrupulous
employees unless the MFI has a very strong accounting and monitoring system which
is lacking in most of the beginner MFIs. 1.3.2
MAINTENANCE AND SECURITY The
savings thus collected are usually kept in an interest bearing bank account .
The usual variations in methods are : savings
kept in the accounts opened separately in the names of groups and the accounts
are operated by the authorized representatives of the groups; savings
maintained in the names of groups but the transaction in the bank is to be done
with consent of the MFI; Group
savings are pooled together in central account in the name of MFI and the account
operated by the MFI authorized officials; Part
of group savings are pooled together in the name of MFI keeping a nominal amount
in the groups' accounts. There
is a big avenue of exploitation in the method of maintenance of savings. Savings
kept in individual groups account give a feeling of ownness to the groups and
it tends to enhance group solidarity and cohesiveness. But, under this procedure,
there is scope of irregular leakage due to weak management and monitoring base
of the groups. Also under this system, quite a substantial amount is eroded gradually
from the accounts by way of bank charges and conveyance etc. The central pooling
is, therefore, a welcome alternative to avoid erosion. But in the central pooling
system, there is apprehension of large scale mismanagement & diversion if
the MFIs' management capability & honesty is in question. There
are loopholes in maintenance of record of savings at MFI level also. In most of
the cases the MFI level record is limited to keeping group-wise record of savings.
The individual entries are said to be available in groups who are not capable
of keeping any such record. The Field workers collecting the savings use loose
`Top Sheets' or `Collection Sheets' to record weekly collections. Once these collections
are deposited and entered into ledgers of the institution, these loose sheets
lose their utility and as such get lost in the stack of papers gradually. It is,
therefore, next to impossible to retrieve and reconcile the records in times of
need by back-tracing few months, let alone a years transactions. The
question of security of the micro-savings on the other hand, arises from ambiguity
in legal and ownership structure of the MFIs. Since the MFIs are not registered
under Banking Companies Act or any other financial acts, their performances are
not subject to supervision of Central Bank of the country. On the other hand the
Government's registration document is mostly silent on the issue of savings and
credit dealing of the MFIs. The small savings of the micro-savers are, therefore,
at stake in case of defalcation or other way mismanagement by the MFIs. 1.3.3
ACCESS As
stated earlier, the access to savings had so far been restricted until recently
when some of the MFIs have introduced provision of voluntary savings with flexible
and open access facilities. But generally speaking, the position of access to
forced/mandatory savings is one or other of the following: members
are not allowed to withdraw savings until he/she leaves the group liquidating
his/her liability withdrawal
allowed for part of savings keeping certain percentage of loan liability withdrawal
allowed on condition of return within agreed time and with interest withdrawal
allowed to liquidate loan liability before quitting the group Access
to own savings of the members should be considered as a basic right. 'Collaterisation'
of savings by denying open access has bred the wrong perception of savings as
a 'levy' among the members. This perception has handicapped realization of full
potential of savings of the poor members. 1.3.4
USE The
savings kept in the groups' account usually remain idle in the bank while that
kept in the MFIs' account have variable use. The position in general is as follows
: Savings
considered as collateral to loan to the members and thus remaining idle in the
Savings Bank Accounts. Savings
remaining in savings account with automated provision of transfer to periodic
fixed deposit account keeping a minimum agreed balance in savings account. Savings
used to purchase land/building etc. for the MFI treating the amount as loan to
the MFI with condition of return on fixed terms. Savings
used in micro-credit Programme of MFI. Savings
used by MFI for high income earning investment activity other than micro-credit.
Savings used for business
purpose at MFI initiative. Savings
used for purchase of Savings bond /certificate etc. 1.3.5
PAYMENT OF DIVIDEND Whatever
may be the use of the savings and earning there - against, the return or dividend
to the micro-savers is a major grey area. The problem circumvents the following
: the
micro-savers consider their savings as a cost of borrowing and as such remain
indifferent to its use and return etc; use
of savings are not subject to any question or audit by any regulatory authority; some
MFIs claim having provision of payment of dividend in document by posting an amount
in the passbooks of the members; but these have no meaning to the illiterate members; in
case of payment of dividend in extreme case, the return is not proportionate to
the earning from the investment. 4
RECOMMENDATIONS Although
Bangladesh is considered a pioneering country in disseminating innovative ideas
in the field of micro-credit, there is still a lot to be done in the delivery
of micro-finance services as a whole protecting the interest of the poor. The
MFIs' intervention in savings mobilization is one of the areas where the following
actions may be taken to protect the interest of the micro-savers:
Access to own savings
of the members should be considered a fundamental right. It
should be mandatory on the part of MFIs to ensure keeping of individual records
of savings. Use
of savings for personal gain or for acquiring assets in any individual's name
of the MFI should be considered a punishable offense. The
beginner MFIs should restrict their intervention to fixed savings and gradually
shift towards open access and voluntary mode once they have developed capability
to keep individual records. Once
the MFI has developed capability to keep transparent accounts of savings at their
level, the savings can be made open and flexible. The
discussion on savings should be made a compulsory agenda in the group meetings
where the Field Worker would disclose the total updated savings of individual
members as well as of the group and the balance of group savings as appear in
the MFIs record should be written in the resolution. The
members should be given profit on savings calculated at the prevailing rate offered
by banks and the profit should be distributed in cash to each of the members in
a bigger rally at the end of the year. The
central regulatory or lending agency (i.e. Bangladesh Bank or PKSF etc.) may consider
extending insurance coverage to the these savings; this would enforce them to
oversee the area to protect their own interest. Taking
actions in the above line would enhance the confidence level of the micro-savers
as also would establish justice and equity, remove the scope of exploitation and
give a boost to the savings mobilization by the MFIs. Mentionably,
monitoring of savings of the POs is one of the core agenda of PKSF intervention
and it has already started implementing some of the above recommendations in concert
with the POs. In a workshop held at the Bangladesh Academy for Rural Development
(BARD), Comilla on February 22-24, 1998 and attended by representatives of 128
NGOs (POs) it was discussed and resolved that POs would follow a standard norm
in management of savings of their members. Some of the important recommendations
adopted to this end were as follows: With
a view to avoiding erosion of small savings on account of bank charges and other
incidental costs, the savings should be pooled together in a central account under
unified management of the PO. The
PO would maintain society and member - wise subsidiary ledger and all members
would be informed of their updated savings balance in the weekly meetings. The
mandatory savings can not be withdrawn instantly on demand; but the POs would
themselves formulate terms and conditions for the withdrawal of such savings in
case of dire need of the members. Voluntary
savings should be considered withdrawable and savings of deceased and deserted
members should be returned instantly after adjustment of liability. Part
of savings should be kept in bank account while some other part may be deployed
in liquid investment (e.g. fixed deposits, savings certificate etc.) and the remaining
part may be used as revolving loan fund. Savings
should not be used for any administrative purpose or for acquiring any fixed asset
for the PO. In
case of any need for using the savings for profitable long term investment, the
same can be done by transforming it into shares with the consent of the members. The
members should be paid dividends on their savings at the prevailing or higher
rate provided by the banks. PART
2: LINKAGE WITH FORMAL FINANCIAL INSTITUTIONS 2.1
BACKGROUND INFORMATION Although
the contribution of the rural branches of the Nationalised Commercial Banks (NCBs),
the Bangladesh Krishi Bank and the Rajshahi Krishi Unnayan Bank have been found
to be very instrumental in increasing food production and to develop the rural
economy through dispensing large amount of agricultural credit, their contribution
in dispensing credit for poverty alleviation has always been insignificant in
comparison to that of the NGOs in terms of coverage and outreach. On this backdrop,
the Bangladesh Bank issued instructions to all of the Public Sector Banks in early
nineties to establish linkage with the NGOs dispensing micro-credit and off-load
their surplus fund (at that time the banks had huge surplus liquidity) for poverty
alleviation activities of the MFIs. The
above instruction of the central bank, however, fetched limited success till date.
The often-cited reasons of this include: Attitudinal
problem of the Banks towards micro-credit. The
Banks inability to lend without collateral security. High-hidden
transaction costs' acting as deterrent for MFIs to approach the Banks. 2.2
ATTITUDINAL PROBLEMS The
formal financial institutions of this country, specially NCBs were inducted in
rural credit in 1973. After passage of long 25 years of rural financing, it is
obviously not wholly justified to say that these banks have a negative attitude
towards micro-credit. It is not out of place to mention here that these banks
have nurtured the Grameen Bank Project - the infant stage of the Grameen Bank.
These Banks have also comparable success history in implementing number of donor
assisted projects aimed at poverty alleviation. Some of such major projects are: Agrani
Bank's Productive Employment Project (PEP). Janata
Bank's Small Farmers and Landless Labourers Development (SFDP) Project. Sonali
Bank's Rangpur Region Rural Development Project (RD-9). Sonali
Bank's Rural Poor Co-operative Project (RPCP). A
close examination of the performance of above projects in disbursement and recovery
of poverty alleviation credit, as shown in annex -3, would reveal that the projects
have achieved, if not outperformed, the same level of repayment as that of NGOs.
It belies the generalised statement and belief that the NCBs are not attuned to
disburse credit to the poor nor is their attitude favourable to such credit programme. 2.3
PROBLEMS OF COLLATERAL SECURITY This
is also another lame excuse put forward to avoid responsibility by the concerned
quarter. The formal banks of this country were inducted to dispense rural credit
in 1973. The rural credit programme of the banks got a big push in 1977 when the
Special Agricultural Credit Programme (SACP - widely known as Taka 100 crore SACP)
was launched throughout the country. One of the characteristic features of this
mass oriented SACP was that loans were to be disbursed without any collateral
security. Although it was a `push' for the banks in 1977, the banks have internalised
the programme and have been dispensing collateral free rural or agricultural loans,
Collateral free loan is no more a non-bankable proposition to the banks. To cite
a specific example, the Sonali Bank - the largest of NCBs, has a rural credit
portfolio of about Taka 24 billion (US $ 520 million) out of which about 80% has
been disbursed without any collateral security. So, the contention that the banks
charter do not permit disbursement of collateral free credit is not correct. 2.4
HIDDEN OR UNDERHAND TRANSACTION COST Corruption
is yet another `delicious' issue for discussion we enjoy everywhere every time.
The question of corruption emerges from financial discretion. "Power corrupts
and absolute power corrupts absolutely". But in the case under discussion,
no single officer is empowered (not even the Managing Director of the Bank) to
sanction loan to an NGO since there is no policy decision taken in this regard
by the Board of Directors of the Banks. Few sporadic cases of linkages have been
approved individually by the Board of Directors of the concerned Banks. In this
context it is simply inconceivable as to how the question of underhand dealing
could crop up without the power vested to any single hand! It is simply an unfortunate
generalisation of the corrupt practices prevailing elsewhere. 2.5
ISSUES The
above discussion boils down to the conclusion that we have generally been beating
about the bush while dealing with issue of linkages. An insider's view dictates
the following most important issues standing as stumbling block towards the linkage
programme : Lack
of Policy decision at banks. Lack
of Knowledge of Bankers about the NGO activities. Inaction
of collective body or networks of the NGOs. Legal
deficiencies of the NGOs. 2.5.1
POLICY DECISION As
stated earlier, the banks need a decision at policy level to embark upon or open
any new credit line. Once the decision is taken, it is enjoined upon the line
officials to implement and comply with decision. This did not happen in case of
linkages. The Bangladesh Banks instruction was half-hearted without any
aggressive follow up to force the officers to place the issue to the Board of
Directors and sort out a decision. 2.5.2
BANKERS' MISCONCEPTION There
is a wide spread misconception among sizeable section of the people including
the bankers that the NGOs are exploiting the poor people in the name of development
of their lot and as such `floating' an NGO is considered to be a good business
and pastime hunting place for the retired Government officials. This wrong notion
is being bolstered time and again by newspaper reports of the misdeed of the `Hai
Hai Companies (fake NGOs) on the one hand and failure of the NGO community as
a whole to make effective dent in changing the attitude of the bankers as a whole
on the other. 2.5.3
INACTION OF NETWORKING BODIES The
two networking bodies of the NGOs- the Association for Development Agencies in
Bangladesh (ADAB) and the Credit and Development Forum (CDF) should share some
responsibility for not being able to `drag' the banks in the field. They should,
by this time, have had some exploratory exercises as to why the banks are not
coming and how the much needed linkage could be made effective. Their roles have
so far been limited to holding perfunctory bi-lateral discussions and/or holding
futile workshops/seminars where the Banks participation is mostly far less than
expectation (both in respect of level of participation and representation) due
to lack of aggressive follow-up from the hosts. 2.5.4
LEGAL DEFICIENCIES This
is probably the crucial of the issues so far dealt with. It concerns all aspects
of intervention of MFIs including the capital mobilisation through savings accumulation
and establishment of linkages with formal financial institutions. Our discussion
would remain limited to linkage perspective. Any
lenders first and foremost consideration in his business is to ensure that
the other party with whom the transaction is made is a legal or jurist person
who can sue or be sued under the law of the land. Bankers are no exception to
follow and enforce this consideration. If the borrower is an institution the bankers
would also like to see that the borrower has a clear `borrowing clause' to raise
fund and is authorised to conduct the activities it proposes as per registration
document. The position of most of our MFIs registered under Voluntary Social Welfare
Agencies (Registration and Control) Ordinance 1961 are very weak in this respect.
The Ordinance defines the NGOs as under "Voluntary
Social Welfare Agency" means an organization, association or undertaking
established by persons of their own free will for the purpose of rendering welfare
services in any one or more of the fields mentioned in the schedule and depending
for its resources on public subscriptions, donations or Government Aid " The
Schedule referred above includes the following: I)
Child welfare. II)
Youth welfare. III)
Women's welfare. IV)
Welfare of the physically
and mentally handicapped. V)
Family planning. VI)
Recreational programme intended to keep people away from antisocial activities.
VII)
Social education, that is, education of adults aimed at developing sense of civic
responsibility. VIII)
Welfare and rehabilitation of released prisoners. IX)
Welfare of juvenile delinquents. X)
Welfare of the socially
handicapped. XI)
Welfare of the beggars and destitutes. XII)
Welfare and rehabilitation of patients. XIII)
Welfare of the aged and infirm. XIV)
Training in social work. XV)
Co-ordination of social welfare agencies". It
is obvious from the above that the current intervention of the NGOs (registered
under above ordinance) in savings - credit transaction does not fit comfortably
in any of the above fields. As such, any attempt to establish effective linkages
with the banks for sourcing of funds for the MFIs would be futile unless the above
legal deficiencies are removed with a firm regulatory framework. This, of course,
is a lengthy procedure. Till the legal issues are sorted out, the linkage can
still be activated through motivation of and bargaining with the banks for linkage
on a different model (than are currently in practice by a handful of MFIs) as
described below. 2.6
ALTERNATIVE MODEL OF LINKAGES: The
most widely perceived linkage between MFIs and the formal banks is that the banks
would make bulk lending to the MFIs who would make onward disbursement (retail)
to the grassroots members. The linkage between the BRDB sponsored two tier co-operatives
and the Sonali Bank may be termed as the oldest of this kind. The latest of such
linkages are ASA-Agrani, PAGE-Janata linkage. In both of the cases the MFIs had
to offer collateral security. Effecting large scale non-collaratised lending under
this model would necessitate addressing, among others, the legal issues described
above. The
alternative model proposed here is the one tested in GTZ -IFAD assisted Marginal
and Small Farms System Crop Intensification Project (MSFSCIP) in Kurigram. The
essence of this model is that the banks would lend directly to the grassroots
beneficiaries (thus obviating the question of legal status of the borrowers) with
collaboration of an intervening NGO performing the social mobilisation activities
(group formation, training, motivation etc.) against a share of interest (the
RDRS was the NGO under MSFSCIP). The
successful implementation of MSFSCIP & poverty alleviation projects by the
formal banks as described in section 2.2 dictates that it is not the Institution
only which accounts for better recovery, rather it is the area of intervention
and the type of clientele along with the mechanism of delivery and monitoring
which matters most to achieve better result. Since the banks have no constraint
of fund, the human capital input provided in the intervention of the donor assisted
projects described in section 2.2 may be arranged establishing effective linkages
with (following above model) the scores of NGOs rich in experience and lacking
in resources. One may raise here the question of cost of the intervention. This
can also be resolved by rationalisation of the rate of interest at grassroots
level. For instance, the NGOs are charging interest around 15% (on face value-
the effective being around 29%) for the poverty focused credit programme and various
studies on the issue have shown that it is not the rate of interest rather the
timely availability and adequacy of the credit which matter most to the beneficiaries.
Accepting this statement, the effective rate of interest at grassroots level may
be fixed at around 20%. Now, considering that the NCBs cost of fund should be
somewhere around 10%, they could charge interest @ 12% adding service charge @
8% for the intervening agency- the NGOs. The apportionment from the effective
20% could be as under : Bank
12% (10%cost coverage+2% margin) NGO
8% (Social mobilization charge) ------------------------------------------------------
Interest at grassroots level 20% This
linkage would add impetus to our efforts for poverty alleviation through formal
& permanent institutional intervention. Although this model proved successful
in MSFSCIP, it could attract little attention from the NGOs who prefer bulk funding
keeping the banks at bay and the banks are apathetic to linkages as ever for reasons
described above. 2.7
RECOMMENDATIONS Establishment
of effective linkage would call for immediate three pronged action as under:
Motivational and awareness
raising campaign among banks. Addressing
legal deficiencies of the MFIs. Promoting
the alternative model of linkages (Section 2.6). The
alternative model would not only help establishing direct linkage of grassroots
members with the formal institutions but would also open avenue for `graduated
members' to continue receiving credit service from the resourceful banks. CONCLUDING
REMARKS There
is no denying the fact that the current trend of donor dependant and grant tailored
intervention of the MFIs should be reversed for the sake of sustainability of
the programme. Savings is considered as one of the most important tools to that
direction followed by harnessing internal resources through linkages with banks
and other formal market sources. Various issues circumventing the above two tools
of attaining sustainability have been described above. It is expected that addressing
these issues would add impetus to our efforts to internal resource mobilisation
for implementing microfinance programme under a exploitation-free, transparent
and poor friendly legal environment. Annex-1 Summary
of Foundation's Loan Programme
| A.
PKSF - PO Level | |
Month : March `98 |
| Sl
| Items
|
| 1997-98
| Total
| | No
| |
Cumulative upto Last year
| Upto
Last Month | This
Month | End
of This Month | | |
1 |
No. of Partner Organisation (PO)
| 150
| 13
| 1
| 14
| 164
| | 2
| Loan
allocation (in million Tk.) | 2625.89
| 1064.70
| 335.00
| 1399.70
| 4025.59
| | 3
| Loan
disbursed (in million Tk.) | 1891.44
| 1176.30
| 296.80
| 1473.10
| 3364.54
| | 4
| Loan
recoverable (in million Tk.) | 685.76
| 254.73
| 41.21
| 295.94
| 981.70
| | 5
| Recovered
(in million Tk.) | 670.79
| 250.57
| 40.36
| 290.93
| 961.71
| | 6
| Overdue
loan (in million Tk.) | 15.30
| 19.35
| 0.96
| 20.31
| 20.30
| | 7
| Loan
outstanding (in million Tk.) | 1220.64
| 2146.38
| | 2402.83
| 2402.83
| | 8
| Rate
of recovery | | | |
98% | |
| 1
| Loan
disbursed (in million Tk.) | 5108.69
| 3738.82
| 490.12
| 4228.94
| 9337.63
| | 2
| Loan
Recovered (in million Tk.) | 3744.89
| 2421.69
| 338.88
| 2760.58
| 6505.47
| | 3
| Savings
Generated (in million Tk.) | 526.73
| 296.30
| 30.54
| 326.84
| 853.57
| | 4
| Rate
of Repayment | | | | |
99% | |
| 5
| Group
| Male
| 100338
| 148932
| 7651
| 156583
| 156583
| | |
Members |
Female |
862137 |
1356219 |
38012 |
1394231 |
1394231 | | | |
Total |
962475 |
1505151 |
45663 |
1550814 |
1550814 | |
6 |
Number of Loanees |
Male |
56576 |
97455 |
32610 |
130065 |
130065 | | | |
Female |
615543 |
971307 |
76190 |
1047497 |
1047497 | | | |
Total |
672119 |
1068762 |
108800 |
1177562 |
1177562 | Annex-2 Statement
on Savings Mobilisation by Top 20 NGOs as on 30.6.97
| Sl.
| Name
of NGO | Amount
of | No.
of | Per
Capita | | No.
| |
Savings |
Members |
Savings | | |
(in million Tk.) |
(in '000') |
(Taka) | |
1 |
BRAC* |
1470 |
1898 |
775 | |
2 |
ASA* |
545 |
663 |
823 | |
3 |
Swanirvar Bangladesh* |
130 |
680 |
191 | |
4 |
TMSS, Bogra* |
38 |
267 |
142 | |
5 |
SSS, Tangail* |
36 |
54 |
667 | |
6 |
RDRS* |
36 |
331 |
109 | |
7 |
ACTION AID |
30 |
17 |
1765 | |
8 |
Uttaran |
29 |
24 |
1208 | |
9 |
CODEC |
24 |
29 |
828 | |
10 |
Buro, Tangail |
20 |
41 |
488 | |
11 |
BEES |
20 |
36 |
556 | |
12 |
EDM |
20 |
42 |
476 | |
13 |
BAWPA |
20 |
46 |
435 | |
14 |
UDDIPAN* |
16 |
19 |
842 | |
15 |
Poor Development Programme (PDP) |
16 |
32 |
500 | |
16 |
MSS |
15 |
17 |
882 | |
17 |
Comilla Proshika |
13 |
28 |
464 | |
18 |
HEED Bangladesh* |
12 |
33 |
364 | |
19 |
RISDA Bangladesh |
11 |
24 |
458 | |
20 |
Hilful Fujul* |
11 |
4 |
2750 | Source:
CDF statistics: Volume 4, June 1997 *
Partner Organisation (PO) of Palli Karma-Sahayak Foundation (PKSF)
Annex-3
Performance
of credit component of four Poverty Alleviation Projects implemented by Formal
Financial Institutions (as
on 31st March, '98)
|
Sl. No.
| Name
of Project | Name
of Bank | No.
of Members enroled | Total
Savings accumulated (in million Tk.) |
Loans disbursed (in million Tk.)
| Repayment
of loans (%) |
Remarks |
| 1
| Rural
Poor Co-operative Project |
Sonali Bank |
258290 |
182.2 |
1714.9 |
99.36 | |
| 2
| Productive
Employment Project (RD-5) |
Agrani Bank |
133803 |
83.3 |
1056.7 |
99.82 |
| 3
| Rangpur
Region Rural Development Project (RD-9) |
Sonali Bank |
40077 |
98.1 |
363.5 |
96 |
| 4
| Small
Famers & Landless Labourers Development Project |
Janata Bank |
51037 |
62.0 |
353.7 |
93 |
(position as on 31.7.97)
| Source : Project MIS
Reports.
| Programme
Officers Role in Managing Microcredit Programme : An Operational Guideline for
Inspection and Decision Making |  |
Md. Shaikhul Islam | |
1.
INTRODUCTION : Operationally,
a programme officer of a Microcredit NGO (MC NGO) is primarily responsible for
the credit program of one or more than one branch. He/she has to visit each of
the branches to supervise and monitor the credit program several times a year
and necessarily each visit is extremely important. To make each inspection fruitful,
a programme officer must have clear idea about the purpose of his/her visit and
the techniques that he/she will have to follow during the inspection. It is important
to mention here that the top, senior and mid level management of MC NGOs generally
take operational decisions primarily on the basis of the comments and recommendations
given by programme officers. So, a programme officers role is pivotal in
bringing success or failure to microcredit programme of NGOs. 2.
OBJECTIVES OF VISIT The
objectives of branch visit are as follows : i)
To strengthen supervision and monitoring system. ii)
To find out the true picture of credit program conducted by the branches. iii)
To evaluate whether the branches are on the right track or not. vi)
To follow-up the implementation status of decisions. 3.
DESIRED FEATURES OF A PROGRAMME OFFICER : a)
Orientation of work : Managerial b)
Approach/Attitude to work : Positive/Proactive c)
Skill : A programme officer must have or needs to develop three types of skill.
These do - i) Technical
Skill : Detailed knowledge about the works that he/she has to apply. ii)
Interaction Skill : Capacity to work with the branch staff, communicate with the
colleagues and lead the branches towards desired goals of the NGO. iii)
Conceptual Skill : Inherent ability to diagnose problems and foresee the future
scenario. d)
Role : A programme officer generally performs
three types of role. These are a)
Interpersonal role : A programme officer has
to perform some interpersonal functions. For example, contact with donors, other
NGOs and government organizations. So personality of the programme officer is
important here. Basically there are two types of interpersonal role. a.1)
Leadership role : It needs dynamic type of personality. A programme officer
who is go-getter can easily motivate others. a.2)
Liaison role : A programme officer should have the ability to interact
with outsiders and insiders (colleagues) b)
Informational role : A programme officer has
to perform different informational role. This role necessitates handling information.
A programme officer acts like a monitor, a disseminator and a spokesperson. b.1)
Role as a monitor : Everyday a programme officer receives a lot of information
from different internal and external sources and he/she has to monitor all sorts
of information to help decision making and eventually he/she becomes the nerve
center of his/her organization. b.2)
Role as a Disseminator : A programme officer
also acts as a conduit to transmit information to the members of his/her organization.
A Programme officer should make verbal contacts with the concerned personnel to
ensure free flow of information regarding activities, strategies, future courses
of action etc. b.3)
Role as a spokesperson : A programme officer is also a spokesperson of
his organization when he/she talks to outsiders (donors, other NGOs and government
organizations). A programme officer needs to be an expert in the dynamics of credit
program, legal matters and strategic planning. He/she should have good communication
skill and convincing power. c)
Decision role : A programme officer does not take decision but assists in decision
making. He/she suggests/assists his organization to solve pressing and important
problems. He/she will communicate policy/operation decisions given by competent
authority of his/her organization to its branches and other concerned organizations. d)
Effectiveness : An effective programme officer is one
who maintains quality and quantity of his/her responsibilities and attains satisfaction
of his bosses and motivates his subordinates. 4.
PERSONAL BEHAVIOUR OF A PROGRAMME OFFICER. A
programme officers personal behaviour is important in managing his microcredit
NGO. It is wise for the programme officer to treat the branches of his organization
as autonomous organs. Therefore the programme officers approach to the branches
should be convincing and friendly. It must be remembered that the programme officer
should not act as boss/master while visiting branches. The programme officer is
to assist the branches in the implementation of credit programmes. The programme
officers are not directly responsible for implementation of microcredit programmes.
Basically following are the main areas in which a programme officer has to be
careful in their personal attitude/behaviour. TO
DEAL WITH THE BRANCH MANAGER : While
visiting a branch, a programme officer should respect the dignity of the branch
manager. The programme officer should not make any impulsive comment about the
staff or the programme. He/she should not be rude to the branch manager. The programme
officer should not reprimand the manager for the problems and irregularities in
front of his/her junior colleagues. It would be wise for the programme officer
to avoid personality clash with the manager. Any negative approach in the inspection
process might hinder the achievement of the goals of the organization. Therefore,
the programme officer has to be careful about dealing with the manager. TO
DEAL WITH THE SENIOR MANAGERS : Senior
Managers of a branch play the main role to sustain the performance of credit programme.
They are generally the link between the top and bottom level management. While
visiting a branch the programme officer mainly needs to work with Senior Managers.
The Chief Executive Officer also gets things done by the Senior Managers. The
programme officers cordial and friendly behaviour may be helpful to get
the real picture of the branch. TO
DEAL WITH THE ACCOUNTANTS : The
Programme Officer should not make the accountants panicky while checking the books
of accounts and other relevant papers. The accountants are the main persons who
know every financial transaction of a branch. So to obtain proper explanations
from the accountants the programme officer should show cordial behaviour to the
accountants. TO
DEAL WITH THE FIELD WORKERS : Field
workers are the bridges between the grass root levels and the branch. They are
the end receivers of all decisions for implementation. Field workers recommend
for lending money to the group members. They know pros and cons of the groups.
The programme officer should show amicable behaviour/attitude to the field workers.
The programme officer should not make any harsh or negative comments about the
field workers in front of the group members because it can undermine the
credibility and personality of the field workers in the eyes of the group members. 5.
INSPECTION TECHNIQUES 5.1
METHODOLOGIES OF INSPECTION A
programme officer has to spend two or three days in each branch inspection. To
make this inspection meaningful, the programme officer must have clear understanding
about the methodologies of inspection. Basically, an inspection considers the
following methodologies : a.
Work at the branch office level b.
Work at the branch field level A.
Work at the Branch Office Level : There
is no scope for checking books of accounts and financial statements at random
sampling basis. Rather, the programme officer will give emphasis on thorough checking. B.
Work at the Branch Field Level : The
programme officer can randomly choose at least 10% of the total groups. Here two
groups must be visited thoroughly. If there are defaulting groups (current, doubtful
and expired) then the programme officer must select at least two such groups for
his/her 100% inspection. 5.1.1
TYPES AND SOURCES OF INFORMATION NEEDED An
effective inspection needs a lot of information to assess and subsequently to
monitor branch credit program vis-a-vis the organization and for this purpose
the importance of undistorted information is extremely important. So a programme
officer has to be careful about the types and sources of information. The following
are the main types and sources of information that a programme officer needs during
his/her inspection. 5.1.1.1
ACCOUNTING INFORMATION SYSTEM: OFFICE WORK A.
Accounting System : *
Cash basis/Accrual basis *
Double Column B.
Books of Accounts and Documents of Books of Accounts *
Cash book *
General ledger *
Subsidiary ledger *
Vouchers (Debit, Credit, Journal, etc.)
* Cash
memo *
Bank deposit slip * Bank
statement *
Bank cheque * Cheque
requisition form * Cheque
register C. Authorized
Cheque signatories. 5.1.1.2
MANAGEMENT INFORMATION SYSTEM (MIS): OFFICE AND FIELD WORK It
is desired that the branches must acquire and manage information effectively.
Lack and inefficient use of information are responsible for almost every operational
and management problem. Therefore an efficient MIS is always required for the
optimum improvement in financial performance and operational efficiency. Branch
MIS Formats of Credit Program *
Collection sheet for loan & savings
*
Weekly & monthly report for loan & savings *
Loan application & agreement form *
Group members attendance report *
Report on categories of loan *
Loan and savings pass book *
Loan & savings cash flow statement (cumulative & for the month) *
Income & expenditure statement (cumulative
& for the month) etc. The
information related to all the above formats must move among field workers, Accountants,
Branch Managers, Co-ordinators, Directors and Executive Committee. The information
"systems" are inter-linked and take into account almost every person
in the branch and the organization. The programme officer should 'map' the basic
information systems by using different components of MIS which are given below.
The map should provide the programme officer with enough data to access the organizational
capacity to manage its information. MIS
MAPPING FRAMEWORK
| Position
| Report
| Decision
| Supervision
| | Executive
Committee | | | |
| Chief
Executive | | | |
| Co-ordinator
| | | |
| Branch
Manager | | | |
| Accounts/Field
workers | | | |
Source: Inter
American Development Bank (Technical Guide) The
MIS MAP indicates who is responsible for specific output, what indicators &
reports are used to measure the organizational performance and how overall progress
is monitored. Once the map is complete, the programme officer can evaluate whether
the mechanisms in place are adequate or not. 5.1.1.3
TARGET GROUP INFORMATION : FIELD AND OFFICE WORK a.
Books of accounts/MIS: *
Loan pass book *
Loan and saving pass book *
Resolution book * Savings
register *
Attendance register etc. *
Membership card with photograph b.
Group dynamics *
Regular group meeting *
Awareness of group members regarding loan and
other development issues. *
Group cohesiveness *
Peer group pressure *
Attitude towards the organization/branches *
Weekly/monthly savings collection c.
Clientele *
Total number of Groups (male and female)
* Total
number of members (male and female) *
Cumulative loanee (male and female) *
Current loanee (male and female) *
No. of loans made *
Membership card 5.1.1.4
ORGANIZATIONAL INFORMATION: OFFICE WORK *
Constitution |