Occasional Papers: Vol:1 December 1998 No.1

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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

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:

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 Bank’s 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 lender’s 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

Annex-2

Statement on Savings Mobilisation by Top 20 NGOs as on 30.6.97

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)

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 officer’s 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 officer’s 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 officer’s 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 officer’s 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

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