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
* Organogram
* General Body
* Executive Committee
* Chief Executive

5.1.1.5 RESOURCE MOBILIZATION: OFFICE WORK

* Donation/Grant
* Borrowing
* Group Savings

5.1.1.6 WORKING AREA INFORMATION: OFFICE WORK

* District
* Thana
* Union
* Village

5.1.1.7 HISTORICAL PERFORMANCE OF THE ORGANIZATION (SUBJECTIVE): OFFICE WORK

5.1.1.8 FINANCIAL INFORMATION: OFFICE WORK

* Financial statements and analysis of financial statements
* Balance sheet
* Cash flow statement
* Income and expenditure statement
* Profit and loss statement
* Ratio analysis etc.

5.1.1.9 CREDIT POLICY INFORMATION (CONSISTENT WITH THE ORGANIZATION’S GUIDELINES) : OFFICE WORK

* Definition Of target group members
* Lending method
* Duration of loan
* Instalment
* weekly
* monthly
* Loan conditions
* Categories of loan
* Service charge calculation method

5.1.1.10 INFORMATION RELATED TO ORGANIZATION’S INCENTIVE STRUCTURE: OFFICE AND FIELD WORK

a. Internal factors

* Main focus of the organization
* Trained, motivated & professional staff.

b. External factors

* Relationship of the organization with other organizations (e.g. banks, insurance company etc.)
* Relationship of the organization/branch with other Govt. regulatory agencies (e.g. Local Administration, NGO Bureau, Social Welfare etc.)
* Relationship of the organization/branch with its donors/lenders.

5.1.1.11 INFORMATION OBTAINING PERIOD

* Cumulative (since inception) for quantitative information
* For the month/from current visit to its previous visit (quantitative)
* Historical trend (quantitative)

5.1.1.12 INFORMATION RELATED TO THE ORGANIZATION’S/ BRANCH’S OPERATIONAL EFFICIENCY

* Field worker : Group member
* Field worker : Current loanee member
* Field worker : Outstanding loan
* Supervisor/Branch manager : Field worker
* Work plan of Field worker/Supervisors/Branch manager

5.1.1.13 INFORMATION RELATED TO DEMAND OF FUND BY THE BRANCH AND FROM THE ORGANIZATION : OFFICE AND FIELD WORK

The programme officer will assess branch loan demand in accordance with its position in the branch categories if any.

5.3 PROCEDURAL CHECKING OF DIFFERENT SOURCES OF INFORMATION : OFFICE WORK

Basically there are thirteen types of information with all their sub categories that are to be checked procedurally from all their sources. The programme officer has to check AIS, MIS & all other related papers cautiously and will ensure correctness. In this step the programme officer needs to apply his/her accounting/financial knowledge and mathematical reasoning ability.

5.4 CROSS-CHECKING & VERIFYING INFORMATION FROM DIFFERENT SOURCES AND PREPARATION OF FINANCIAL STATEMENTS: OFFICE AND FIELD WORK

After finishing procedural checking the programme officer has to cross check the information obtained from different sources. The purposes of this cross-checking are :

1. To establish relationship among different types and sources of information for comparison.

2. To correct any sorts of minor mistakes among different sources (e.g. clerical mistakes)

After cross checking the information, the programme officer can proceed to prepare financial statements like receipt & payment statement, income & expenditure statement etc.

5.5 LISTING AND FORMATION OF CHECKLISTS ON THE BASIS OF INDICATORS: OFFICE WORK

The next step is to prepare checklists on the basis of the indicators that will be found correct. In this step, the programme officer has to pay his/her careful attention to each of the indicators and checklists. If the programme officer misses any indicators then he/she will have to start from the beginning. The basic checklists are provided in annex – 1. Generally, the programme officer will go through the checklists carefully and tick on the status and give his/her comments and then can take preparations for entering into the decision making process.

6. DECISION MAKING PROCESSES

The purpose of inspection is to assist in decision making and implementing the decisions. Through inspection programme officer assesses whether the branches are on the right track or not. The programme officer should give emphasis on assisting the management to take right decisions. Any minor loopholes in decision making might endanger the whole programme. For example, if the programme officer does not look into the low attendance rate of the group members in group meeting (<80%) and subsequently recommend to sanction loan in favour of the concerned branch and if the management sanctions the loan on the basis of the programme officer’s recommendations then it will be a wrong decision. Because, low attendance rate of the group members in the group meeting indicates that the supervision & monitoring of the branch is not up to the mark, group members are not well aware of the purpose of meeting. Decision making process can be best described by the following figure -

Figure: Decision making processes

6.1 LOGICAL ANALYSIS OF THE CHECKLIST INDICATORS:

To minimize the huge task during an inspection the status of the checklist indicators are classified simply into 3 categories as follows :

a. OK

b. Moderately OK

c. Not OK.

The programme officer will just tick on the status and can find irregularities.

6.2 ASSUMPTION SETTING

Next step for the programme officer is to set assumptions on the basis of the findings of logical analysis. This step is very important indeed because a correct assumption can enhance the diagnosis process to find out the exact position of the branch.

6.3 CRITICAL REASONING OF THE ASSUMPTIONS :

This step will help to identify the reasons behind the assumptions.

6.4 FEASIBILITY OF COMMENTS :

In this step, the programme officer can discuss his/her assumptions with the management of the organization or with his/her supervisors to find out the most feasible explanations for specific comments.

6.5 COMMENTS :

When the programme officer feels confident that his/her findings are correct, then he/she will give his/her specific comments.

6.6 RECOMMENDATIONS :

The programme officer will suggest the necessary measures.

7. AN EXAMPLE OF DECISION MAKING PROCESS

If the programme officer identifies (after correcting clerical mistakes) a big difference (> Tk.10,000) between the realized service charge amount and the realized principal amount posted in the General Ledger, then the programme officer will proceed according to the following ways -

a. Status of logical analysis : Not OK

b. Assumption : Service charge account is not correct

c. Critical Reasoning :Why the account is not found correct?

POSSIBLE REASONS :

a) Accounts and financial statements are not examined and analyzed properly by the persons responsible i.e. MIS framework is not properly inter-linked.

b) If the amount of service charge is found less in comparison with the realized principal amount, then the branch possibly -

* Adjusted the principal amount from the service charge, or

* The service charge amount has been transferred to another heads of accounts, or

* The service charge is overdue.

c) If the service charge is found more in comparison with the realized principal amount then the branch possibly -

i) Amalgamated another heads of account with the service charge head, or

ii) There is advance service charge realization.

d) Feasibility of Comment :

The programme officer can present his/her findings to the branch manager and discuss the issue with him. If he fails to give any proper explanation, then.

e) Comments :

i) Service charge account is not ok.

ii) MIS framework is not properly inter-linked and the management of the branch is not much careful.

f) Recommendations :

i) The branch should be more careful about maintaining books of accounts and preparation and analysis of financial statements.

ii) The branch should be more careful about inter-linking of MIS framework and the management should ensure it.

CONCLUSION :

It is hoped that the guideline presented in this paper will be helpful to programme officers for day to day inspection and monitoring of microcredit programme.

Annex – 1

OVERLAPPING PROBLEM IN MICROCREDIT OPERATIONS
- Md. Hasan Khaled

INTRODUCTION

A common phenomenon that has emerged as a significant impediment to the smooth functioning of Microcredit Operations³ (MCOs) is that of overlapping. Unhealthy competition among microfinance institutions⁴ (MFIs) in luring one another’s beneficiaries has been retarding the pace of development of MCOs.

This paper sheds light on the adverse effects of overlapping in the microcredit industry in the light of the current situation prevailing in the country and offers a guideline for Palli Karma-Sahayak Foundation (PKSF) to combat the overlapping problems faced by its partner organisations (P0s).

THE NATURE OF OVERLAPPING

Overlapping occurs when the same beneficiary receives credit and other economic facilities from more than one source. In fact it may occur when the MFIs expand their operations horizontally or geographically. Overlapping can take different forms as follows :

Overlapping among different adjacent branches within the same organisation.

Overlapping among groups within the same organisation.

Overlapping among organisations working in the same operational area.

Rapid growth of MFIs over the past decade can be said to be the single major reason of overlapping in the country. Mushroom growth of MFIs in the neighboring district towns in and around greater Dhaka has pushed the problem of overlapping in Dhaka region almost to the extent of a crisis situation. Khulna, Rangpur, Dinajpur and Bogra are also following the footsteps of Dhaka and the situation is worsening day by day. Added to the problem of overlapping, there is a closely related problem of multiple membership i.e. membership in one or more MFIs from a single household.

EMPIRICAL EVIDENCE OF OVERLAPPING IN MC0s

The problem of overlapping has been observed by the author of this paper and his colleagues during their field visits. The findings from a recent study on PKSF MES by the Bangladesh Institution of Development Studies (BIDS) depicted the extent of multiple membership and overlapping in MCOs. The study shows that 11% of the participant-households have two or more members from the same household in the same NGO⁵. Majority of these households has one male and one female member with the same NGO, followed by cases with two or more females. Cases of two or more male membership with the same organisation are rather insignificant. Out of 8165 households surveyed, only 39 were found to have two or more male members associated with NGO programmes. An overwhelming majority of the surveyed households, however, had single female member.

While multiple membership in a single household may or may not belong to a single NGO, BIDS findings on participation of a single member in more than one NGO were rather phenomenal. Sixteen percent of the households surveyed were found to participate in multiple NGO activities. Of the households with single male membership, 4% were enrolled with multiple NG0s while 13% of the households with a single female membership were associated with multiple NGOs. Among households with one male and one female membership 58% were involved in multiple NG0s.

Needless to say, the problem of overlapping is intense which, if not put to a hold immediately, would put the entire MC0s of the country into serious trouble.

EFFECTS OF OVERLAPPING

The adverse effects of overlapping can be described from both the borrowers and the lenders side.

Borrowers : It has been observed in most cases that a single MFI could not fulfil the 1oan requirement of its borrowers. As a result, the borrowers are compelled to borrow loan from other nearest MFIs. But the accumulated loans become bigger than the borrowers requirement. Borrowers who take loans from the MFIs have to start periodic repayment within a few weeks of the receipt of the loans. They hardly have enough return from their investment to make such repayment. Under the circumstances when members receive loans from multiple sources, the burden of making bigger instalments payment becomes even harder, which in many cases result in default. Thus the downtrodden mass of the country, who have proven to be good repayers of loans come under the grip of a much loathed default culture. There is another finding that is to cheat the MFIs. Some mischievous members borrow loans from different MFIs by providing false information. One must not forget the proverb when lending that ‘Man is a good borrower but a bad paymaster.’

Lenders : As already mentioned, the unbriddled growth of MFIs in the district towns have contributed significantly to the problem of overlapping in the micro lending operations of the country. Many of these MFIs operate from the district towns because these places have physical infrastructure facilities to make donor movement convenient. Moreover, these MFIs are rather reluctant to operate in the remotest parts of the country owing to the shortage of fund to cover the unpredictable risk of microcredit management and insufficient infrastructure facilities to make donor movement convenient. The end result is that the NGOs engage in an unhealthy competition for enticing one another’s members within a stipulated territory to join their respective organisations. This happens even to the extent that these members are encouraged to default their loans with their previous lenders. Besides these, some target oriented MFIs attract the rural people with false promises. In this way they take borrowers from other MFIs with a view to fulfilling their target.

According to a research paper published by the Association for Social Advancement (ASA), unhealthy competition among the micro financing institutions (MFIs) working within the same operating territory influences the creation of default. More than 80% of the respondents who were surveyed agreed to this view. This report corroborates the negative effects of overlapping mentioned above.

STEPS TO REDUCE OVERLAPPING

The following measures may be taken to deal with the problem of overlapping

Co-operation among MFIs which are working in the same areas ;

Adequate MIS is required to sort out overlappers ;

MFIs which are working in the same areas may arrange weekly meeting on the same date and at the same time ;

Voters identity card and computerised data base system can play vital role to reduce overlapping.

THE ROLE OF PKSF IN CURBING OVERLAPPING

Palli Karma-Sahayak Foundation (PKSF) in its short spell of eight years has established itself as the apex financier of the MFIs engaged in MCOs across Bangladesh. As of 30 June 1998, PKSF has extended credit facilities to the extent of Tk. 367.75 crore through its 170 partner organisations (P0s) covering 21,000 villages of 1728 unions under 313 thanas in 58 districts of the country.

Conceivably, it is not in the hands of PKSF alone to contain the spread of overlapping. Utmost co-operation among NGOs is essential prerequisite for solving the problem of overlapping. It is worth mentioning here that overlapping cannot be completely eliminated from the system considering the fact that an overwhelming majority of the country's 120 million people come under the umbrella of landless, assetless poor. However, PKSF can play a very noteworthy role in curbing the problem through the formulation of appropriate policies and implementing the polices in this regard. Along this line, the PKSF issued a circular to all its partner organizations (POs) – the PKSF supported NGOs - making it mandatory for each of their members to have identity cards along with two copies of photograph. The decision was made to identify fictitious borrowers as well as to detect overlappers through mutual verification of ID cards by the P0s. PKSF allows its POs to expand their operations but at the same time advises them to avoid any overlapping while expanding operations. To avoid overlapping all loan proposals made to PKSF are required to include the names of the existing MFIs, active POs of PKSF and new applicants to PKSF in the operating areas of the POs.

RECOMMENDATIONS:

In light of the above discussions PKSF may take the following measures to curb Overlapping.

PKSF should be highly careful while selecting new P0s from MFI intensive areas.

It should place emphasis on the vertical expansion of its P0s located in the MFI intensive areas.

PKSF should give priority to those MFIs or new applicants who are interested to extend their MCOs among the hardcore poor who have so for been left out.

Last but not the least, PKSF should make it a policy to reject new applicants that have a large magnitude of overlapping problem.

LITERATURE CITED

Rahman Atiur, Md. Abdur Razzaque, Mirza Md. Shafiqur Rahman, Syed Naimul Wadood, Mohammed Abu Eusuf, Shamsul Haque Mondal. 1998. On Reaching the Hard Core Poor : Redefining the NGO Strategy. Bangladesh Institute of Development Studies (BIDS). Dhaka.

AN ANALYTICAL DISCUSSION ON PERFORMANCE EVALUATION OF TRAINING BY QUANTIFIABLE TARGETS AND MEASURES
- Abdus Samad Mallick

The general philosophy which underpins the quotation ‘The Ability to Establish Quantifiable Objectives and Targets and Measures of Performance is Basic to the Evaluation of Training’ is that training should be evaluated. The words ‘training’ and ‘evaluation’ have broad definitions and it is necessary to consider these definitions before describing techniques for evaluating training with a view to establishing quantifiable objectives and targets and measures of performance of training. There is no generally accepted definition of the word training. It has been defined in this way: ‘The systematic development of the knowledge/skill/attitude pattern required by an individual in order to perform adequately a given task or job’.

In the context of training, ‘the assessment of the total value of a training system, training course or programme in social as well as financial terms is called evaluation. Evaluation differs from validation in that it attempts to measure the overall cost-benefits of the course or programme and not just the achievement of the laid down objectives. The Term is also used in the general judgmental sense of the continuous monitoring of a programme or of the training function as a whole’. Cost benefit analysis implies that the benefits of the training output must be converted to financial benefits, but often this is not possible. The total value of the programme in social terms is simply not something that one could ever evaluate economically.

Evaluation should include the value placed on the programme by the participants as well as by the organisation and it should not be restricted to behavioural objectives. It is better to take evaluation as a general term to cover the whole area. In this respect, Goldstain (1980) offers a broad definition, ‘Evaluation is the systematic collection of descriptive and judgmental information necessary to make effective training decisions related to the selection, adoption, value and modification of various instructional activities’. The importance of evaluation in the training process is constantly emphasised. Trainers are frequently reminded by various authorities that they should investigate the effects of their training programmes. In any evaluation exercise the key question is from whose standpoint the evaluation to be made, and by what criteria? At least four main parties are involved in the transactions or training.
(1) the trainees themselves
(2) The trainees’ employers
(3) The agency which is funding and
(4) the training institution that is actually providing the course of study and training.

Objectives : It has to be recognized that individuals as well as organisations have some objectives, based on their experience, knowledge, attitude, behavior, home background, outside interest etc. These objectives can be quantified with a view to evaluating training course. Participants also have objectives which are more powerful motivators than those of the organisation. The evaluation should show the extent to which organisational and individual objectives have been met by the programmes. It may be helpful if the trainer thinks in terms of objectives at three levels.

Ultimate objectives : The particular defects or defeats in the organisation that he is hoping to eradicate.

Intermediate objectives : The changes in employees’ work behaviour that will be necessary if the ultimate objective is to be attained.

Immediate objectives : The new knowledge, skills or attitudes that the employees must acquire before they will be capable of changing their behaviour in the required way. It may be pointed out that these three levels of objectives are not always of equal relevance. These levels of objectives are really used in a broader sense. As far as possible training objectives should be framed in a manner which will facilitate measurement. It is easy to say, but much harder to achieve in this way. Nevertheless, objectives are useful tools in the design, implementation and evaluation of training.

The characteristics of useful objectives are:

Performance : An objective always says what a learner is expected to be able to do.

Conditions : An objective always describes the important conditions (if any) under which the performance is to occur.

Criterion : Wherever possible, an objective describes the criterion of acceptable performance by describing how well the learner must perform in order to be considered acceptable.

to encourage effective interpersonal relationships among members of various services for lasting impact in their future service career.

Targets : The evaluation inherent in the performance review system is centered on targeting results. If a target is not properly formulated in the first place it is unlikely that the results can be measured and so the process will fail. Some people try to equate targets with aims or goals, but neither of these expressions meets the case in terms of the precision required of a target. Since in our evaluation we seek to establish whether or not a target has been met, we can only do that if it is precise and therefore measurable. A general definition of aim, goal and target will give a clear distinction among them.

Aim : The general direction in which the job is pointed.

Goal : Expanded aim¾ more specific and detailed.

Target : Precise, unambiguous and based on performance, including conditions.

For example : If a target is easily quantifiable it is much easier to decide whether or not it has been met, as exemplified below:

(i) If a salesman’s target requires him to sell a given number of products in a given time, it will be obvious whether he has met it or not. It is important to establish what factors may have prevented him from reaching his target. Some may be completely outside his control say, changes in the law affecting credit agreements or failure of the factory to deliver the goods on time, although he may have a limited influence in the later.

(ii) Example in the case of a field service engineers job. To respond within X hours to every customers complaint received, evaluate it and rectify faults in accordance with the product service manual and return to customer within Y hours in at least 80% of jobs. Effectiveness of work to be such that no rework for the same fault is necessary. So the target is quantifiable and it specifies a response time, conditions laid down in the service manual, a turn around time and the number of completed jobs satisfying these requirements as a percentage of the total. The standard of work to be achieved is measured by the need for rework for each fault.

Measures of performance : In view of the above aspects, it is clear that effective transferability from training to job demands that the training itself is directly work related. The participants are capable of converting theory to practice in their jobs and the measurements are in the job rather than in the training.

Strategies for evaluation may be classified into a few basic types. Of these, five seem to be particularly relevant to training events, in order to clarify the assumptions and what measurement procedures will be appropriate for them.

The Systems Approach : Here, the training is considered to be a sub-system within the overall organisation system. The evaluation of training is carried out for management planning, policy development and accounting purposes. It implies efficient contribution to organisational goals.

The Goal Based Approach : In this sort of evaluation, goals are set and the evaluation process is an attempt to discover to what extent they have been achieved. Trainees are offered detailed objectives as goals, and evaluation is in terms of the number of objectives attained by individuals or by the group. The objectives were based upon performances derived from job analysis and therefore there is no problem of transfer of training. For example: -- training of armed forces.

Goal Free Evaluation : In this system, the achievements of the programme are considered to be those identified by the participants themselves, that is, whether it met some of their needs. It is then possible to pick up unintended effects as well as those expected by the programme organisers. Goal free methods are worth considering when it is necessary to evaluate management training events where reasons for attending vary widely and where the participants go back to a variety of jobs.

The professional Review Approach : Most of the professional training is based upon syllabi recommended by the `Academic Affairs’ Committees of the appropriate professional bodies. This is what we call the professional review approach. Organisations might attempt to use a professional review for internal and external courses. They would need to consider the relevance of the syllabus to organisational requirements as well as the breadth of coverage and quality of the programme.

The Quasi Legal Approach : In this approach, a panel is set up and witnesses are called to testify and submit evidence. Great care is taken to hear a wide range of evidence-opinions, values and beliefs from the organisers of the programme and the users right through to those who will say, `we can’t afford it’ without any real idea of what the programme is doing. It may be carried out by weighing the evidence for and against and what it actually contributes to the effectiveness of the organisation.

One thing should have become clear from the consideration of the various approaches described above that evaluation is never the absolute truth. The systems and goal based approaches aim to collect `hard’ facts which are objective and others which are subjective in their method of collecting information but attempt to get at a wider `truth’. We ought to establish whether the training has done some thing to develop knowledge or to help people acquire the skills, attitudes required by the definition of training.

Knowledge : All jobs require the incumbent to have some knowledge and most jobs can be described by the sort of knowledge required at three levels.

Knowing a range of simple facts, recalling lists, stating simple rules.

Knowing the range of procedures, how to do thing, how to order sets of actions.

In a particular situation, recognising the key features, and therefore, being able to select the most appropriate procedure.

The traditional way of assessing knowledge is by the use of essay type of questions. This method of assessing is quite inappropriate in training. So, training to the desired level and testing at that level may be taken into consideration. If training is seen as an increase in knowledge, then the first stage evaluation should be to measure pre-training and post training knowledge so that the gain due to training can be estimated. When the testing is done with the same test a gain ratio can be calculated:

                       Post test score – Pre test score
Gain Ratio = ----------------------------------------------- x 100
                       Possible score – Pre test score

This gain ratio is a useful measure of knowledge.

Skills : As with knowledge, it is helpful to look at different levels of skills, decide what levels are required for satisfactory job performance and then train to that standard. Skill should usually be tested by practical tests which fall into two main types :

The trainee is set a task and the work is inspected at the end of the test period.

The trainee is set a task as above, but he is marked throughout the test on the methods used as well as the end result. So, practical testing of skills, whether by examining the products or the process is only reliable if a detailed marking guide is used.

Attitudes : This is a very confused area in which to attempt evaluation because many trainees are actually trying to change attitudes but calling it skills training. An attitude is a pre-disposition or tendency to behave in certain ways whereas skill is an ability to do something well. Attitudes are usually inferred from what people do or say but changing an attitude is not sufficient to change what they do or say. People behave in ways which they believe to be appropriate to the situation in which they find themselves.

Evaluation is usually in terms of whether the participants perceive a change subjectively which may be self reported. Often this is informal, an end of event discussion and statement of what one participant has learned. A formal approach can be achieved by a technique known as the semantic differential. In this method each participant is asked to rate selected concepts covered by the course, such as `participative management’ against a series of bi-polar scales. In order to assess attitude change it is necessary to use the scale before the course and then at some time (say 3 months) afterwards. The information collected can be used to assess individual change or group change.

It is possible to follow up changes in attitude but very hard to get actual results. It is assumed that changes in attitude are linked to changes in behaviour. It is better to enlist the help of (employing) managers using pre-post questionnaires to rate how frequently the participants show the desired behaviour. So this is measured pre/post by managers as well as participants to ensure a reasonable level of transfer of learning and to get at behaviour as well as attitude change.

Throughout this discussion, training has been considered as a process of change which helps people to learn how to become more effective at work. The bottom line for training and development is the results achieved by the training product which are measurable for the time and funds invested. Now it is clear that the ability to establish quantifiable objectives and targets and measures of performance is basic to the evaluation of training.

References :

Glossary of Training Terms - 1969
Goldstain – 1980
Bramley - 1986
WARP, BIRD and RACKHAM – 1970
MAGER – 1975
Robinson – 1986
BPATC, Annual Report 1984 - 85

QUALITY IN TRAINING MANAGEMENT
- Md. Mosleh Uddin Sadeque

Many people in different organizations around the world believe that training of people is easy. They are right. The only problem is that managers forget to apply some of the basic training principles and consequently end up with perpetual low performance of the very people they are supposed to manage. Many managers have apparently not yet learned that their employees are working far below their capacity. There is a huge waste of intellectual resources in many organizations. It is undesirable for the people concerned, for the organization, and for the society.

Every organization either financial or non-financial is established with a set of mandates which it strives to achieve by undertaking various kinds of activities. While formulating training programme of an organization for carrying out inter-related but multiple functions, quality factors like internal priority, job demand, management directives, capability experience, perception, national priority, administrative decision, clientele demand etc. need to be taken into consideration.

Aggressive quality and performance goals require strong training plans and practices to ensure that employees maximum potential is utilized. A financial institution must demonstrate that its training plans are driven by the quality goals outlined in the strategic business plan. The process of empowering employees requires organizations to have effective training programmes. However, training should not be approached on hit – and – miss basis. Management practitioners anxious to make their presence known to its staff, may be prone to suggest training as the panacea for all organizational ills and as a quick sure fire solutions to a given problem. This is the main setback of training in different organizations.

Trainers are increasingly being asked to help their organizations benefit from quality revolution (Cocheu. 1989). The total quality management perspective represents a tremendous opportunity to redefine the training strategy. To apply the total quality management approach training must be defined in the context of the total system of individual and organizational performance.

The quality training management especially in a financial institution can be divided into five interdependent processes as follows :

a) LEARNING GOALS :

The goal formulation occurs at macro level. A specific goal should be predetermined based on the needs of the individual staff as related to his job. This will lead to the fulfillment of critical value-adding (CVA) processes having four key steps as follows :

Set up goals for added value
Establish learning goals during and after CVA.
Ascertaining the variation in achievement of CVA standards.
Feedback and problem solving with key stake-holders.

b) TRAINING PLANS AND STRATEGIES :

The training plan and strategy specify how training resources to be deployed with whom and what schedule. Determining training strategy is most appropriate as the image of training program is unclear, diffused, disturbed or misunderstood. Today many organizations are focusing on production and total quality management as a way of competing. Training managers must understand such shift and practices.

c) LEARNING TRANSACTIONS :

The process includes doing everything to ensure that trainees learn what they are supposed to learn in the most effective and efficient manner possible. The effectiveness of training will depend not only on the relevance of training needs identified, but also on the mutual reinforcement between training and multiple methods of training. A training manager must have the quality in designing training programme using multiple techniques of training.

d) LEARNING INTO ADDED VALUE :

For transforming learning into added value to the organization, learning must be long-lasting and be applied to the workplace to enhance organizational performance. The commitment to continuous improvement is essential to the training quality management approach.

e) MEASURING TRAINING QUALITY :

When a training course is designed and implemented, the training quality can be measured using the following well known formula :

                                               PT₁ – PT₂
Training quality (TQ) = ---------------- x 100
                                                AP – PT₂

where PT₁ = Post test performance

PT₂ = Pretest performance

AP = Attributed performance at work

PT₁ and PT₂ would have to be derived from training class and AP need to be derived from workplace.

A total quality management approach to training is not a cook-book approach that can be applied in the same way. Training managers must know what the various training techniques are and aim of training should be to inspire action rather to fill with knowledge.

All the processes described earlier should be met in an acceptable manner as it requires skills in analysis, synthesis, creation and communication. Action to develop institutional capability to build, improve and maintain the organization is indispensable because the culture and structure of each organization are different and the needs and opportunities, particularly, in financial institutions are constantly changing. The purpose of training is to enable people to become more effective at their jobs by helping them to learn more quickly and effectively through managing the total quality of training.

LITERATURE CITED

Cocheu, T.1989. Training for Quality Improvement.Training and Development Journal 43; (11), 56-62