Best Practices and Standards

A case study prepared by the United Nations Development Programme, National Anti-Poverty Commission, People’s Credit and Finance Corporation, and Asian Institute of Management entitled “Delivering to the Poor:  A Search for Successful Practices in Philippine Microfinance” made a comparison of the current practices among seven MFIs for the successful delivery of microfinance services.  The seven MFIs include two NGOs (Negros Women for Tomorrow Foundation and Urban Poor Livelihood Finance and Training), one NGO-turned-rural bank (CARD), three rural banks (Producers, Mallig, and Highlands <disguised name>) and one cooperative (Bansalan).  The case study yielded common core practices that ensured success in microfinance.  In general, all of the key practices that led to and defined success tended toward the attainment of the following main goals of microfinance: impact on clients, outreach and sustainability.

In general, the MFIs concurred on the matter of classifying as effective practices those that directly contributed to the extension of outreach and at the same time, directly or indirectly, supported sustainability.  Among the interlinked practices that ensured outreach were the following:

• Strong sense of mission to grow and to reach the poor
• Directed selection process to ensure that services are given to the poor
• Rigorous client preparation on the rules, commitments, accountabilities, and benefits of the program        
• Calibrated loan policy and criteria for eligibility to ensure that products are attractive to the poor
• Responsiveness to client needs by implementing research and feedback mechanisms, modifying existing products and delivery systems, and designing new products and delivery systems

According to the case study, institutional sustainability is vital to the organization if indeed the poor are to be effectively reached with continuing and efficient microfinance services.  Critical to directly achieving and supporting sustainability were the following core practices:

• A sustained high portfolio quality directly resulted from strict adherence to credit discipline.  Also affecting it was the design of the product/delivery systems that factored in the following features:

• Mitigating risks in lending by creating policies that support viability in site and client selection, loan policy basis on ability to pay, checks on loan utilization, incentives to prompt repayment

 

• Mitigating risks arising from household vulnerabilities by offering mutual aid funds, emergency loans, savings, and microinsurance

 

• Consistent delinquency management and loan recovery that supported high repayment rates and operational viability.  Loan tracking mechanisms were basic tools to monitor loan status, quality of portfolio and repayment performance.

• Tight internal control meant dealing with tens of thousands of small accounts, millions in cash collections and disbursements, controlling costs as well as reducing risks of fraud and “in-transit” losses.

• Improvements in efficiency and productivity that multiplies the volume of lending and repayments that increased asset turnover and income generated.

• Loan policies that accelerated asset turnover and optimized personnel deployment modes that brought peak productivity levels in a shorter time.

One key management issue that was highlighted in the case study is the role of leadership in an MFI.  It was observed that across the MFIs subjected to the study, the Board of Directors and top management showed commitment and support for the venture into microfinance.  Top management’s direct involvement was observed at every stage of microfinance operations.  The management of MFIs that adopted microfinance carried out organizational restructuring by adding a microfinance department.  Clear bank policies and procedures were established and linked to current systems, which brought effectiveness and efficiency to the organization.

Another key issue mentioned in the case study is the human resource development of an MFI’s staff.  Since the frontline staff is the implementer of an MFI’s lending program, staff development should give priority to the recruitment, training and close monitoring of field staff.  Even from the start, field staff should imbibe the commitment to endure the very demanding conditions of working in urban and rural poor communities.  Mature MFIs valued continuous training at all levels of the organization including middle and senior managers and back-office staff. 

• “Delivering to the Poor:  A Search for Successful Practices in Philippine Microfinance”, United Nations Development Programme, National Anti-Poverty Commission, People’s Credit and Finance Corporation, and Asian Institute of Management entitled, December 2003

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