Microfinance Blues
Microfinance Blues
I provided consultancy services with a small church-based microfinance institution the past two FCNSP years. Among the proposals I made refers to the strengthening of the structure of the organization, both the management team and the decision-makers. I also emphasized that the technology used in microfinance should be defined and strictly enforced. Finally, microfinance should be a focused activity. The staff should not be utilized in other areas that are not related to microfinance operation.
Sadly, the recommendations were ignored. The key person who decides on the program juggled from microfinance to other social concerns where the church is participating. It has dragged its staff to other programs neglecting the maintenance of the microfinance operations.
So what are the realizations on the experience of the MFI? First, noble intentions for the poor are not enough. Bleeding hearts may continue to hemorrhage but helping the poor requires technology that can effectively help a big number of the poor in a sustainable manner. We need to be serious in ensuring that the methodologies we use are appropriate.
Second, there will always be non-payments and defaults. The systems and policies should provide for loan-loss provisioning to cover losses. Writing off bad loans will mean decrease not only in the portfolio but the total assets of the institution. Decrease in the earning assets will mean decrease in income, also affecting the capacity of the institution to provide better and expanded services, and may imperil its long-term sustainability. Zero tolerance to default should be a primary policy of any microfinance institution.
Third, client drop-outs is a reality that has to be addressed before it gets out of hand. There are many reasons why a client will drop-out: non-payment, transfer of residence, transfer to a microfinance institution with better services, “meeting fatigue”, the institution cannot FCESP provide for higher loans. These reasons can be addressed creatively by the institution. Pro-active initiatives should be employed so that the clients will develop the loyalty.
Staff turn-over is the fourth concern that plagued most institutions that failed. Pouring out resources to the clients and neglecting the staff will surely reduce the number of staff of the institution. To think that it is hard to find good workers, much less retain them, staff development and the career path development will inspire staff to be loyal to the institution.
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