Innovation · Microfinance · Opinion

Increasing Microfinance Productivity

Photo by me of rural microfinance center meeting near Bangalore, India in September 2007. The gentleman in the middle is the loan officer from Grameen Koota MFI. The woman to his right is the elected center leader for this group of 30 women. The others were part of our Unitus Partner Expedition trip which my wife & I hosted … enabling westerners to get a hands-on experience of microfinance.

Last week, I was in the Philippines for the Unitus Leadership Summit, an annual gathering of some of the globe’s top social entrepreneurs running many of the most innovative and fastest-growing microfinance institutions in some of the poorest areas of the world. It was a privilege to listen in on sessions where they shared what was working, what wasn’t, their challenges and their aspirations. While some of them are considered competitors, they shared very openly about the experiments they were doing in areas such as mobile banking, product development, increasing operational efficiency, raising capital, high-capacity staff recruiting and training and more.

One of the most fascinating topics was their focus on innovating to increase the productivity of their largest group of staff, loan officers. Loan officers are the front-line staff who directly provide financial services (including microcredit) to their bottom of the pyramid customers and make up 70%+ of their staff count. If they can increase loan officer productivity, their whole cost structure goes down and ultimately they can pass the savings on to the customer in the form of lower interest rates. So, this is a very important metric!

Many MFI’s are happy if a single loan officer can serve 300 clients at a time. [Remember the loan officer goes to the client and often they meet once per week with every client, so the number of touchpoints and travel time is significant.] The conversation started off with how they were not satisfied that 750 (!) clients per loan officer was the maximum productivity. Many of them are now reaching this level of productivity. They get to the 750 number as center groups of 50, 3 center meetings per day and 5 days per week. Of course, there’s the recruitment of new members, new member training, follow-up on members, data entry, various paperwork, etc. which also needs to be done.

So, we had a brainstorming session on ways to further increase productivity without overloading a loan officer. Here are some of the ideas that came up:

  • Reduce the maximum radius to client location to 10km (usually now further)
  • Collections every 2 weeks (half the # of trips/meetings)
  • Deploy handheld/wireless devices to loan officers to reduce paperwork and cash-handling time and cost of float (and reduce group meeting time)
  • Create pre-printed stickers to put in client passbooks (rather than having to handwrite each entry in each passbook…loan officer has to do this as most women are illiterate)

But then the discussion went in a different direction … rather than focusing on the # of clients per loan officer as the productivity metric, why not focus on margin generated per loan officer? This has a number of implications and issues including:

  • This would encourage innovation around offering additional products to clients so that meeting times have a lower relative transaction cost. e.g. if you also provided insurance products or health products in the same client meeting, there is a much smaller incremental cost as the meeting is already scheduled.
  • Would loan officers be able to handle a broader range of products well?
  • Would this type of focus increase or decrease client retention long-term?
  • Will loan officers then seek to focus on less poor clients who have capacity for say larger loans with more margin?

So, there wasn’t any silver bullet and with every attempt to innovate there is going to need to be experimentation and refinement. But, I really liked the continuous improvement attitude that they demonstrated and the willingness to challenge the current status quo thinking.

4 thoughts on “Increasing Microfinance Productivity

  1. I like the idea of preprinted stickers or use of stamps to reduce handwriting time. Are the payment sizes already standardized? Adding services to the load of a loan officer is about balancing incentives and perceived trust. Financial incentives to the loan officer might help retain loan officers in the long run. If the personal financial incentives are too high then the loan officer might turn into a pushy salesman chasing away clients. Can you provide financial incentives for helping the poorest clients reach milestones?

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  2. In the majority of cases the payment sizes are pre-defined. You can always have an exception and revert to a manual process. Overall, handling exceptions only in this way is more efficient.What kind of milestones are you thinking of? Clients already have incentives for online payment…they generally get access to new/better products.

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  3. I’m thinking incentives for the loan officer to help his poorest clients reach milestones. It could be cash or recognition incentives for the loan officer. It could be savings milestones for the client. I am thinking the poorest clients in this case, the ones who tend to get left behind as MFIs move up market. I like the idea of savings matches for the poorest as well. or what if the group has special incentives to help the poorest in their community reach milestones. A match of group savings? a party? regional recognition?

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  4. I think thats a very interesting idea. on the field, we often see adverse selection primarily from clients themselves, with the poorest getting selected out of groups and centers. Having an incentive for the center to inlcude ‘ultra poor’ within their center, or group could be a great way to encourage financial inclusion (the group and center would still decide on the apropriate risk level, but at least have clients availing financial services)

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