the microbanking bulletin - Microfinance Information Exchange

More documents

Recommendations

Info

FEATURE ARTICLESsubject to a higher penalty. However, it is alsocounterproductive to penalize short-term arrears(say, from 1 to 7 days) too heavily since it wouldmake loan officers overly risk-averse and have anegative impact on productivity. This train ofthought could be factored into the model byassigning different weights to different agecategories. Furthermore, if delinquency is a seriousconcern for an institution with a large portfolio, theformula could be improved by changing the purelyadditive calculation contained in the example aboveinto a multiplicative link between outstandingportfolio and arrears level, thereby making it muchmore sensitive to portfolio quality.At a more general level, some readers may takeexception to this article’s focus on financialincentives. Indeed, there are many other andpotentially more powerful factors that influence anindividual’s job performance. Opportunities to receivefurther training, opportunities for advancement,social status, the sense of a common“mission”, and last but not least, the feeling ofcontributing to local or national economic and socialdevelopment are important components of loanofficers’ job satisfaction and performance.Nevertheless, loan officers are normally “rational” inthe economic sense, and few would deny thatfinancial incentives do provide an important stimulus.It is important to inform potential loan officercandidates during the selection phase if aperformance-based incentive system is in place oris to be introduced. This will help to screen candidatesby ensuring that they are willing to align theircompensation expectations with the MFI’s goals,and to be compensated on the basis of theircontribution to those goals; it will also help to sortout risk-averse individuals. Despite the generallimitations of monetary incentive systems, theyhave proven their value in practice.Martin Holtmann is a Managing Director of IPC. He isbased in Moscow, working with several commercialbanks in the EBRD Russia Small Business Fund project.The author would like to thank Andreas Francke, BryanNielsen, and Ralf Niepel, all from IPC, for many usefulinputs and suggestions.10 MICROBANKING BULLETIN, APRIL 2001
FEATURE ARTICLESWe Aren’t Selling Vacuum Cleaners:PRODEM’s Experiences with Staff IncentivesEduardo BazoberryMany people in microfinance are familiar withPRODEM because it was the NGO that createdBancoSol, the first commercial bank solely dedicatedto microfinance. Since BancoSol’s creation in1992, PRODEM has quietly gone about doingsomething more challenging than establishing abank. First, we developed loan products for microentrepreneursand small-scale farmers in sparselypopulated rural Bolivia. Then we expanded ourorganization while continuously improving our loanproducts in response to our customers’ needs. Wesurvived a weak economy and a crisis in themicrofinance industry in 1999, and then we createdanother regulated financial institution known as anFFP, a private financial fund. PRODEM FFP,launched in January 2000, now offers a wide rangeof financial products including savings accounts,wire transfers, and leasing.Many MFIs look to financial incentives as a meansto boost staff productivity. At PRODEM, we prideourselves in having created an efficient, productiveand profitable organization with an approach towardstaff incentives that defies the conventional wisdomin the microfinance industry.The Evolution of Incentives at PRODEMA few months ago, I received an email from a friendtelling me that my institution was one of the onlymajor MFIs in the world that did not provideincentives to loan officers. Hearing this, I explainedthat PRODEM did have incentives and that, giventhe nature of our business, incentives werenecessary, but we implemented our scheme in away that did not affect the objectivity of the loanofficers when they made credit decisions. I proceededto explain about the circumstances that ledPRODEM to look for better ways to motivate theperformance and responsibilities of our employees.During 1993, after looking at the different incentivesthat MFIs were offering worldwide, we implementedan incentive system that rewarded loan officers foraccomplishing goals set in the incentive program.These goals included: the targeted number ofclients, the maximum percentage of loans inarrears, and the average portfolio per loan officer.In addition, since PRODEM had different types ofbranches, we had defined the goals in relation tothe potential market and the location of the offices:in rural areas, at the country’s borders, in majorcities, or in secondary cities.Rosy Preliminary ResultsThe incentive program worked as we had hoped.The loan portfolio grew rapidly, the portfolio at riskwas under control, the number of clients increasedsteadily, and profitability improved (see Figure 1 atthe end of the article). All of our indicators in 1994-95 suggested that we made a wise decision inimplementing the incentive program.Things Start to Get SourBy 1996, we sensed something disruptive occurring.We began to notice a high rate of turnoveramong our loan officers, including an increase inthe number of staff fired because of corruption orfor constantly breaking the methodology and rulesof the institution. Obviously, we had not managedto gain the loyalty of these loan officers. Instead,we had staff members who were mechanicallyperforming their functions without a realresponsibility towards the institution or our clients.At the same time, some staff members begandemanding larger incentives amounts. They wereunder the false impression that PRODEM’s goodperformance was due solely to their efforts, withoutrealizing that everyone was part of one system ofintegrated departments, and that other aspects ofthe organization were also important for PRODEM’sperformance.The original scheme awarded a monthly bonus toindividuals who met certain performance standards.We learned, however, that this type of incentive hada negative effect on team performance andencouraged a short-term outlook.As a result, in 1996, PRODEM changed theincentive to an annual bonus awarded for branchperformance. All members of a branch received abonus if their branch met certain performancetargets. The largest bonus was worth an additionalmonth’s salary.An annual payment encouraged a long-termperspective. It corrected the “delinquency lag,”caused by new loans that go into arrears severalmonths after they were issued. An annual paymentalso adjusted for the profound seasonal fluctuationsthat are common in Bolivian microfinance and itallowed PRODEM to complete our audit beforeissuing bonuses.MICROBANKING BULLETIN, APRIL 2001 11
Page 3 and 4: The MicroBanking Standards ProjectT
Page 5: CONTENTSFrom the Editor ...........
Page 8 and 9: • Loan Size: The size of the loan
Page 11 and 12: FEATURE ARTICLESFEATURE ARTICLESDes
Page 14 and 15: FEATURE ARTICLESFigure 1: An Illust
Page 18 and 19: FEATURE ARTICLESThis modification w
Page 20 and 21: FEATURE ARTICLESDropouts and Gradua
Page 22 and 23: FEATURE ARTICLESable clients. These
Page 24 and 25: FEATURE ARTICLESHow to Analyze Drop
Page 26 and 27: FEATURE ARTICLESCultivating Client
Page 28 and 29: FEATURE ARTICLESIndustry DynamicsIn
Page 30 and 31: FEATURE ARTICLESThe group meeting i
Page 32 and 33: TALKING ABOUT PERFORMANCE RATIOSTAL
Page 34 and 35: BULLETIN HIGHLIGHTS AND TABLESCOMME
Page 36 and 37: COMMENTARY AND REVIEWSImproving Int
Page 38 and 39: BULLETIN CASE STUDYincrease. Some M
Page 40 and 41: BULLETIN CASE STUDYFigure 3: Effici
Page 42 and 43: BULLET HIGHLIGHTS AND TABLES• MFI
Page 44 and 45: BULLET HIGHLIGHTS AND TABLESIt is e
Page 46 and 47: BULLET HIGHLIGHTS AND TABLESAn Intr
Page 48 and 49: BULLETIN HIGHLIGHTS AND TABLESIndex
Page 50 and 51: BULLETIN HIGHLIGHTS AND TABLESTABLE
Page 66 and 67:
BULLETIN HIGHLIGHTS AND TABLESTABLE
Page 68 and 69:
Page 70 and 71:
Page 72 and 73:
Page 74 and 75:
Page 76 and 77:
BULLETIN HIGHLIGHTS AND TABLESCompo
Page 78 and 79:
BULLETIN HIGHLIGHTS AND TABLESCompo
Page 80 and 81:
APPENDICESexpense generated by adju
Page 82 and 83:
APPENDICESStatistical IssuesThe Bul
Page 84 and 85:
APPENDICESACRONYM NAME, LOCATION DA
Page 86 and 87:
Page 88 and 89:
Page 90:
show all

the microbanking bulletin - Microfinance Information Exchange

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?