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BULLETIN HIGHLIGHTS AND TABLESCOMMENTARY AND REVIEWSMaximizing Efficiency: The Path toEnhanced Outreach and SustainabilityMonica Brand and Julie GerschickACCION Monograph No. 12Hardcopy US$20.00/Electronic US$13.00To order: email publications@accion.org ordownload from www.accion.orgMore, better, faster. These three words havebecome the mantra of successful businesses duringrecent years. Driven by competition, technologyand demanding clients, successful firms constantlysearch for ways to provide better products andservices more quickly, and often at lower costs,while improving their bottom line. This messagefrom the business world is applied to the microfinanceindustry in ACCION International's recentmonograph Maximizing Efficiency by Monica Brandand Julie Gerschick.In this publication, the authors draw on businessliterature, empirical data and numerous examplesfrom microfinance institutions to build the case forefficiency as a bridge between the sometimescompeting camps of outreach and sustainability.The underlying theme is that a focus on efficiencywill help institutions reach more clients and attainhigher levels of profitability. Hence, this publicationshould be of interest to managers, shareholders,donors and consultants in the microfinance fieldwho want to lower interest rates, increase outreachand achieve a healthier bottom line.The book opens with a concise overview of microfinanceand examines conventional wisdom regardingthe correlation between efficiency, outreach andloan size. Brand and Gerschick cite empirical evidenceshowing significant efficiency gains achievedthrough growth appear in institutions with up to10,000 to 12,000 clients.The authors argue that additional efficiency gainsrequire more than growth; they require considerableorganizational change. This discussion indicatesthat outreach, beyond a certain level, does notsignificantly improve efficiency. A further examinationof the scale required to justify investments inefficiency enhancements—such as technology,functional specialization, and product and servicediversification—is warranted given the number ofdonors supporting the proliferation of small microfinanceinstitutions and the entrance of largercommercial financial institutions. The authors alsoargue that small loan size is not an excuse forinefficient or financially unsustainable organizationsby identifying organizations that have achievedsustainability while offering very small loans.Brand and Gerschick demonstrate that sustainabilityis not a sufficient measure of financial performance.Sustainability is often achieved throughhigh interest rates that mask excessive operatingcosts resulting from inefficiencies. They argue thatmany indicators that evaluate organizational efficiencyand profitability of microfinance institutions,such as administrative expenses over averageportfolio and return on assets, do not show thewhole picture. The authors bring to the forefront theimportance of evaluating the relationship betweencosts and revenues through the analysis of thebank efficiency ratio (total pre-tax expenses overnet income) and its reciprocal net profit contribution.They also delve into the complexities of allocatingcosts for accurate analysis at different levels, fromthe entire institution, down to specific client andproduct segments.This monograph presents a myriad of concreteexamples of managing organizational change toenhance efficiency. The analytical framework isalignment theory, which the authors describe as aholistic approach to identify multiple causes ofinefficiency by examining strategy, products andinternal systems. The authors cite a number ofareas where managers can enhance efficiency, andthey spice the text with examples drawn from microfinanceinstitutions worldwide, such as:• Modifying products to reduce collections problemsby customizing repayments to the borrowers’cash flow, offering revolving loans (or linesof credit) to decrease the cost of marketing, andissuing credit cards to enhance fee generation;• Increasing staff productivity through incentivesystems, transportation equipment, and establishingspecialized staff positions for routineadministrative functions;• Improving client retention through pricing incentivesand streamlined repeat loan approvals;• Pricing to maximize efficiency by differentiatinginterest rates and fees to price for risk andadministrative costs;• Establishing partnerships with businessassociations, financial institutions and others tolower the cost to attract clients;28 MICROBANKING BULLETIN, APRIL 2001