the microbanking bulletin - Microfinance Information Exchange

BULLET HIGHLIGHTS AND TABLES• MFI staff, on average, serviced 122 clientswhile loan officers managed an average of 257borrowers;• Productivity was similar between the MFIs thatare and are not financially self-sufficient. Thisindicates that while productivity may affect thecost structure and profitability, high productivitycannot guarantee self-sufficiency;• Among the Bulletin peer groups, staff and loanofficer productivity was the highest among theMFIs in the Asian Large and South Asian peergroups where the population density is high;• Small business lenders reported the lowestproductivity rates. Small business lending mayrequire a complex financial technology thatlimits caseloads for staff;• Productivity was low in upper-income countries(two peer groups in Eastern Europe and theLatin American upper income group);• As indicated by the staff allocation ratio, loanofficers represented half the employees inMFIs, indicating the need for skills other thanlending for the smooth operation of an MFI;• The proportion of loan officers to total staff washigher among Asian MFIs (0.54) compared toLatin American (0.46) and African MFIs (0.44);• Peer groups with smaller MFIs in Asia, Africaand Latin America reported higher staffallocation ratios than peer groups with largerorganizations.The Effect of Age and Methodology onProductivity: Rhetoric or Reality?There are common beliefs in the microfinanceindustry that: 1) productivity improves with time; and2) group methodologies have higher productivitythan individual lending. To test these beliefs, theBulletin data were analyzed and the results suggestthat the rhetoric may indeed be the reality, asshown in Figure 2.Staff and loan officers at MFIs employing the villagebank methodology served significantly more clientsand had a slightly higher staff allocation ratio thanMFIs using an individual lending methodology.Mature MFIs were considerably more productivethan new and young ones indicating that productivityimproves with time. Higher productivity atmature MFIs may have resulted from a lowerproportion of new staff members to total employeesand fewer partially occupied loan officers.Figure 2: Productivity by Methodology andAge of MFI*StaffProductivity(No.)Loan OfficerProductivity(No.)StaffAllocation(%)I. MethodologyIndividual loans (n=54) 102 229 47Solidarity Groups (n=45) 133 271 50Village Banks (n=25) 188 408 52II. Age CohortsMature: > 6 Years (n=65) 158 340 47Young: 3 to 6 Years (n=29) 126 295 48New: < 3 Years (n=30) 96 188 51*Data are calculated by dropping the top and bottom percentiles of eachgroup. n = number of MFIs before dropping observations.Information in Figure 3 shows different patternsbetween lending methodologies and the age of theinstitutions. Interestingly, on average, productivityof solidarity group programs does not improve withage. Older village bank and individual lending programs,however, demonstrate markedly higherproductivity than their younger counterparts andcorrespondingly higher financial self-sufficiency(FSS).Figure 3: Productivity, Efficiency andProfitability by Age and Methodology*Staff Admin Exp. /Productivity Avg. Loan(No.) Portfolio (%)FSS(%)New Solidarity Group (n=11) 137 55.1 76.1New Village Bank (n=4) 134 93.1 51.9New Individual (n=15) 68 24.4 82.9Young Solidarity (n=10) 140 45.4 79.7Young Village Bank (n=8) 157 47.7 92.4Young Individual (n=11) 94 22.1 100.3Mature Solidarity (n=24) 137 36.7 89.5Mature Village Bank (n=13) 286 44.1 97.8Mature Individual (n=28) 146 19.1 113.3*Data are calculated by dropping the top and bottom percentiles. n =number of MFIs included in each category before dropping observations.What Drives Productivity?Increased productivity may be important to reduceper unit costs and improve self-sufficiency. Butwhat drives productivity? There are at least fourdirect drivers that MFIs can use as levers toincrease productivity: 1) client retention, 2) staffretention, 3) staff remuneration, and 4) stafftraining. 45 The effect of these drivers on45Loan terms can also be lengthened to indirectly boostproductivity. Since loans with shorter terms turn over morefrequently, they are more labor-intensive and can undermineproductivity. Assuming that longer terms do not adversely effect36 MICROBANKING BULLETIN, APRIL 2001