Sa-Dhan Newsletter Volume 5 Issue 1

Operational Costs of Delivering MicroFinance

Since salaries account for the major costs of an MFI, staff

Figure 3 Staff Productivity (by loan serviced)

efficiency is a vital element of operating efficiency. Figures

2 & 3 depict the staff efficiency of the various models of

156

151

MFIs from the M-CRIL database.

135

110

Figure 2 Staff Productivity (by clients served)

40,002

12,432

9,891

G

IB

M

SHG

4,583

Though staff efficiency in terms of client servicing is highest

in the case of mixed model of MFIs primarily due to their

customisation in the local context, the higher loan servicing

G

IB

M

SHG

(per member of staff) of the IB model makes them more

efficient as is apparent from their low 12.8% OER

(Table 1).

Like any other business venture ­ MF operations also require time to achieve efficient operations. There are two parameters

that can determine operational economies ­ age and the portfolio size of the MFI. Information from the M-CRIL database

is presented in Table 2.

Table 2

Clients/staff

Portfolio/staff (US$)

Model

<3 years

3-5 years

5-7 years

>7 years

Model

<3 years

3-5 years  5-7 years >7 years

G

114

150

117

165

G

7,621

11,101

7,700

9,536

IB

244

192

111

IB

33,817

25,054

M

253

72

132

170

M

10,411

3,787

15,244

12,399

SHG

77

82

91

169

SHG

2,023

7,077

2,499

8,223

The differences in efficiencies on account of methodological differences are quite apparent from the above tables. Whereas

the SHG model exhibits a consistently improving trend, age does not seem to have any effect on the operating efficiency

of IB model MFIs. The table also shows that Grameen MFIs tend to have better performance (~150 clients/staff member)

up to about 5 years of age as they work with a small staff base. At maturity around seven years of age, MFIs working

with the Grameen model have staff handling an average of 165 clients and US$ 9,500 (~ Rs 4.5 lakh). This is comparable

with the SHG model MFIs who, at around seven years of age, have client efficiency of 169 and portfolio servicing capacity

of US$ 8,223 (~Rs 3.9 lakh). It can be seen that the difference between the Grameen and SHG model MFIs in terms

of operational efficiency is high initially but declines, presumably, as the SHGs become more mature and capable of managing

their own affairs.

120%

Figure 4

100%

Relationship of portfolio size to operating

80%

60%

40%

20%

0%

<=40,000

40,000-140,000

140,000-500,000

>500,000

Average portfolio size (US$) <=40,000

40,000-140,000

140,000 - 500,000

>500,000

OER (%)

124.7

38.4

26.6

20.6

5