Sa-Dhan Newsletter Volume 5 Issue 1

Operational Costs of Delivering MicroFinance

during the weekly meetings.  Up to three-four groups

Microfinance Policies

together ­ called a Centre comprising between 30-40

Groups promoted by MFI X consist of 10 members. There

members ­ meet during the weekly transactions meetings.

is a well-laid out process of group formation, savings,

All transactions are recorded during the course of the

lending and repayment.  The process of group formation

meetings at the Centre level ­ each CO typically covers 3-

starts with group identification. A group is considered

4 Centre meetings per day for six days in a week.

identified when all its members belong to the same locality,

are economically active and show signs of being able to

Soon after the initiation of savings activity, loans are

cooperate, obey rules and importantly, ensure repayment of

extended to group members. All credit transactions take

loans. Group members undergo training spread over six

place at the group level.

days that ends with the conduct of a Group Recognition

Test (GRT) ­ based on the results of this test, a decision

Savings products

on the establishment/recognition of the group is taken.

MFI X now offers a range of savings products to its

Following group recognition, members are provided

members, as described below

passbooks for recording savings deposits that are collected

Product description

Interest paid

Other terms and conditions

Savings ICompulsory deposit, loan

8% p.a.

Amounts are fixed for a minimum tenure

linked(Deposit of 10% of the loan

of the corresponding loan

amount from the second cycle onwards)

Savings II

Non-interest

Any amount can be deposited or

Voluntary current account

bearing account

withdrawn by the member

delivery to the local context.

Loan products

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Simple procedures for recording and book-keep-

The loan products offered by the organisation are fairly

ing ensure that less time is required for main-

standardised.  The main loan product is termed General

taining MIS and accounts. The time thus saved

Loan and this focusses on income-generation activities (loan

is utilised to cover more clients.

utilisation checks are carried out one week after

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Simple procedures for sanctioning and disbursing

disbursement).  The first loan for members is Rs 7,000

loans ensure that the portfolio of the MFI in-

and subsequent loan cycles are Rs10,000 ­ 15,000 ­

creases without increasing the risk of default. A

20,000. The interest on loans is 15% p.a. flat plus a 1%

zero-tolerance policy on default also helps in

loan fee.

ensuring the low provisioning for loan losses.

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Diversified sources of funds help in optimising

Other loan products ­ that include an education and

the flow of funds for on-lending. This enables

infrastructure loan ­ are very insignificant in relation to the

staff to work efficiently and utilise available funds

portfolio.  These also carry an interest of 15% flat p.a.

fully and effectively.

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Other administrative costs as a proportion of total

Insurance/Social Security

costs are also very low.  This is the result of

continued and conscious efforts on the part of

MFI X offers an insurance cover to its members, which is

the MFI.

built into to its loan products. Thus, it has made insurance

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Operational efficiency is a direct function of the

compulsory for all active borrowers, though non-borrower

simplification of procedures and systems. It re-

members are also encouraged to buy insurance policies.

quires commitment of the highest order from the

The annual premium for the cover is 1% of the loan amount

senior management and staff of the MFI.

that insures the member against her or her husband's death

and fire accidents. The coverage includes the entire loan

About the Author:

disbursed; therefore in case of member death, her outstanding

Nilotpal Pathak is a management graduate from IRMA. He

loan is written off and the amount already repaid on the

has work with the National Dairy Development Board

loan is refunded to the nominee.

(NDDB) in the field of Project finance, Planning and

corporate finance.  He is presently working with M-CRIL

Implication For the Operating Expense Ratio

since February 2002 and has completed more than 35

commercial ratings in different parts of India, Bangladesh,

Some conclusions with respect to operating efficiency

Cambodia, Phillipines, East Timor and Pakistan. He has also

drawn from the above case are:

been involved with a number of research and advisory

assignments in the field of rural banking, insurance and

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MFI X already has amongst the highest client-staff

microfinance during this period. He is a co-author of the

ratios (nearly 500 per member of staff) in the

book 'Outreach-Viability Conundrum: Can India's Regional

industry. This has become possible due to a very

Rural Banks Really Serve low-income Clients?' Published

high concentration of clients in the target area and

by Overseas Development Institute of UK.

adapting the SHG and Grameen models of MF

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