Sa-Dhan Newsletter Volume 5 Issue 1
Operational Costs of Delivering MicroFinance
Table 1
Organisational and Operation Details of BUK
Parameters
Year 2001
Year 2002
Year 2003
Active Borrowers
1,810
9,197
20,190
Number of Members
2,981
11,496
22,217
Number of Staff
45
51
80
Number of Branches
4
4
9
Proportion of villages covered to the total villages in the district
38.9%
38.9%
24.9%
Proportion of households covered to the total households in the village
9%
32%
20.4%
Savings Mobilised (Rs Lakhs)
14.4
18.6
37.1
Loan Portfolio of MFI
(Rs Lakh)
53.2
398.5
511.7
Table 2
Key Performance Indicators
Parameters
Year 2001
Year 2002
Year 2003
MCRIL Top10
Active Borrowers/staff member
40
180
293
193
Average Loan Disbursed/client (Rs)
3,656
6,542
4,442
7,425
Loan Outstanding/staff (Rs `000)
118.2
781.4
639.6
757
Portfolio at risk (<=60 days)
0.2%
0.0%
0.0%
4.2%
Yield on Portfolio
30.4%
28.7%
28.8%
33.5%
Operating Expense Ratio
115.1%
37.3%
25.2%
23.8%
Financial Cost Ratio
1.1%
7.5%
9.0%
Return on Average Total Assets
-46.8%
-11.9%
-4.7%
2.1%
Operational Self Sufficiency
26.5%
64.6%
82.6%
109%
BUK started its operations in Year 2001 with three new
but increased the number of households served in each
branches in Gopalpur district. The costs of setting up new
of its villages. The proportion of households served to the
branches including operational costs, vehicles and comput-
total number of households in the villages serviced in-
ers had been borne by a leading international donor. The
creased to 32% (Table 1) along with a 400% increase in
new branches were manned by freshly recruited staff. The
clients. This increase in the client base was achieved by
branches became operational in October 2000. In Year 2001
only a 13%increase in staff strength. The investment in
the focus was on orienting the staff of the new branches
thorough induction of new staff paid off and productivity
to BUK's policies and procedures and hence they spent most
increased from 40 clients per member of staff to 180.
of their time in induction. During the year, software called
Portfolio Tracker was installed across the branches, which
During the Year 2002, BUK reduced interest rates on its
provided the information necessary to manage the portfolio
loans from 20% flat to 15% flat. BUK also introduced a
in terms of loan outstanding details, current dues, and
new Mid Term Loan product that enabled borrowers who
overdues.
had earlier received IGL and repaid regularly for 25 weeks
to take another loan. This helped to increase the total
As Table 1 shows, in Year 2001, BUK had a presence in
portfolio and consequently portfolio per staff member. The
38.9% of villages in the district but was reaching only 9%of
portfolio serviced by each staff member thus increased by
households in the villages served. This was reflected in its
over 500% from Rs 1.2 lakh to Rs 7.8 lakh. In spite of
Year 2001 performance (Table 2) with the operating expense
increasing its portfolio substantially BUK managed to
ratio (as a proportion of average portfolio) being as high
maintain zero portfolio at risk, due to its successful
as 115.1%. Thus, to service an outstanding of one rupee,
induction of staff combined with intensive training of its
BUK was spending Rs1.15. Not surprisingly, the operating
group members. In addition, the information systems in
self-sufficiency ratio (which reflects the proportion of total
place adequately supported the staff to meet the demands
expenses (operating expenses plus financial expenses plus
of managing a substantial portfolio.
provision for loan losses) covered from operating income)
of BUK was only 26.5%.
It is apparent from Table 2 that BUK showed a marked
improvement in both the operating expense ratio (OER),
In Year 2002, BUK focussed on consolidating its new
which came down to 37.3%, and the operating self-
branches. It did not increase the number of villages served
sufficiency ratio, which increased to 64.6% in 2002. These
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