'Unknown' by Anil - Page 3 of 16

Sa-Dhan Newsletter Volume 5 Issue 2

Operational Costs of Delivering Microfinance : Banker's Perspectives

own lower salary scale and introduce bonus schemes

by building walls around themselves. However, the banks

without drawing attention from the rest of the bank staff.

have been influenced by many positive forces operating in

the country. Presently, a number of financial and other

Cost-effectiveness

institutions are undertaking ambitious programmes of in-

stitutional development which are designed to remedy

Several strategies can be adopted to reduce the costs

issues such as those listed below:

significantly. Many banks have high salary structures as they

recruit graduates/postgraduates to handle the routine bank-

Staff are routinely punished for mistakes, almost

ing transactions and that could be reduced by recruiting

regularly.

staff who do not necessarily have university degrees. This

The long hierarchy of decision-making in the banks

is easier said than done, as many banks are going high-

prevents the branches from offering the kind of

tech. Besides, the salary savings gained through hiring less-

service that SHGs may need.

educated staff could be more than offset by the lower

Banks, unlike the providers of almost every other

productivity. Most of them could improve staff productivity

product or service, do not recognize the need for

levels through improved operating procedures and incentive

marketing intermediaries or middlemen/women, which

systems.

is what SHGs are.

Banks are perceived as operating from fixed premises

Banks can explore new methodologies to expand lending.

at fixed hours, which are often inconvenient for SHGs.

The smart card option is an excellent cost-cutter for

processing repeat loans and these need to be encouraged.

Attitudes

A scoring model makes sanction of small loans easier and

less cumbersome.

It is a difficult job to change personal attitudes to re-

engineer an organization. It is more so if the people are

While banks extending micro-finance often complain of high

not articulate and are strongly rooted in cultural tradition.

costs, whether their schemes/programs are in fact costlier

Nevertheless, a combination of persuasive leadership and

than those of financial NGOs or specialized institutions is

role models often change deeply-seated attitudes such as

not clear. Costs for micro-finance are simply higher than

the following:

that for conventional banking, considering the low volume

per loan. However, product costing is rarely done in banks.

Bankers have been led to believe that poor people

Until there is greater separation of costs and until banks

are `weaker sections', for whom any form of banking

with micro-finance programs are in a position to give

service must necessarily be subsidized, and is only

income and expense data, the question of costs will remain

undertaken as an act of charity or because govern-

open.

ment regulations require it.

The history of government-sponsored schemes, where

Bankers often take pride rightly in being conservative, since

loans are given against group guarantee and often

they are dealing with other people's money, but bankers

as loans to cooperatives, leads bankers to believe that

must also innovate in order to survive, to compete and to

group activities generally fall apart after a while.

serve the market. Many reasons can be attributed for lack

Bankers see NGOs as institutions started by mere

of enthusiasm for micro-finance, for example:

visionaries or at best admirable social service orga-

nizations, but not as potential business partners.

Lack of knowledge and skills, which can be remedied

Bankers are generally drawn from the educated

by effective training.

middle class, and are socially, economically and

Organizational factors, which can be remedied only

physically `distant' from rural people with an agri-

by top managements' conviction, reinforced sometimes

cultural background.

by the threat of competition and loss of jobs.

Banks have been regularly battered by a succession

Negative attitudes, which can be changed by

of low-tech and unprofitable `schemes', and many

experience, by example, by good training and

regard SHG linkage and micro-finance as more of the

encouragement.

same.

Doubts as to the profitability of the product, which

It is pertinent to note that, in the last half a decade, things

can be removed by adequate communication, training

have changed for the better. Micro-finance institutions

and by changes in the design and strategy for

(mFIs) and NGOs are now increasingly perceived as viable

marketing of the product.

ventures. The promoters of mFIs are also seen as techno

External factors such as government policies.

savvy and capable of talking to foreign and enlightened

groups. The success stories have already reached many

Banks are usually large and serve a varied clientele, with

banks. The mFIs/NGOs are also being perceived by banks

their own working cultures and priorities. Banks in India

as potential business partners. There is hope yet for

have successfully straddled many decades of directed

profitable partnerships.

lending though some of them have adopted certain policies

The authors, C.Sundarashyam, is the Chief General Manager (Dev. Bkg.), State Bank of India & K.A.Salim, is

the Deputy General Manager (Micro Credit), State Bank of India. The views expressed in this articles are

that of the authors.