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Interview Kishore Biyani, Retail King Survey Human Resources Solutions

Vol. 6, March 2008

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Commentary What Does Forbes Know Anyway? Centerfold Social Entrepreneurship Trainings

Focus on Human Resources: Finding the Key to HR Challenges

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Microfinance contents

Microfinance TM

l volume 6 l march 2008 Interview

Lessons from the Indian Retail Guru Nachiket Mor and Kishore Biyani

Gender Gap Creating Leaders at the Bottom of the Pyramid Jerilene Creado and Ranjit Koshi

Sector Targets Majority of Women, Employs Minority Mary Ellen Iskenderian

Perspective

Judging an MFI: Through a Banker’s Lens Girish Bhaskaran Nair

Cover Story

Training

Sink or Swim: HR Lessons from those that Charted these Waters

With the currents in the microfinance sector cutting deeper, leaders and practitioners must find ways to stay afloat. We turn our heads to other sectors that have found solutions to human resources challenges.

The Biggest Challenge: Developing Trained Staff Graham A. N. Wright

The Rise of Social Entrepreneurship in Universities: A Fad or For Good? Leslie Barcus

Social Studies 101: Programs and Courses Centerfold

New Foundation of Capital Structuring: You Thought You Needed Money? Deborah Burand

Regular Features From the Editor

News Board

Commentary

Improving Performance

36 38

Owning a Piece of the Pie: Understanding Employee Stock Ownership Plans Martin Holtmann and Mattias Grammling

Distinguishing the Best from the Rest: How Social Ratings Help Define Good HR Practices Hema Bansal

Events

MFI Board Games: Making the Right Moves Pari Jhaveri

Classifieds

Bottleneck for Growth: The Human Capital Issue Urmi Sengupta and Kate Druschel

Resources

Sourcing

Trends and Survey

Against the Grain: Reverse Migration at Work Lindsay Clinton

Microfinance news from around the world Latest career announcements

Latest career announcements Selected readings with thematic insights, important conferences, workshops, and seminars Key indicators from the microfinance sector

Books

Book excerpt and book review

Locally Grown: It’s all Women’s Work in this Urban Slum Lindsay Clinton

Service Providers 66

Matchmaker, Make me a Match Rahul Nainwal

readers speak

“We see Microfinance Insights as the Economist of the Microfinance sector.”

Shafiq Ahmed, Sphere Partners Limited, UK

“A brave venture to bring microfinance to the limelight it deserves.”

Melanie Noronha, Student, Symbiosis Centre for Management Studies, India

Coming up next... Microfinance

Vol. 7, June 2008

Microfinance

“Microfinance Insights is such a revelation for the sector. The combination of sharp content with great design is hard to come by--Microfinance Insights has mastered the art of producing both.”

Ulhas Deshpande, Adventity BPO India Pvt. Ltd

“Congratulations on this interesting issue. Microfinance Insights is the sort of publication that would be a useful resource for anybody who is interested in microfinance and related issues.”

Véronique Faber, Appui au Développement Autonome (ADA), Luxembourg

“I found the Insurance issue to be a valuable source of information and analysis. Well researched and well presented. I also hope it will direct the efforts of service providers to meeting the gaps in client needs. I congratulate you and your team on the outcome, which I enjoyed reading and have retained for future reference.”

Veena Mankar, Director & CEO, Swadhaar FinAccess, India

“Microfinance Insights seems very professional to me from what I saw and read on your website, well-designed, good articles, therefore it would be interesting to read it more often than only quarterly. May I ask why you don’t publish more often? Looking forward to reading your newest issue!” Eike Haas Student

Partner with Microfinance Insights Microfinance Insights is a dynamic, fast growing publication and the only one of its kind in the microfinance sector. Our readership now includes more than 5,000 people in over 10 countries. In the past quarter alone we have been a presenter or partner at more than 8 conferences in 5 countries - from New York to New Delhi, Frankfurt to Kathmandu. As we grow, we are embarking on other branded sector-building initiatives. We invite you to partner with us – as an event partner, roundtable sponsor, content partner or by jointly creating specialty co-branded publications. Email Lindsay Clinton at publications@intellecap.net or call +91-22-40359222 or +91-22-32535392

microfinance insights

march 2008

Microfinance

From the Editor

Microfinance

New Additions Dear Reader,

Vol. 6, March 2008

Cover Price (Within India): INR 50 Cover Price (Outside India*): US$15/ EUR 11 *inclusive of shipping costs

When I was invited to join the editorial team of this journal, I jumped at the opportunity to be part of this burgeoning sector, in this emerging market. The prospect of coming on board to develop and grow this publication, and in turn build knowledge in microfinance was a challenge I welcomed. If you’ve been reading this magazine, you know that each volume focuses on one theme. For this quarter, our team decided to analyze human resources challenges and solutions within the sector. The reason? Building human capacity to make the microfinance wheel spin faster is cited as the biggest challenge for MFIs around the world. This was confirmed in our Survey, where a majority of MFI respondents said that human capacity issues are their most challenging. And just four weeks ago, as we were midway through the planning of this issue, the Centre for the Study of Financial Innovation released its Microfinance Banana Skins Report, pinpointing that across region and institution, the biggest risk faced by MFIs stems from the quality of management. Inside, you’ll see the same kind of high-caliber analysis and coverage that we have offered in the past. But, you’ll also find new additions. One of the most important new aspects of the journal will be new voices — those you might not have heard from before, and in particular, those from developing countries that don’t always have the platform to make their voices heard. You’ll see evidence of that in our Global Viewpoints piece which took us on a virtual tour of Lebanon, Tunisia, Uganda, Tanzania, Bolivia and Pakistan in search of regional angles. Moving forward, we will make a more concerted effort to solicit new perspectives from around the world in the hope of creating thought-provoking discussion, and enabling our readers to hear from those who are at the delta of the information flow. We have also added new features that we hope will make this journal even more valuable. Look to Commentary for a new perspective on a timely issue. The Human Resources (HR) Survey will provide you with analysis on a part of the sector often overlooked. In our Book Excerpt this quarter we preview the new book from Alex Counts, President of the Grameen Foundation. On a personal level, I hope that this journal is as eye-opening for you as my first quarter has been. Earlier this month, I spent the night in a New Delhi slum, writing the “Locally Grown” article for this issue, and I could not help but marvel at the distance I have come— from working for a women’s empowerment organization in New York City to being on the very ground that is experiencing the foundation of women’s empowerment efforts in India. I felt a similar sentiment when our editorial team ventured into the rural village of Mhaswad, eight hours drive outside Mumbai, to research our piece on women entrepreneurs at the bottom of the pyramid. Those experiences sat in sharp contrast to the interview we engineered with the mastermind behind India’s retail explosion, Kishore Biyani. It’s hard to think that sitting across a polished conference table, teacup in hand, that we would elicit learnings from the private sector that could benefit slum shop-owners or vegetable sellers in Mhaswad. And, yet, for this issue—from the bottom to the top—we found insights in unexpected places, down less traveled roads. At a time when so much of our sector’s information is scattered and feels, at times, like a global echo chamber, Microfinance Insights’ objective is to be the primary source of information, analysis and perspectives to all the shareholders of the industry. We hope to become an evocative, yet dependable thought leader in the sector, and your preferred microfinance resource. As we grow, we would like you to help us get there. We look forward to hearing your ideas and suggestions.

For more currencies and subscription details, Visit www.micofinanceinsights.com

Lindsay Clinton

Managing Editor Lindsay Clinton Editorial Team Aparajita Agrawal, Jerilene Creado, Meryem E. Faris, Ranjit Koshi Advisory Board Vineet Rai, Wim van der Beek Cover & Page Design ToonPillz For editorial, contributions, subscriptions, advertisements and queries, please contact: Microfinance Insights, C/o. Intellectual Capital Advisory Services Pvt. Ltd. (Intellecap) 512, Palm Spring, Beside D-Mart, Link Road, Malad (W), Mumbai 400 064 Tel: 91-22-4035 9222, 3253 5292 Email: team@mfinsights.com

Disclaimer The views, opinions expressed herein by authors are not necessarily those of Microfinance Insights magazine, its Staff or its Editor, and they assume no responsibility for them. Printed and published by Intellectual Capital Advisory Services Pvt. Ltd. (Intellecap) 512, Palm Spring, Beside D-Mart, Link Road, Malad (W), Mumbai 400 064 Printed at Bell Graphics, Lower Parel, Mumbai © Intellectual Capital Advisory Services Pvt. Ltd. All rights reserved throughout the world. Reproduction in any manner without permission is prohibited.

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Enjoy the issue, Managing Editor

march 2008

microfinance insights

NEWS BOARD Mobile Banking to Help Farmers in Rural China March 24, 2008 - Ericsson and UNDP launched a mobile banking project for low-income farmers in remote villages of China. This will allow farmers, and rural entrepreneurs to access financial services, and obtain market information updates on their mobile phones. China is the leading country in terms of mobile phone users, with more than 556 million users in January 2008 as per official statistics.

CGAP Releases First-ever Performance Figures for Microfinance Funds

March 11, 2008 – In its recently published report, Foreign Capital Investment in Microfinance: Balancing Social and Financial Returns, CGAP reveals an increasingly sophisticated market, with a wide spectrum of investments, including fixed income mutual funds with close to money market returns, structured finance vehicles, and private equity and venture capital companies. It reports that there are over 93 investment funds specializing in microfinance. The returns range from an average of 8% for structured finance vehicles, to as low as 0% for some young funds. Their microfinance investment grew at an annual rate of almost 80% between 2004 and 2007, reaching a total of US$3.5b in 2007.

Goldman Sachs’ Global Initiative to Provide Business Education to 10,000 Underserved Women

March 5, 2008 - Goldman Sachs has announced 10,000 Women, a global initiative that will commit US$100 m over 5 years to provide 10,000 underserved women, predominantly in developing and emerging markets, with a business and management education. Through partnerships between universities in the U.S. and Europe and business schools in emerging and developing countries, the initiative will support pragmatic, flexible and short-term programs for thousands of women whose financial and practical circumstances prevent them from receiving a traditional business education.

microfinance insights

Mibanco, Peru Plans an IPO in 2008

February 26, 2008 - Mibanco, Peru’s leading microlender plans to launch an Initial Public Offering (IPO) on the Lima stock exchange in 2008, becoming the second largest Latin American MFI to list shares following Mexico’s Banco Compartamos that raised over US$400m by selling 30% of its shares in April 2007. Mibanco is Peru’s largest provider of microloans by number of clients served and the second largest in terms of loan volume.

First Social Capital Index Tracks Investments in Microfinance, Other Sectors

February 22, 2008 - xigi.net, a social network/online platform in a joint venture with Good Capital launched the Social Capital (SoCap) Index, to track investments in the social capital market, including microfinance, social enterprise, health, education, workforce development, fair trade, digital inclusion, and clean technology investments. The index will keep track of investments into funds, syndications and relevant foundations, as well as investments gathered from individual and angel investors. The investments will be searchable by investor, asset class, and market segment and social impact.

Innovative Initiative to Provide Clean Energy Products to Indian MFI Clients

February 20, 2008 - Green Microfinance (GMf) and MicroEnergy International (ME) announced the Energizing India initiative. In partnership with the Indian MFI Evangelical Social Action Forum (ESAF), Energizing India endeavors to provide micro energy products to ESAF’s clients. GMf will assist in structuring microloans for local enterprises and for low-income consumers, aiming to encourage the development of affordable and efficient renewable energy systems across a net-

march 2008

work of MFIs in India.

Soros, Omidyar Join Google.org for SME Investment Company for India

February 19, 2008 – The Soros Economic Development Fund (SEDF), Omidyar Network, and Google.org announced a new US$17m Small to Medium Enterprise (SME) Investment Company for India to create job opportunities and spur greater economic participation for a larger segment of the population. The company will provide capital to SMEs in underserved markets, bridge the gap in micro-loans market with equity investments between US$500,000 and US$3.5m. In a similar but unrelated announcement, Google.org on January 17 announced an initiative to ‘Fuel the Growth of Small and Medium-Sized Enterprises’ in the developing world, with a focus on India and East Africa. The resources for this initiative will come from a commitment by Google’s founders to devote approximately 1% of the company’s equity plus 1% of annual profits to philanthropy, as well as employee time.

ASA Int’l Secures Largest-ever Equity Commitment February 12, 2008 - Catalyst Microfinance Investors (CMI) announced the largest-ever collective equity capital commitment to microfinance of US$125m. CMI intends to

NEWS BOARD use most of the funds for the rapid establishment and growth of ASA International in microfinance markets across Asia and Africa. ASA International is one of CMI’s major investments vehicles, managed in partnership with ASA of Bangladesh. With operations in Cambodia, Ghana, India, Nigeria, Pakistan, Philippines and Sri Lanka, they expect to start operations in China and Indonesia later in 2008.

Afghanistan Gets its First Mobile Money Transfer Service

February 10, 2008 - Vodafone and Roshan, a telecommunications operator in Afghanistan, launched the country’s first mobile money transfer system. Building on Vodafone’s highly successful M-PESA mobile money transfer service in Kenya, M-Paisa will allow MFI loan disbursements and repayments, salary payments, and airtime distribution. Plans are on to test interactive voice recognition services that will enable greater use by consumers who may otherwise be excluded due to high illiteracy rates in Afghanistan.

Gates Foundation Commits US$24m for Promoting Microinsurance for the Poor

February 6, 2008 – Bill & Melinda Gates Foundation has extended a grant of US$24.2m to Micro Insurance Agency, a subsidiary of Opportunity International. The funding will help Micro Insurance Agency expand its insurance products (life, health and crop) to the poor in Africa, Asia and Latin America. It will also enable the Agency to enter 11 new countries and provide life, health and crop insurance to 21 million poor people by 2012.

Standard & Poor’s to Develop Global Rating for MFIs

February 6, 2008 - Standard & Poor’s (S&P) will launch 10 MFI pilot ratings throughout Latin America and the Caribbean representing a broad cross section of MFIs in the region. Upon completion of the pilot program, S&P will finalize and publish its rating methodology and a tailored ranking system for MFIs. In recent years, Standard & Poor’s has had a growing preswww.microfinanceinsights.com

ence in the microfinance area. In addition to playing a key role in the Microfinance Rating Methodology Working Group, S&P was the first agency to issue a public rating for a CDO microfinance transaction.

mated at 210,400 clients, with a market size of US$526m. It also finds a huge market for small loans with terms greater than one year, rarely offered by either banks or MFIs in the country.

SKS Microfinance of India Raises Third Round of Equity Investment

New Children’s Book Promotes the Value of Microfinance

February 1, 2008 - SKS Microfinance has raised US$37.5m (INR1.47b) through a successful third round of equity infusion. The strategic investors include two new USbased entities, Silicon Valley Bank and Columbia Pacific, as well as existing players. The transaction completed in December 2007, will finance the MFI’s expansion plans in 2008. Earlier in October 2007, SKS had announced an equity infusion of US$12.7m (INR500m) by Sequoia Capital, along with Unitus Equity Fund, Vinod Khosla, Ravi Reddy and Odyssey Capital. SKS presently has 1.5 million clients, half of which are in South India, and plans expanding to two new states in northern India, in 2008.

First Islamic Microinsurance Product by International Insurer in Indonesia

January 31, 2008 – Since April 2006, Allianz has offered Takaful insurance products in Indonesia, which incorporate the principles of Islamic finance law. The microinsurance version of the Takaful policies is tailored to meet the needs of low-income customers. A new distribution concept aims to make the products even more accessible for customers. Specialist service providers, as well as representatives and brokers, can broker policies with micro-banks. Allianz Indonesia aims to sell 100,000 microinsurance policies until the end of 2008, from the current 42,000.

IFC’s Market Study in Yemen Pegs Microfinance Demand at US$526m

January 31, 2008 – IFC released a report on the microfinance market in Yemen, which is the least developed country of the Middle East, with a GDP per capita of US$650. The report highlights the high demand for microlending in Yemen—esti-

January 29, 2008 – Titled One Hen, the children’s book chronicles the story of a boy who turns a small loan into a thriving farm. Inspired by the true story of the founder of a Ghanaian MFI, Sinapi Aba Trust, One Hen promotes the value of microfinance. The book, written by Katie Smith Milway is also promoted by an interactive website www.onehen.org. The book intends to make the microfinance model accessible to children.

IBM Podcast Series for 2008 Features Microfinance

January 11, 2008 – IBM’s 2008 podcast series features microfinance. The series, updated monthly, presents interviews with thought leaders on how technology will change everyday life. The first podcast on microfinance features Jessica Flannery, co-founder of Kiva.org and Kevin Thompson from IBM’s corporate citizenship and corporate affairs. The podcasts are available for download in MP3 formats.

Central Bank of Nigeria Implements National Microfinance Policy

January 1, 2008 - The Central Bank of Nigeria (CBN) put into effect its new National Microfinance Policy, which aims to enable MFIs to act as new sources of development finance in the country. The principal objective of the policy is to create microfinance banks that are financially sound, self-sustaining and have the potential to attract more resources and expand services to their customers. Under the new microfinance policy, existing community banks must increase their capital base from US$42,000 (N5m) to US$170,000 (N20m) in order to qualify as MFIs. Close to 145 community banks stand to lose their licenses under this new regulation. n

march 2008

microfinance insights

commentary

What Does Forbes Know About Microfinance Anyway? Late last year, Forbes magazine published a list of what it considered to be the top 50 microfinance institutions in the world, leading many to wonder just where Forbes was getting its information, and why sector insiders should pay any attention to an outside classification. Ian Callahan, Head of Microfinance, and Harvir Brar at Morgan Stanley in London tell us that the Forbes listing may serve a larger purpose in the sector.

n December 2007, Forbes published a list of the “Top 50” Microfinance Institutions (MFIs) globally. The first to be published by Forbes, or any other mainstream publication for that matter, the ranking was based on data gathered from the Microfinance Information Exchange (MIX), the leading information provider for the microfinance sector. Such lists always provoke debate—indeed are designed to do so—and this one has proved no different, with discussion within the microfinance industry both about the criteria employed and the suitability of the underlying data. The minutiae of the debate and sector chatter are not as important as the higherlevel discussion provoked by the list. At a strategic level, the Forbes list and another

list published at around the same time by the MIX itself, the “2007 MIX Global 100: Rankings of Microfinance Institutions,” which used different criteria and therefore naturally came up with very different results, exposes what is perhaps a serious weakness for the potential of the microfinance industry to become a widely investable asset class. The difference in these lists points to a significant distance from any consensus view of what constitutes a “top MFI.” The MIX and Forbes lists used two criteria that were the same: outreach/scale and efficiency (financial sustainability including risk and return). MIX then evaluated “transparency,” an important concern of MIX (which depends on information supplied by organizations) and its sponsor

The Top 12 MFIs on Forbes’ List Rank

haps, was the absence on both the Forbes and MIX lists of any measure of “social mission” as a determinant of an outstanding MFI.

”

CGAP (Consultative Group to Assist the Poor), but a characteristic of a company that would be taken for granted in any mainstream index. It is perhaps interesting to compare these MFI measures with those used in a mainstream index such as the Morgan Stanley Capital International (MSCI) US Equity Value and Growth Indices. The

Country

Scale

Efficiency

Risk

Returns

ASA

Bangladesh

2 3 4

Bandhan (Society and NBFC) Banco do Nordeste Fundación Mundial de la Mujer Bucaramanga FONDEP Micro-Crédit

India Brazil Colombia

108 46 58

49 27 72

42 213 193

1 25 1

Morocco

119

196

6 7

Amhara Credit and Savings Institution Banco Compartamos, S.A., Institución de Banca Múltiple

Ethiopia Mexico

56 15

126 24

118 295

42 11

Association Al Amana for the Promotion of Micro-Enterprises Morocco

Morocco

212

133

Fundación Mundo Mujer Popayán

Colombia

181

141

Fundación WWB Colombia - Cali

Colombia

206

155

Consumer Credit Union ‘Economic Partnership’ Fondation Banque Populaire pour le Micro-Credit

Russia

300

Morocco

126

219

MFI

“Equally interesting, per-

NOTE: This sortable table gives the rank (out of 641) for the top institutions according to scale, which is based on the size of their gross loan portfolio; efficiency, which considers operating expense and the cost per borrower as a percent of the gross national income per capita of their country of operation; risk, which looks at the quality of their loan portfolios, measured as the percent of the portfolio at risk greater than 30 days; and return, which is measured as a combination of return on equity and return on assets. Each category is equally weighted for an institution’s overall ranking.

microfinance insights

march 2008

commentary value component of these indices uses the ratio of book value over price, the ratio of 12-month forward earnings over price, and dividend yield—all measures which are completely standard and which have a forward-looking element which takes into account a company’s growth prospects. In contrast, in the microfinance arena we find that probably the most important data used in the MFI rankings from an investor’s point of view—risk and return—can often be somewhat unreliable. Return, for example, as measured by Return on Equity (ROE), can be distorted by the fact that MFIs which started as grant-aided NGOs often have relatively small amounts of true equity, thus artificially boosting their ROE. The varied methods MFIs use to measure risk, defined as Portfolio at Risk after 30 days (PAR 30), further complicates matters. Some, for example, include rescheduled or restructured loans in their PAR 30 figure, whilst others do not. (Morgan Stanley’s own credit due diligence is careful to contextualize this measure by means of a range of other qualifiers.) Thus, even on the basis of standard

The Top 12 MFIs on MIX’s List Rank

MFI

measures of institutional size and quality like ROE and PAR 30, we see differences of approach and uncertainties over the comparability of data. Equally interesting, perhaps, was the absence on both the Forbes and MIX lists of any measure of “social mission” as a determinant of an outstanding MFI (see the piece in this issue on ACCION’s SOCIAL rating tool). This is not surprising since no such standardized measure is yet available. The lack of such a measurement tool poses a major challenge for the microfinance industry, which wants very much to readily advertise itself as a home for “socially responsible” investors’ cash. If the industry is serious about this being part of the investor’s return, i.e. his/her second bottom line, it is going to have to find a way of reaching agreement on what that measure is; it can hardly expect investors to work this out for themselves. Finally, the other notable feature of the Forbes list, given its provenance in a major investor magazine, was the scarcity of top MFIs in which it would actually be possible to invest. Most of the leading names

were NGOs or other legal entities whose regulatory structures would make it difficult or impossible for a mainstream investor to take a stake in, however much they liked the look of the company. In a rapidly growing industry, recognition from the mainstream investor media is critical to raising awareness of the investment opportunities in microfinance. Although, far from definitive, the Forbes list is a step forward in the debate over how to standardize the approach to determining the world’s leading microfinance players. We look to bodies such as the new International Association of Microfinance Investors (www.iamfi.org) to start taking on this challenge. n

Ian Callaghan is Head of the Morgan Stanley Microfinance Institutions Group, of which Harvir Brar is also a member.

Country

Overall Percentile

Outreach Percentile

Efficiency Percentile

Transparency Percentile

Zakoura

Morocco

84.37%

83.73%

69.38%

100%

Sabaragamuwa

Sri Lanka

83.96%

75.89%

76%

100%

Al Amana

Morocco

83.38%

84.60%

65.54%

100%

GV (Grama Vidiyal)

India

82.93%

71.20%

77.58%

100%

ProCredit Bank Serbia

Siberia

82.43%

89.60%

57.70%

100%

Bandhan Sarvodaya

India

81.14%

76.95%

66.47%

100%

Nano Finance

India

80.12%

62.55%

77.82%

100%

ESAF

India

80.04%

68.53%

71.60%

100%

Credi Fe

Ecuador

79.85%

73.03%

66.52%

100%

JMCC

Jordan

79.59%

74.35%

64.43%

100%

ProCredit Bank-BIH

79.27%

82.03%

55.78%

100%

Spandana

Bosnia and Herzegovina India

78.54%

70.08%

65.55%

100%

www.microfinanceinsights.com

march 2008

microfinance insights

cover story

Sink or Swim: HR Lessons from those that Charted these Waters With the currents in the microfinance sector moving faster and cutting deeper, microfinance leaders and practitioners must find tried and true systems that keep them afloat. The key to safe passage lies in the foundation of these organizations: the people. Nevertheless, many MFIs struggle with managing staff members, recruiting new talent, and convincing employees to stay. Fortunately, the sector does not have to operate in a vacuum—there are countless lessons to be learned from those who have come before. In our cover story, we turn our heads to other sectors that have found successful and innovative solutions to human resources challenges. From video game recruiting to assessing your intangibles, the mainstream has plenty to offer as the microfinance sector takes the plunge into the deep end.

s if the microfinance sector needed more momentum, on the heels of Professor Muhammad Yunus’ Nobel Prize and C.K. Prahalad’s book on the importance of the bottom billion, Ban Ki-moon, the United Nations Secretary General, declared 2008 “the year of the bottom billion” providing further impetus to the ambitious industry. Innovation Linked to Manpower For the sector to meet the phenomenal growth projected, its ever-ascending star must be fuelled by a proportionate influx of quality manpower into the industry. Finding and retaining talented employees today in microfinance is ever more exigent. Changing demographic trends, incremental knowledge requirements, and effects of globalization have intensified external pressures. Many of these concerns associated with a highly buoyant, vibrant, and rapidly changing landscape can be countered with effective talent management strategies taken from the mainstream, where similar situations and circumstances have been experienced and overcome. Fortifying the three legs on which the organizational human capital tripod stands—recruitment, training, and development and retention—are imperative for the healthy growth of the sector. The Grameen Bank Model demonstrated a momentous impact on the MFI industry in the 1980s comparable to Henry Ford’s mass production Model T in the

microfinance insights

Take the Plunge into the Mainstream 1920s.1 Taking a cue from the automotive industry, client-centric products were an inevitable development in the microfinance suite. Microfinance has rapidly expanded the number of products on offer, including but not restricted to microinsurance, housing, and water solutions. Greater client-customized products are in the cards as has been pointed out in previous editions of Microfinance Insights, particularly in Volume 4 focused on Innovation in Financial Delivery. In an increasingly competitive landscape, in order to keep pace with customer demand, MFIs will have to develop the capability to adapt rapidly while retaining their cultural/organizational fabric. Innovation as a competency is an internal resource; much of the innovation in microfinance will depend on the human

march 2008

capital that an institution possesses. This issue of Microfinance Insights addresses the various components of human capacity building, looks closely at the solutions in development, some of the endemic issues, and asks what we can do to optimally arrive at improving functional competencies of an organization and gaining competitive advantage. Looking Inward It is tempting for MFIs to focus on elements linked to the external environment, like bringing in capital. However, by only studying the external environment, MFIs can identify what they might choose to do; by studying the internal environment MFIs will be able to ascertain what they can do. Internal resources both tangible and intangible must be channelized optimally to build capabilities that are not easily replicable. It is this set of three to four capabilities that comprise the core competency of an MFI. On the basis of these, an MFI develops its competitive advantage. Competitive intangibles such as knowl-

cover story

Deriving Lessons from the Consulting World

In an increasingly competitive, and still largely unregulated industry, MFIs can ill-afford to neglect their human resources (HR) strategy for long. A nod to the mainstream consulting sector offers tools that may be deployed towards sustainable organizational development. The renowned 7-S framework of McKinsey and Company is essentially a Value Based Management (VBM) model that describes how one can holistically and effectively manage an organization. The underlying current of this framework depends on human capital an organization possesses. Thus, human resources should be recognized not just as a support function, but as an integral aspect of the overall organizational setup in creating and sustaining competitive advantage. While the

relative importance of each factor may be organization- and /or sector-specific and may even be time variant, together they determine the way in which the organization operates. Applying the 7-S framework to microfinance can offer insights into how to refine mechanisms and strategies.* • Shared values enshrine what the organization represents and believes in. Of particular relevance to microfinance is an organization’s ratio of social impact to profitability. Is it 70/30 or 40/60? • Strategy refers to plans for the allocation of an MFI’s scarce resources (access to funds, employees, clients), and how it navigates the changing environment, competition and clients. • Structure refers to the way an MFI’s business units (finance, human resources, etc.) relate to each other. The choice of a centralized, functional division (topdown); decentralized (the usual trend in larger organizations); matrix, network, etc. will determine the effectiveness of the organization in achieving its goals. • Systems refer to procedures, processes and routines that characterize how work

is to be done. The efficiency of the information flow, like blood in the veins, determines the health of the systems, the risks, and the overall efficiency. • Style signifies the culture of an organization and how key managers behave in achieving the organization’s goals. • Skills refer to the distinctive capabilities of personnel or of the organization as a whole. Most MFIs started by following the outside-in strategic approach which places the need, existing competition, and the clients at the starting point of the process. The Core Competence (CC) model, in contrast, does the opposite by stating that in the long run, competitiveness derives from an ability to build a core competence at lower cost and more swiftly than competition. The real sources of advantage are to be found in management’s ability to consolidate organization-wide resources, skills through which individual businesses can adapt quickly to changing circumstances. • Staff refers to the number and domain expertise of personnel within the organization.

* Rasiel, Ethan M. and Paul N. Friga. The McKinsey Mind: Understanding and Implementing the Problem-Solving Tools and Management Techniques of the World’s Top Consulting Firm. New York: McGraw Hill, 2002.

edge activities, collaboration activities, leveraging activities, structural activities, and goodwill, while legally “non-ownable,” directly impact effectiveness, productivity, wastage, and opportunity costs within the organization—and therefore affect costs, revenues, customer service, satisfaction, market value and valuation. For an MFI looking to grow and compete, these capabilities should be costly to imitate and not easily transferable. Human capital is the primary source of competitive intangibles for all organizations today. Competitive intangibles are the source from which competitive advantage flows. Manufacturing is to Machinery as Microfinance is to… The Human Resources (HR) function provides significant support and advice to line www.microfinanceinsights.com

management. Yet many organizations see HR as just a compulsory business function: few realize that HR is a key factor in the successful implementation of business strategies and sustainable development goals. MFIs—like other financial services firms—must invest in human capital as much as manufacturing firms invest in plant and machinery. Since the professional approach of employees makes service firms what they are, investments made in employees reflect on an organization as a whole. The key is to implement a cohesive strategy that finds the right balance between flexibility and consistency. Increasingly HR policies across the corporate sector are following the principle of “local where necessary, standardized where possible.” This places the onus of

operational responsibility on individual business units or branches, yet allows for coordination and strategic alignment in core areas. HR managers need to understand practical operational issues at the local level. A key challenge to developing this capability is to foster an environment in which learning and experimentation are promoted. For instance, one of the largest MFIs in India, SKS Microfinance, recruits at the local (area) level. However, the training is centralized. By emphasizing the acquisition of employees and capitalizing on their strengths, organizations, too, learn how to learn. Deere and Company, a global corporation that produces agricultural equipment and employs 50,000 people, was one of the first to have an internal “yellow-pages” directory to help them find experts both inside

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Out-of-the-Box Recruitment In the article in this issue titled “Lessons from the Indian Retail Guru,” Kishore Biyani, Group CEO of Future Group points out that microfinance does not carry much cachet, i.e. for employees there is little external validation from peers, which presents a recruitment challenge. For a young man or woman looking to start a career and head out on a solid, clear career path, microfinance has not defined itself yet. The industry will have to begin thinking of new ways to market the sector so that it is more attractive as a career path. Mr. Biyani has suggested creating schools for microfinance in India. Some MFIs around the world have started their own training camps, and others offer dedicated recruitment camps, or career fairs, but few of them match the creativity of the US Army or Google. The former, for example, uses online video games for recruiting. By providing an exciting, hands-on job preview, “America’s Army” video simulations inform and thrill potential recruits. The US Army is the only large organization to use video simulations to both recruit and to train employees. Google has created unique incentive plans to build buzz that spurs recruitment. A BusinessWeek survey noted that Google and outside the firm. The system allowed seamless human resource interaction. Specifically, for MFIs this could entail having internal and external resources readily at hand for the diagnostic and/or resolution of operational, staffing, client or other issues at specific branches. Performance Management Systems Small- and medium-sized IT and business outsourcing companies are constantly looking at adopting innovative performance appraisal systems, individual career development programs and recreational activities to make themselves more attractive to employees in a fiercely competitive market driven by high attrition rates. “Employee engagement” is the new buzzword in corporate corridors. HR teams are busying themselves chalking out initiatives, ranging from adding fresh lime juice to the usual tea/coffee beverage options to the introduction of a tele-commutation policy in the HR manual, to enrich the relationship of employees with the organization. The demanding nature of work in these industries, as in microfinance, requires effective strategies to retain the workforce. To handle retention, companies use tools such as Employee Stock Option Plans (ESOPs) and Restricted Share Units

microfinance insights

was the second choice among students to commence their careers; an unprecedented accomplishment for any firm less than five years old. Google’s brand recognition developed without employing any formal advertising strategy. MFIs normally use conventional advertisement channels for recruitment (read the “Matchmaker” article in this issue for information on job service providers dedicated to MFIs). While Google does have overthe-top benefits—child care, tuition reimbursement, onsite oil change, dry-cleaning, free lunch and dinner—and eccentric management practices, what magnifies their brand is the media chatter about their reputation and culture which can go a long way in the building the brand and resources of a firm. The MGM Grand Hotel chain has built a world class reputation with regards to employment branding that draws in recruits. With the CEO’s buy-in, the approach includes quantifying the company’s promotion rates, publicly thanking employees who have excelled or been promoted, and holding internal competitions to encourage staff to improve performance and consistently strive for excellence.

(RSUs) as financial incentives. In view of the fact that this is a shared sectoral concern, this issue offers insight into ESOPs as a retention tool and loyalty builder for MFIs (see “Owning a Piece of the Pie”). “Variable Pay Components” designed to be sensitive to individual merit are commonly employed. Employees are likely to respond well to collaborative environments and decision-making responsibilities and would also appreciate having clear goals outlined for them and being given the right resources to reach those goals. Initiatives like improving employee work-life balance, encouraging learning and development, and offering personal counseling sessions to enhance the overall quality of experience are undertaken to keep employees engaged. Corbus, a startup BPO (Business Process Outsourcing) firm in India, has reduced attrition rates from 28 percent to 8 percent in just one year by implementing new HR strategies in response to its bi-annual anonymous employee survey. The company uses the survey to do a pulse check of employees’ perceptions of HR, finance, administration, leadership and communication. What is perhaps unique about Corbus is that they actually collate and analyze the results and plough it back into their poli-

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cies to streamline or reformulate their HR strategy. The Trust Factor Increasingly corporate managers are being evaluated in terms of their ability to identify, nurture, and utilize an organization’s core competencies. A part of these evaluations is framed around the understanding that an effective internal environmental analysis yields what we are and what we are not. Trust has long been thought to have an indispensable bearing on organizational success and managerial quality depends, in large part, on the ability to establish and build trust. But how does one build and exhibit trust? Engineeringdesign firm Anderson and Associates, for instance, operates on an “open-book management” system. Among other operational principles, the system places complete financial information including salary details on their intranet. The firm believes that transparency and employee awareness eventually leads to increased profitability. The alternative “closed-door” approach that many firms in the financial services industry embrace is replete with accounts of fraud and embezzlement leading to calamitous outcomes. Perhaps an open-door policy isn’t so bad after all and

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Recruitment

is something that MFIs could consider; the challenge, however, is determining where to draw the line in trusting managers and mitigating agency risk. Rick Stephens, Senior Vice President of HR and Administration at The Boeing Company believes that stern action against employees—in view of systemic risk—is warranted when they do not follow a procedure that they have already been trained on. According to Stephens, when an employee errs, usually they didn’t want to do “something wrong,” they just “wanted to take a shortcut.” But, these mistakes can turn into egregious errors that should lead to strong penalties and sometimes termination. With the large inflows of financial capital into the sector, and many more outside investments expected in years to come, MFIs would do well to establish trust among senior level staff early on, and build that into their style and structure. Taking such steps can only help to create a more trusting environment for employees and investors alike. Cultural Diversity and Globalization With rising cultural diversity in the microfinance sector, fair treatment and equality will be increasingly important as HR policies are formulated. Incentive structures should be performance-based rather than linked to whether the talent is being sourced locally or from abroad (read our piece on Reverse Migration later in this issue for insight into talent joining the sector from abroad). The review in this issue of The International Mobility of Talent provides a peek at the issues that develop when talent moves from one country to another. With increasing attention on the sector, issues like employee diversity will likely

play a larger role as MFIs are evaluated. Lessons can be learned from Coca-Cola Inc., which recovered from an employee class action suit based on the treatment of minority employees. Case studies on Coca-Cola reveal how it made significant strides in improving how its minority employees are treated. Coke’s progress towards employee equity demonstrated how lawsuits played a significant role in motivating a real turnaround in corporate culture. Having bolstered the brand through equitable treatment of its employees, the company has now come from behind to take a large lead over some of its competitors. Similarly, MFIs will have to be sensitive to gender balance on staff, both at a field level and within senior management. An interview with Mary Ellen Iskenderian of Women’s World Banking, later in this issue, brings to light the gender gap within MFI staffs. Do Not Burn Bridges With a fast-changing market, it is inevitable that some employees will leave or be poached by other MFIs or other financial service providers like banks and insurance companies. In the event an MFI loses employees, the organization must make every effort to ensure that the bridge between the firm and the employee is not burnt. The alumni carry the brand name of the company. For example, McKinsey’s reputation precedes it. Alumni speak very highly of “the firm” and consider it an amazing learning experience. Likewise, BASIX, the Indian rural livelihoods organization, is known to get similar feedback from its alumni. Its handholding and orientation, incentive structures, and above all a supportive system which promotes trust,

Further reading on the models and styles referred to in this article: “Microfinance Banana Skins 2008: Risks in a booming industry.” Centre for the Study of Financial Innovation. March 2008 <http://www.cgap.org/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/Documents/ MF_BananaSkins2008.pdf>. Brown, Andrew. Organisational Culture (London: Financial times Pitman, 1998). Harper, Malcolm. Microfinance: Evolution, Achievement and Challenges. London: ITDG Publishing, 2003.

mutual respect and an amicable environment have helped it build this reputation over time. Going from Strength to Strength Microfinance is fortunate to be able to turn to other sectors—consulting, hospitality, technology, and retail to name a few—and learn from their mistakes and successes. As outlined in this piece, there are many ways to improve an MFI’s approach to managing human capital, but the key to building strength lies in investing in human resources, and inventing or improving upon methods and systems for training and retention. While microfinance is unique in its position as a social business model with global application, there is no reason individual MFIs—rural, urban, small and large, livelihoods-focused or disaster-related—should not innovate within their organizational frameworks and create new models for stabilizing the human capital tripod, and helping it grow to new heights. In fact, although the microfinance model is widespread, each region is different in the way it can apply tools and systems. Keeping this in mind, the Microfinance Insights editorial team set out to learn more about the human resources-related issues and conditions that are unique to particular regions. Accordingly, we reached out to members of our network and organizations that we’ve found in our research for this issue, and asked them about their HR practices and principles, and if anything about their region makes their human resources strategy different. We’ve included some of the most interesting responses in the following section. n

Intellecap Associate Ayan Banerjee served as lead writer on this piece, with support from the Microfinance Insights Editorial Team.

1 Drawn from the Path-Goal Theory of Leadership by Robert House. 2 Prahalad, C.K. and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review (May 1, 1990) 3 Prahalad, C.K. The Fortune at the Bottom of the Pyramid. New Jersey: Wharton School Publishing, 2006. 4 Fernando, Nimal A. and Richard L. Meyer. “ASA: The Ford Motor Model of Microfinance,” Asian Development Bank’s Finance for the Poor Volume 3 Number 2 (June 2002): 1-3. 5 Saloner, Garth, Andrea Shepard, and Joel Podolny, Strategic Management. New York: John Wiley and Sons, Inc., 2001). 6 A Restricted Stock Unit (RSU) is a grant valued in terms of company stock, but company stock is not issued at the time of the grant.

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cover story

Global Viewpoints Regional variations in regulations, outreach, and products impact the ways human resources are managed and affect the challenges that microfinance institutions face. Microfinance Insights contacted microfinance organizations in Eastern Europe, the Middle East, Latin America, South Asia, and Africa to learn more about HR issues particular to each area.

heir responses are by no means fully representative of each region, but they did reveal that while region-specific problems exist, the HR challenges of MFIs are not all that different from those of mainstream companies: hiring the right people, finding organizational fit, and retaining employees were all hot spot issues. However, working with populations at the bottom of the pyramid, in countries and areas with varying cultural, political and economic climates is bound to generate challenges unique to particular areas. Some of the more insightful responses are presented here. Eastern Europe Microfinance in Eastern Europe emerged in the 90s, after the fall of the Berlin Wall. Perhaps because the sector is still in its early stages in this region, staff numbers tend to be smaller, and the average number of borrowers is lower. As a result, it can be difficult to find employees with experience, and for some more advanced MFIs here, finding skilled staff who can handle the intricacies of creating new financial products, and navigating complex regulations is a struggle. AgroInvest in Serbia ranks 22nd on Forbes’ list of Top 50 Microfinance Institutions. Ana Dragic, the Human Resources Manager at AgroInvest, cites hiring staff with work experience in microfinance as her biggest challenge, closely followed by lack of highlevel training. The region currently experiences an average client growth rate of 60 percent annually with more than 3 million borrowers, which means that MFIs have to scale quickly. However, not all MFIs see HR as important to their growth. Dragic said, “In some countries in the region, HR practices are understood more as an administrative rather than a strategic function.” Hopefully, that will begin to change. While most MFIs in Eastern Europe were created with significant donor support, today, the sector

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is becoming highly structured with the involvement of commercial banks. Perhaps the influx in capital will enable organizations to focus more on bringing in and capitalizing on human resources and less on pursuing financing. In a market that has seen rapid jumps in client numbers, AgroInvest considers organizational fit the most important criterion of their recruitment process. They try to hire staff committed to organizational vision, mission and values. Keeping employees interested and engaged in the mission of the company is important. Personnel are motivated though nonwork related social activities and through actively instilling a sense of pride for their work in the sector. Middle East and North Africa (MENA) Microfinance has great potential for growth in this region with the demand in bank loans expected to grow at the Compound Annual Growth Rate (CAGR) of 21.81 percent between 2007 and 2011. However, microfinance still hasn’t reached the population that it ought to in this region—today’s microfinance intermediaries meet about 5 percent of the region’s total demand. Ongoing unrest in some Middle Eastern countries like Lebanon, Iraq and Palestine has affected the sector’s growth. Ziad Halaby, General Manager of Ameen s.a.l. in Lebanon said, “The current economic and political instability does pose a problem for us and the industry, as borrowers do not engage in business. Also, it becomes difficult to find and retain staff as higher costs and issues of security increase emigration.” This seems to apply to the whole region, as microfinance here is a young industry. According to Kris Besch, interim director of the Sanabel network, the main challenges facing MFIs in the MENA region are hiring and retaining staff. The problem is that regulations do not always allow the product extension and profitability to increase revenues,

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which makes it difficult to find the resources to grow and adequately staff an expanding organization. Whether due to cultural reasons or instability, some MFIs in Lebanon have fewer women in field staff positions. At Ameen, while 40 percent of total staff is female, on the field there are less, numbering around 30 percent. However, that isn’t the case in the entire region. Besch said, “As women are the target clients of a majority of MFIs in the region, it is more culturally appropriate to have them served by women employees. However, according to Besch, “It’s the top management that has very few women in Arab microfinance.” The Chairwoman of Sanabel, Essma Ben Hamida, who also co-heads the ENDATunisie, has put in a great deal of effort to impose a better gender-balance in Sanabel’s network. As the Chair and the only woman on the Sanabel Board of Directors, she has found it difficult to find and hire more women for the network. To counter the lack of women leaders in microfinance in the MENA region, Sanabel has teamed up with the Women Advancing Microfinance (WAM) network, which aims to advance women’s leadership and support women working in microfinance through education and training. Michael Cracknell, co-director of ENDA-Tunisie has found that part of the roadblock to attracting new talent to microfinance is a matter of good promotion. In Tunisia, opportunities within the nonprofit and microfinance sector are not well-known or considered financiallyrewarding. Besides, the education system does not teach students to take initiative. As a result, young people who join the sector need heavy in-house training, which can be costly. ENDA dedicates 8 percent of its budget to training its staff. In addition, much of the literature in the microfinance field is Anglophone, making it necessary to dedicate time to enhancing staff members’ English proficiency.

cover story One area that may or may not be unique to ENDA is marriage within the staff, which naturally creates some imbalances particularly when spouses work in the same branch and have to supervise or compete with each other. ENDA’s directors, a long-lasting couple, have found it difficult to impose an intra-organization marriage policy. Latin America In Latin America, microfinance is utilized by small business owners and entrepreneurs and their families. As a result, the region has higher average loan values (US$783) than those found in other regions (US$121 for Asia and US$187 for Africa). Microfinance here is also mainly an urban activity (as opposed to large, mostly rural operations in Asia); in Latin America individual credit models predominate over group lending. Bolivia is one of the most competitive and advanced microfinance markets in the region. Mariana Carrion, Sub Manager of HR for the leading Bolivian bank BancoSol—and the world’s first private commercial bank to focus exclusively on microfinance—told us that their biggest challenge is retention of talent. In Bolivia’s aggressive microfinance market, not only do they have to beware of direct competitors poaching their talent, but also of the traditional banks that operate in the market and pose a threat. The Latin American region is known for their adoption and increased use of technology. The same applies to BancoSol. Carrion believes that their utilization of technology has helped increase employee efficiency. The development of sound technology skills has enabled employees to learn more about the ins and outs of how the organization functions. Asia Asia is home to the largest number of MFIs in the world, but the state of microfinance differs markedly by country and area within Asia. East Asia, for example,

is particularly rich in microfinance institutions; according to the Asian Development Bank, the largest number of clients, of savings mobilized, and of loans disbursed is found in Bangladesh, Indonesia, Thailand and Vietnam. However, in Afghanistan, Myanmar, and Pakistan, the microfinance market is not well-developed and outreach is very low. India and China have comparatively low outreach as well, although both have large poor populations. We reached out to several organizations in the region, and heard back from Sadaffe Abid, CEO of the Kashf Foundation in Pakistan. According to Abid, one of the three biggest challenges they face is building middle managers with a strong focus on ethics, values and business understanding. Establishing gender balance at every tier has also been a challenge, although it is a priority for Kashf. To do so, they are considering installing an in-house day care to cater to the needs of their women staff. They also see a strong need to balance gender at the head office level particularly in functions such as auditing, finance and accounts, administration and information technology. With regards to Kashf ’s ability to attract and retain personnel, in a dynamic market, Ms Abid said that at the field level they need local staff, and actively seek them out at colleges close to their branches. For recruiting female staff, they hold special sessions with their families, so that they all understand the nature of the business and the organization’s mission and culture. The organization also invests heavily in training and capacity building. They have a well-equipped learning centre where orientations, training, and refresher courses are held. At the managerial level, they have tried to create more depth in each department. Together with skilled and professional staff, this has enabled Kashf to support the volume of growth with quality staffing. Africa Africa presents a significant market for

microfinance, but many MFIs face sustainability issues here. The state of the sector in this region varies highly from country to country due to the differences in economic and political environment, legal and regulatory frameworks, as well as outreach and sustainability. Two MFIs, AFARD, dedicated to poverty alleviation in Uganda, and PRIDE, which has operated in Tanzania since 1994 responded to our queries. In Tanzania, where more than a million people (around 7.2 percent of the population) live with AIDS, as well as in other highly-affected countries, MFIs have to be sensitive to the needs of HIV-positive staff and cope with AIDS-related sickness. PRIDE deals with the issue by covering the medical expenses of staff and their close family members, and has come to accept sickness-related absences, although they cut into the organization’s bottom-line. As in several of the other regions we looked at, gender balance can be a problem here. Alfred Lakwo, Director of AFARD said, “The low presence of women in management positions at AFARD is due to their lack of access to higher education, a problem shared with many other African countries.” Faustin Shoo, a PRIDE representative said that the main problem with HR in Africa is that it is hard to train management staff. Because of the associated cost, many small institutions have trouble offering their staff specific trainings. Lakwo, who echoed that sentiment, explained, “Microfinance is not yet part of university curricula, but some universities offer continuing education courses in the field, which is useful for graduates in Social Development or Economics who are willing to work in microfinance.” In terms of HR policies, Lawko feels that “MFIs do not make the most of their human resources because they do not customize their policies to suit both the specifics of the resources they need and the kind of market that they want to grow.” n

1 Pytkowska, Justyna and Ewa Bankowska. “Microfinance Sector Development in Eastern Europe and Central Asia (ECA)” Microfinance Centre. 2004 http://www.european-microfinance. org/data/File/2004_Microfinance_in_ECA_(MFC).pdf 2 Middle East Banking Sector Analysis (2007-2011). RNCOS, Aug 2007. 3 “Trend Lines 2003-05 MFI Benchmarks.” MicroBanking Bulletin Issue 14 (Spring 2007). 4 Weiss, John et al. “Microfinance and Poverty Reducrtion in Asia, What Evidence?” Asia Development Bank Institute (2003).

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microfinance insights

“Knowledge is of two kinds. We know a subject ourselves, or we know where we can find information on it.” Samuel Samuel Johnson Johnson

a quarterly publication by Intellecap

proudly acknowledges its partnership with the Swiss Agency for Development and Cooperation - SDC

Microfinance Insights appreciates the support & ongoing guidance of SDC for the year 2008, especially in our efforts to build sector knowledge and bring South-South voices to the forefront of microfinance.

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To read about SDC’s work in India, visit www.sdcindia.in

interview

Lessons from the Indian Retail Guru Kishore Biyani, Group CEO of the Future Group, is one of India’s most successful first generation entrepreneurs and widely considered to be India’s retail king. His chain of retail outlets—Pantaloon’s, Big Bazaar, Food Bazaar to name a few—have expanded quickly and successfully throughout the country, capitalizing on the economic boom, and rising middle class incomes. In an exclusive interview, Nachiket Mor, President of the ICICI Foundation for Inclusive Growth, at the invitation of Microfinance Insights, sat down with Mr. Biyani to draw from his past experience of being in a start-up space, to shed some light on what the growing microfinance sector can learn from a sector that some call the new BPO. Sketch by Ranjan Banerjee

Everything depends on second level leaders… Mr. Mor: The reader of the magazine is a practitioner who is thinking about growth, or those that are thinking about getting into the sector, and thinking about how to move forward. Wearing your startup hat, do you have any sense of general advice for the sector to think about—as they think about “people” issues? Where do you get the initial lot of people, people to work with you, believe in you? Mr. Biyani: You will not get extraordinary people to start with. But, ordinary people are plenty in this country—with the right leadership, you can get everyone to perform well. Most people are moral, decent and smart enough. The problem is when you expect too much—perfection— it’s too much. You can’t set expectations too high.

Kishore Biyani, Group CEO, Future Group and Nachiket Mor, President ICICI Foundation

Mr. Mor: But one could argue that Future Group has a Kishore Biyani. And really, you made a difference. And this sector has its own Biyanis: Vikram Akula (SKS), Vijay Mahajan (BASIX)—the older leaders in this field, to name a few. But, the bulk of this work is done by the lower level staff…

Mr. Biyani: Yes, through skill leadership. Thought leaders are not going to do everything. But, I think that skill leadership can be developed a lot.

Mr. Biyani: Yes, top leaders are required. But, everyone is an integral part of the business. You can still create second-rung leaders who believe in the philosophy and concept. And there are many people like that. Everything depends on how second level leaders build things out. Today we say that we are more than 100 leaders at this company, but when we started we had none. One leader can create many subleaders. The strategy is to have everything managed by a thought leader. And there www.microfinanceinsights.com

will be few thought leaders. But, there are others below who can develop skilled leadership. Mr. Mor: So, the top leaders, the thought leaders, have provided the guidance, but the lower levels can take that idea and see how it can be implemented…

Mr. Mor: One issue that comes up is the area of work competency and focus. In microfinance you see two kinds of people: mission driven—those who think we should only do this work to help poor people; and those who want to work broader, and expand into different areas by creating new offers—but sometimes you have too much breadth in that kind of situation. For a long time, you’ve stuck to one arena, but now you’re branching into others… Mr. Biyani: Actually, we’ve always been in the consumption space. We have never left the consumption space. Even today,

whatever we do is part of the consumption space. The way that we look at people is that they are consumers and we should provide them with whatever they want— products, goods and services. We have not been outside of the space. I have a very clear and open-ended design. We work on an open source policy and don’t define segmentations too sharply, in whatever we do. I think that definition can be of use. We are all a victims of the B-school education system, which looks at allocating resources and looks at segmentation too early. When you’re thinking (about expansion), you have to look much, much broader. Mr. Mor: Any guidance for the microfinance institutions that are starting up and have acquired 10,000 clients—should they take the same model and go to 25 different locations, or take the same location and provide loans of varying amounts, and product diversification? Mr. Biyani: I think that in microfinance everyone will have to do everything in order to provide value in the market. Microfinance will have to look at smaller loans, different enterprises, and different metrics

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microfinance insights

interview for everything. We live in a huge country of a billion people— enough to create the capacity to consume, or to earn, around which a whole manufacturing sector can be built up. I see a “New India” building up—on the ports, airports, railways—each a new area of delivering products and services. The new areas of delivering products and services can be linked to microfinance to the various set-up registers. I think that the modern ecosystem’s thought process is limited to thinking large—large things, large corporations delivering goods and services. But, to make a 1 billion [person] country run like a 200 million [person] country or a 10 million [person] country, your model has to be very different. Here is where I believe microfinance can play a big role because they are a consolidator. [They can] create alignment of groups at both ends and keep the funnel absolutely seamless. Mr. Mor: So, what I’m hearing from you is don’t be too rigid about what you’re doing. Start where you feel comfortable, be organic, grow around it, and don’t have a pre-conceived notion of a large single company running like a machine. Mr. Biyani: Exactly. Things will happen as they happen. And no one can define the model from the beginning. Mr. Mor: A question about loyalty. How can these MFIs that are losing people, build loyalty? Mr. Biyani: Those MFIs that can’t retain people—they say that it’s the employee’s fault—I don’t buy that argument. I believe that it’s the MFI’s fault if they can’t retain someone. The MFI needs to make it interesting and worthwhile to work there. The problem is that so many managers want to escape when there’s a problem. They don’t want to look at themselves. That’s not what leadership is about. Someone has to take the blame. Mr. Mor: The NGO sector thrives on flat structure. Everybody is equal and involved in enormous consensus-building processes. Yet, you can spend three days

microfinance insights

discussing issues and even then not reach a conclusion. This leads me to think about the role of hierarchy—what I hear is that your organization tries to maintain a flat structure and stay away from hierarchy.

“Those MFIs that can’t re-

tain people—they say that it’s the employee’s fault—I don’t buy that argument.

”

- Kishore Biyani, Group CEO, Future Group

Mr. Biyani: I think that decision making has to be as fast as possible. Without decisions you cannot grow. If you want to manage growth, decisions can only happen if the organization’s structure is much flatter…if you look at the hierarchy of structures of businesses in the 1900s, during the industrial economy information used to flow upwards based on the capacity of people to make a decision. Today, everybody gets the same information. I do not know why we need hierarchies in any case. Mr. Mor: I come from the banking business, a business in which the sale happens ex-post. Today, I give you money. The sale is when you bring my money back. There is this thought that if you don’t have a command and control structure, if you don’t have rigidity, fraud will happen, and you will lose your money. Do you think this is a reflection of the negative mindset we are bringing to the situation or is there a slight difference here that we would want to think about? Mr. Biyani: I think that trust begets trust. You have to create a society where trust is the edifice. And based on your insights, you have to create management systems. But it can’t be a risk management system like you have in the West that is very process oriented—you have to look at the cognitive styles or the softer aspects of the people you are working with. Mr. Mor: So, be pragmatic, but be trusting. In terms of people, as you’re thinking about building out an MFI, don’t start out with the premise that you’re guilty until

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proven innocent. Wait until you see evidence of wrongdoing before you discipline. Wait until someone does something wrong before you start accusing. In many ways there is trust between top management and the front office. But, with middle management level, create structures that allow clear decision making. This means, make sure that you trust each other, and allow business to happen. Mr. Biyani: There are all these boundaries to prevent decisions from happening, and really, values should be your boundaries. Decision making is very important in any fast-growing business, and today India is trying to catch up with the world—so making those decisions needs to be much, much faster. Mr. Mor: When we (ICICI) decided to get into microfinance, we tried to do it ourselves, but we had a bit of a challenge—our cost structure…so we built partnerships. We decided to work with partners on the ground and see what we could do to enable our partners to grow. This means that our control over processes is lost. For example, in the Andhra Pradesh crisis (MFIs in this Indian state were shut down due to accusations that they were charging usurious interest rates and bullying clients), we learned that some of our partners were not treating their clients well. Perhaps, the nature of the partnership was such that our control underneath was not that high. What is your experience with partnerships, do you enter a lot of partnerships, and do you think that at the core level you need control? Mr. Biyani: We are not controlling at all. Our businesses are not. We believe a lot in partnerships and treat them like an Indian marriage—there is respect and compromise. And whichever party does something better, takes on that role and we trust that they will play that role better than us. Mr. Mor: As you think about your growth, do you see a lot more partnerships? And what about your brand? Would you share

interview your brand? Do you think that your brand should dominate? Mr. Biyani: We believe the next phase of growth is going to be true collaboration through alliances and partnerships. We see co-existing partnerships. We don’t care so much about branding. We are practical about these things. The brand is what the brand does. Brand equity should be scrapped. The era where the brand matters is over. Everything used to start with the brand. But, no longer. No brand in the world stays the same for more than a few years. Look at ICICI—it’s completely different today from what it was when it started. You can’t shape the destiny of a brand. Mr. Mor: When you think about strategy, when you think about what you’re doing 15 years from now, how precisely do you articulate it? Do you say I know I’m going to go here and here in the future? Or do you only see tomorrow and the day after tomorrow? Mr. Biyani: We do plan a lot. We do scenario planning exercises in terms of how we think the country will emerge. We do schematics. We design the organization and strategy for 3-5 years. We can’t think 15 years ahead because of the technology and the reception in the market place today. The economy is such that something will come up that you can’t anticipate. You can’t create anything that will last more than 5 years these days. That’s why I don’t agree with perfection. Permanency was an American notion. Nothing is permanent. There is no permanency. Your ideas are going to be more important in any case. “The marriage-marketability of microfinance is not very high…” Mr. Mor: The estimates that we have about the number of people in India needed to serve the microfinance sector alone—about 300 million—and the best possible ratio we could get from credit officers needed to serve this population would be about 1000 people per credit officer--but that‘s an extreme—it’s more likely 400-500 people per officer. So, www.microfinanceinsights.com

when thinking about the number of people required in this sector—just looking at credit officers—it is enormous. So, do you have any guidance for India or for large independent MFIs, like SKS, Spandana and Share, who have grown to over a million partners and show no signs of slowing down? You have grown all over the place, and I don’t know if you’re struggling, but is there a people issue here, in terms of raw recruitment and training? Mr. Biyani: To be very honest, I don’t see a people issue in this country, because the number of people in the talent pool is large enough. But, I think that few people understand the concept of microfinance— it’s too technical. It has to be made simpler. What works in this country—what we’ve discovered in the retail business—is that a person working in a particular field, a young person, unmarried—what they worry about is how glamorous is a job in terms of his marriage market; what value can he derive from his job on the marriage market. If you make that interesting, you’ll get everyone—no problem bringing in people to work in the sector. Today, the marriage-marketability of microfinance is not very high. And I think that’s one of the biggest insights I can ever give you.

“We believe a lot in partnerships and treat them like an Indian marriage—there is respect and compromise.

”

- Kishore Biyani, Group CEO, Future Group

Mr. Mor: I had never considered that at all. Mr. Mor: Well, when people think of their careers, they don’t think that there’s a career in microfinance. If I were a young man in a hurry to make my mark, microfinance is not considered a viable option. What specifically are you doing to glamorize retail? Mr. Biyani: We have created schools. We have made retail glamorous—but we’ve worked on that. We created programs at 14-15 schools in the country. And now we

are building our own schools. And that has been a successful way to bring people directly into the business. Now we are looking at changing the content—and maybe it’s something you can use. We use mythology and storytelling. People understand everything in relation to other things. No PowerPoints or slide presentation, no teachers, just storytelling. In fact, we are building up a whole education system right now—a leadership curriculum, entrepreneurship curriculum. And it’s all based on digitized content and storytelling, where we don’t require teachers. You should create schools. Mr. Mor: So you’re saying, if we thought carefully about this, the microfinance sector could try to use a similar schooling system in order to find a way to transform. Mr. Biyani: Yes. But it’s very iffy because you can’t deliver this through systems of the West. You have to build your own. And all of your systems right now are borrowed, not your own. Mr. Mor: Yes yes. An MFI in many stages looks like a start-up organization, and any young man that wants to join may wonder if it will survive or not. And somehow the anthropological instinct that you need to join a young company, to be a part of it even as a credit officer, seems to be a little bit of a struggle. Mr. Biyani: You have to capture the success stories and communicate those stories—even through popular culture—like through commercial cinema and television. Mr. Mor: So, your core message is that we’re thinking about recruitment too analytically—we should think about things from our hearts. Think about the ideas. Stop thinking about these things as HR issues, management issues. And think about things in simple terms. This is about desirability, appeal, glamour—and we should think about this from those perspectives.

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microfinance insights

interview

Mr. Biyani: I think that this is a transformational idea, but it has not been treated as such. Most people use management techniques for incremental thinking, not transformational thinking. Mr. Mor: What is the transformational thinking going on with your company? Have you thought about getting into microfinance at all? Mr. Biyani: I think our next big venture is Future Ventures. We want to own the entrepreneurship arena. I think that our family system leads to failure because it doesn’t allow you to think big. People think that we are a country of entrepreneurship. But Indians just do small, small things to make ends meet. That is not entrepreneurship. Entrepreneurship is thinking and doing something big, which is why we’ve started our entrepreneurship school. So people will think big and grow big. And in a way this is similar to microfinance—by turning people into entrepreneurs. But, we are not looking at microfinance as an area to go into. We are only interested in bringing retail where there is a capacity to consume—which microfinance can create, but no; we’re not going into the sector itself. Mr. Mor: You have multiple formats of stores. And in some stores you deal with “bottom of the pyramid” consumers— which everyone has a theory about. You’re only the largest seller of gully cricket bats, after all. Mr. Biyani: I think “bottom of the pyramid”—it’s absolutely nonsense. It doesn’t exist in a country like India. Because the bottom—the 25%, the people who don’t have anything—what can you sell them? I think the bottom of the pyramid has two ends to meet—and they are concerned with food, clothing, and shelter. We are only in the middle of the pyramid. The bottom of the pyramid was created in the West and is a great textbook word, but it is nonsense. I don’t mind being quoted on this.

But, definitions and groups are changing. For example, the urban poor, their aspirations are changing. They see their future in their children. And their second aspiration is to lend money to others— they care about how the community perceives them. But, mostly they feel empowered by lending money to the next generation. Mr. Mor: In terms of where you’re growing your business, volume, etc. you mentioned that 70 million people have visited your stores. Mr. Biyani: This year it will be 200 million.

“The bottom of the pyramid was created in the West and is a great textbook word, but it is nonsense.

”

- Kishore Biyani, Group CEO, Future Group

Mr. Mor: So, we take heart from your success to say that it can be done, that this volume of people can be managed. Mr. Biyani: India is a huge country—you can do a lot. We see a trend in India— which no one has really seen, and I’m saying it for the first time: people see everything but they go back to their roots. This is both positive and negative. Indian people are willing to try anything—watch it, experiment with it, use it. But, to project whether they will keep using it, watching it for a longer period of time is circumspect. Our tendency as Indians is to go back to our roots. Mr. Mor: We’ve discussed hierarchy, the issue of trust as you manage growth what about systems? How often do you review performance in your stores? How much technology have you put in place? Mr. Biyani: I think we have a good amount of technology. I review everything once a month for all of our businesses. You need to understand what’s happening. Your thinking is only as good as the informaBearing the weight of regulation

1 Crutchfield, Leslie, and Heather McLeod Grant. The Six Practices of High-Impact Nonprofits. San Francisco: Jossey-Bass, 2008.

microfinance insights

march 2008

tion you have. We need to read plans; that’s how you keep on learning. Systems for core thoughts, core processes should be automated as smoothly as possible, but not for other things. You have to have a balance. Mr. Mor: There is a book that came out on the most effective nonprofits.1 Listening to you during this interview, I can hear some resonation there. The book says, look at the most successful nonprofits, the ones that make the most impact, and learn from them. I want to see what you think of this…the book says that the most effective nonprofits are the most secure: they didn’t care about brand or sharing, in fact they openly shared their donor lists (which, if you know nonprofits, most of them guard these very closely). They found that by being more open and more secure, the impact that they had was much greater than those entities that built everything in a very tightly guarded manner. Mr. Biyani: Absolutely. Actually, we discovered while doing the business of retail something very similar. Let me tell you a little about it. We went into a cycle of a human being and what makes them run. It was greed, fear (it won’t be available tomorrow), vanity (this will make me look better), ego, and the most surprising of all: altruism. If a customer feels that a business is a good citizen, they will be loyal. So we are open. Everything is open in our office, down to our locks. Nothing is hidden. Everything is fully transparent. There is some theft, but we don’t penalize anyone. We try to create a nice environment, and that environment creates a value of its own. That’s why we don’t mind being copied. We can create the model and build our own soul around it. Anyone can copy the model. They can’t take our soul, our values. Mr. Mor: Loyalty is important. An open culture is important. We learned so much from you in this conversation. Thank you for your time. n

gender gap

Creating Leaders at the Bottom of the Pyramid On March 5, leading global investment firm Goldman Sachs announced its plan to invest up to US$100 m in management education that will help teach women to be entrepreneurs, and help women that already run small and medium enterprises gain the skills to run their businesses more effectively. The powers that be at Goldman Sachs know what leading economist Amartya Sen knows: “The changing agency of women is one of the major mediators of economic and social change…Nothing, arguably, is as important today in the political economy of development as adequate recognition of political, economic and social participation and leadership of women.”1

icrofinance has had a congenital link with women’s entrepreneurship. Professor Yunus’ experiment has born an entire industry that caters primarily to women, encouraging many, often the poorest of the poor, to tap into their spirit of enterprise and to bootstrap themselves out of poverty. While microfinance has created business women at the bottom of the pyramid (BOP), there exists a lack of suitable skill development (such as financial and managerial skills) that will enable these women to move up the ladder. Business School for Rural Women But this is not to say that such skills are not being imparted. The Mann Deshi Mahila Bank, based in Mhaswad, a town of 100,000 in the Satara District of the Indian state of Maharashtra, is one such organization that works towards the holistic development of women entrepreneurs into

Figure 1: The Mann Deshi Eco-System www.microfinanceinsights.com

women business owners and bank customers. Founded in 1997, by Chetna Vijay Sinha, the Mann Deshi Mahila Bank has grown from US$15,000 to US$2,250,000, and has created, in the process, 17,000 women entrepreneurs.

“Unlike traditional B-schools that delve into theory of microeconomics, accounting, organizational behavior and so on, this business school focuses on imparting simple business skills.

”

The bank’s successes led to the creation of several sub-organizations, one of which is the Mann Deshi Business School for Rural Women. Set up in partnership with HSBC Bank, the school primarily aims to make its range of courses accessible to women who, due to financial and cultural constraints, would be unable to

access such training in neighboring urban hubs such as Pune or Mumbai. Together with the Mann Deshi Business School for Rural Women, Sinha has been able to create an ‘eco-system’ (Figure 1), if you will; a system which empowers women through microfinance, and enriches them through basic business education and skill-based training. The model is simple, but different, and something very few people caught on to until now. Sinha explained, “We started with the idea that the women have to create and market their products. Our entire effort is not directed to produce something but directed towards adding value and forming a better business to reach more clientele.” What does the Business School Offer? Unlike traditional B-schools that delve into the theory of microeconomics, accounting, organizational behavior and so on, this business school focuses on imparting simple business skills. The school’s courses can be categorized into basic businessoriented courses, like financial literacy, marketing and product development, and entrepreneurial or skill-based courses. Students are taught the basics of finance: how banks work, how a loan works, how to use the money that has been loaned or earned, the concept of interest and profitability. A marketing course would focus on simple business skills, such as how to raise product awareness, sales techniques, product packaging, and presentation. The skill-based courses are diverse, ranging from cotton bag making, basic sewing and blouse making, to screen-printing, English language, and computer skills—all tools that could be turned into an enterprise, if a woman proved enterprising enough. Headquartered in Vaduj, an hour’s drive from Mhaswad, and attached to a

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microfinance insights

gender gap branch of the Mann Deshi Mahila Bank, the business school attracts women from the surrounding villages as well as larger towns. As most of the women who attend the school are part of larger, joint families, the school’s courses are designed so that they can attend after completing household chores. This means that there is usually no family resistance to them attending the school. The most popular course is the cotton bag-making course; cotton bags come in various shapes and sizes and are distinguished by their pretty patterns and thick, soft lining. Women who have completed the course create and assemble about ten bags a month, which they then sell to local stores or to an aggregator, supplementing their household income with their earnings. Other students who have taken courses such as computer literacy and English are able to find jobs as accountants or secretaries in local businesses, and some even move to Pune or Mumbai to join the cities’ booming BPO (business process outsourcing) industry. Business School on Wheels In 2007, in partnership with the Deshpande Foundation, which supports innovation and entrepreneurship in India, Mann Deshi and Mann Vikas (the NGO wing of the bank) established the Business School on Wheels for Rural Women. This currently operates in the Hubli-Dharwad district in the neighboring state of Karnataka. A specially-designed bus travels the district and offers courses similar to those of the business school. The mobile nature of the business school means that none of the courses last more than a couple of days. The idea, however, is to impart basic entrepreneurial skills to women who otherwise would have no access to such training. What is striking about the Mann Deshi Business School and the Business School on Wheels is that all their courses are designed not just to teach skills, but also, at a larger level, to cater to the needs of the society. For instance, the Business School on Wheels teaches women who are vegetable vendors how to package their produce into plastic bags; this ensures that the vegetables last longer, and also allows them to sell these to larger retail outlets

microfinance insights

who prefer packaged produce in order to cater to the preferences of India’s rising middle-class consumer. Other notable courses are book binding and curd-making, neither of which you’d find at Harvard Business School, but both of which answer the needs and wants of the community and are valuable skills for the women in Hubli and the surrounding areas.

“

Other notable courses are book binding and curdmaking, neither of which you’d find at Harvard Business School...

”

By enforcing a strict no educational qualification, no age bar policy, and with fees ranging from INR180 (US$4.50) to INR1800 (US$45), the school has been able to attract, in the past year, 650 women from all social backgrounds and capacities, and provide them with skills they otherwise would never have been able to acquire. From Field Laborer to Entrepreneur Vanita Pise is an excellent example of a woman who has found opportunity in both the business school and the bank. When her husband’s struggling poultry business began to founder, Vanita decided to take out a loan from the bank, foreseeing that the meager income from her job as a field wage laborer would not make ends meet. Vanita used the loan to rear buffalo and goats, peddling their milk from house to house. In 2004, confident in her ability to service a larger loan, Vanita took out INR15,000 (US$375) from the Mann Deshi Bank to purchase a machine to make paper cups for prasad, or prayer offerings. It was a wise idea; there is a fairly large temple on the outside of town which receives visitors regularly who buy the paper cups and put flowers and other offerings in them to leave at the temple. After a while, the business took shape, and Vanita started to outsource some of the work, allowing other women to benefit from the market. Today, Vanita leases out eleven machines, selling raw materials to the lessees, and buying back the finished

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products. In the meantime, Vanita has not forgotten the importance of adding value to her business. With the help of courses at the business school she has been able to expand her business, and today also works as an instructor at the business school. In 2006, she received from Indian Prime Minister Manmohan Singh the CII-Bharti Woman Exemplar Award, honoring grassroots, under-privileged, community-level women who have excelled in their contribution in the development process. India’s First Rural Women’s Bank Sinha started her Mann Deshi empire with one certainty: the need to bring women a sense of ownership and power. In Sinha’s mind, she has not just started any old bank. On the contrary, she told us, “Mann Deshi Mahila Bank…is a bank that works for financial inclusion and to do that you need to change policies. We work in a very rural area and we work with women. That’s our business.” The regulated cooperative that received an “A” grade from the District Cooperative Department in 2000, equips clients with liquid assets which fuels financial empowerment that in turn enables women to become entrepreneurs and plan a stable future for their families. Services the bank offers include savings, loans, insurance and pensions. A partnership with UTI Mutual Fund has enabled Mann Deshi Mahila Bank to be the first to offer pension schemes to clients in Maharashtra. The bank is the only one in India to have more than 11,040 clients from “backward castes,” a reference to people

Maya Mohire: Veteran Credit Officer

gender gap whose livelihoods come from agricultural or manual labor. Sinha found inspiration in Ela Bhatt, founder of the Self-Employed Women’s Assocaition (SEWA), (read more about Ms. Bhatt in our interview with the President of Women’s World Banking in this issue) whom she met as an activist during the 1980s. Sinha, originally hails from Bombay, but got a bug in her bonnet that drove her across the dusty hills and fields of Maharashtra standing up for the rights of rural and marginalized populations. Sinha and her cohort did not set out with the goal of starting a bank. Their original mission was to gain property rights for women. That evolved into something much bigger. With the goal of balancing the equation for women in Satara district, a team of seven decided to learn the banking business and in 1997 received a cooperative banking license by Reserve Bank of India. The initial years were the most difficult Sinha recalls: “When we first started, we advertised for positions in the newspaper and had only a few applications coming in. Some of which were shams – why would people apply to such a remote place? It was very difficult to attract talent from outside. Instead I got local people to come on board. I’ve realized that local people are much more effective, especially for rural institutions.” “I [Sinha] feel that if you are lending to women in microfinance, as we do, it is imperative that you have mainly women on your staff. For example, our loan services for gold were developed by the women clients themselves. The reason we have them as services today is that women credit officers listened and understood our client’s needs. A deep sense of understanding goes hand in hand with very good communication skills. We have found that men can handle the job, but it is difficult for them to go into such details with clients. When MFIs say that women are not willing to handle cash, I actually do not agree with them.” Women have proved themselves as being more observant and confident in risky situations as they tend to think twice during loan disbursement, collection and

credit appraisals. Maya Mohire is a collection agent with Mann Deshi Mahila Bank and has been for the last ten years. Her seven days a week, five hours a day, work routine entails walking from one client’s home to the next, collecting INR10 or INR15 per client, usually facing 200 clients daily. Maya is empowered by knowing that she is the link between the bank and its clients, well aware that a lot rides on her disseminating information about products and collecting the cash. Like Sinha, Maya too believes that women collection agents are better listeners. Although some collection agents do progress up the ladder to branch manager, Maya has not pushed to move out of her role because it provides her with sufficient job satisfaction. Building the Right Culture There are strong values embedded into the organizational culture at Mann Deshi Mahila Bank. The staff is motivated by the fact that they help other women within their own communities in contributing to building entrepreneurship and sustainability. Awards such as ‘Best Branch’ encourage improved teamwork and efficiency. Sinha believes in sharing decision making and encouraging ownership. There is a bottom up approach to product design and operations which make Mann

“When MFIs say that women are not willing to handle cash, I actually do not agree with them.

”

-Chetna Sinha, Founder and CEO Mann Deshi

Deshi Mahila Bank less hierarchical, more creative and practical compared to some of the larger MFIs. For example, one of the products provided by the bank is a large umbrella intended to protect street-side vegetable vendors from the sun. The product is provided in place of a typical loan, which is then repaid in cash with inter-

1 Sen, Amartya. Development as Freedom. New York: Anchor Books, 2000.

www.microfinanceinsights.com

est by the women borrowers. Sinha, who thinks that other sectors could learn from microfinance, said, “The microfinance spaces are dignified spaces to do business in. It is very interesting working with, for example, street vendors, to discover their innovative ideas about financial services – this should be taken into consideration by the mainstream sector.” The way forward The activities of the Bank and the Business School are a perfect example of how seamlessly an ecosystem at the base of the pyramid can work. Vanita’s story is proof that by extending financial support, as well as training, the bank has been able to create a locally-based supply chain for its business. Today, Vanita, Maya and others like her are all part of the Mann Deshi system. They add value to the bank’s business, bring in clients, work as trainers, credit officers and so on. Together the operations of the bank and the business school have given the women of the region a sense of pride, and productivity. At a time when cities are being inundated by thousands of newcomers every day hoping to earn a living, the Mann Deshi system has also given women in the community the rare opportunity to stay and work, rather than migrating to urban areas. Both the Bank and the Business School have come a long way in the last few years. Padma Kuber, Executive Director of the Mann Deshi School is clear that the way forward is to have a business school attached to each branch of the Bank, and to have a mobile business school for the Satara area. When asked about her vision for the future, Sinha replies, “Every person who wants capital should be able to have access to it. Every person who needs training should be able to get into business school. You do not need to pay big tuition fees to go to MBA School. Here you have the opportunity to achieve a more dignified way of living.” n Jerilene Creado and Ranjit Koshi, who work on the editorial team, wrote this article based on the team’s visit to Mann Deshi.

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microfinance insights

gender gap

Sector Targets a Majority of Women, Employs a Minority Much of the microfinance sector’s reputation for positive social impact stems from its use as a tool to empower women. According to the Microcredit Summit Campaign Report 2007, 85% of the poorest clients served by microfinance are women. One could not be blamed for assuming that the majority of people employed by the sector would also be women—“for women, by women,” so to speak. However, in a recent Microfinance Insights survey, we found that women make up less than half of all microfinance staff members, and fill even fewer of the senior management roles. Shouldn’t the sector see the employment of women as yet another bottom line? We turned to an expert, Mary Ellen Iskenderian, President and CEO of Women’s World Banking World Banking in New York, to get her take on the imbalance in MFI staffing.

ary Ellen Iskenderian is the President and CEO of Women’s World Banking (WWB) and sits on the advisory boards of the Dignity Fund and Kiva. WWB supports the world’s largest network of more than 50 MFIs and banks in 29 countries throughout Africa, Asia, Eastern Europe, Latin America and the Middle East, offering them a full menu of advisory services. More than 70% of their clients are poor women entrepreneurs and ten of WWB’s network members have been named to Forbes’ top 50 MFIs. With more than 20 years of experience in building global financial systems throughout the developing world, Ms. Iskenderian leads the WWB global team in providing technical services and strategic support to network members. It is no surprise that Ms. Iskenderian has become a leading voice for women’s leadership and participation in microfinance and a strong advocate for the role of capital markets in the sector.1 Microfinance Insights (Insights): What do you see as the main barriers and challenges to having women working in the microfinance sector, particularly in the field? Mary Ellen Iskenderian(Ms. Iskenderian): As I understand the challenge in most countries stems from cultural notions of women’s roles, for example, while women are single there might be a greater willingness on the part of women’s families to let them work as front line staff, but as soon as they marry and certainly once they start having children, it becomes unacceptable. Long distances and long hours away from the family are difficult for women to accommodate and for their families to un-

microfinance insights

Ela Bhatt, a “Mother of Microfinance” derstand. For example, Uganda Finance Trust has a large presence in Kampala through its headquarters, but the main operation and its real strength comes through its rural branch network. What we’re finding is that women reach a certain level and they don’t want to be separated from their families, so they are not willing to take branch management positions in more remote areas while their husbands are in the city. Additionally, what we’re seeing in Uganda, with so many mainstream commercial banks now entering microfinance, is that they are poaching staff and MFIs are unable to retain them for other job opportunities. So staffing a more rural network is a real problem for some of our network members. I was in Bangladesh a couple of weeks ago and spent some time with ASA.2 They are having a problem with field level wom-

march 2008

en staff and senior level women staff. They had carefully nurtured a group of four women through to loan officer, branch manager and headquarters positions. Ultimately, one of them was recruited by an international organization. ASA, as so many other MFIs, wonder what in the world they can do to hang on to their employees in whom they invest so much. However, some MFIs are very creative with their personnel problems. Insights: Women are stereotypically known for having “soft skills,” like the ability to communicate clearly and network. Does a“soft” skill set translate into greater efficiency amongst MFIs that employ more women on their workforces? Ms. Iskenderian: Again, I would point to Uganda - we see a pattern emerge of problematic branches being turned around by women employees who have had a good

gender gap performance record. So women are good managers, and they are able to inspire other women by their managerial skills and example. I think women have more empathy that allows them to be aware to their clients’ needs. Any perceived “softness” has not been an issue. In fact, research has shown MFIs managed by women as having systematically higher returns on assets than MFIs run by men.3 Insights: How do cultural notions impact the recruitment of women? We are particularly interested in contrasts between regions. Ms. Iskenderian: There are challenges across regions in terms of human resources and recruitment of male and female staff. The microfinance sector has extraordinary growth rates and is growing at 35-40% per annum, and that kind of growth requires an enormous effort for recruitment, particularly at the loan officer level for women. It gets ramped up even more so within societies that are, for lack of a better term, highly gendered. Pakistan and India are countries where the biggest gap is seen between managerial and total staff. Latin America tends to perform best, in our network, at least across middle management, governance and senior management (see Table 1). In Latin America we see women as the principle drivers of the household, and women around the world, are generally drivers in their households, but this does not necessarily translate to being drivers in the workforce of the microfinance sector. Insights: Is there a way to bring more women in? Can we market microfinance in a different way? Ms. Iskenderian: To maintain a correlation between women on the frontline staff and women clients, we need to help our network members focus on HR policies and ensure these are as woman-oriented as possible. WWB is pioneering a product currently called Gender Audit. We look at all of the policies that an MFI has in place to ensure that they are doing everything they can to attract and retain women, particularly at the credit officer level. One point that has become clear is how www.microfinanceinsights.com

Table 1: Regional Trends: Board, Senior Management, Middle Management and Total Staff I n terms of governance, the highest percentage of Board participation by women is in WWB’s African network members (73%). This ranking has held stable over the four year period from 2003 to 2006. The lowest percentage is in WWB’s network members in the MENA/Europe region (47%). I n terms of senior management, the data on WWB’s network members shows greater shifts over the 2003 to 2006 period. In 2003, Latin American Countries (LAC) had the highest number of women in senior management (86%) but there has been a steady decline in this percentage, with 60% women’s representation at senior management in the LAC region in 2006. The Asian and African regions have also experienced declining percentages, from 58% to 46% and 60% to 50% respectively over the same four year period. The only region to show an increase is the MENA/Europe region: from 52% in 2003 to 61% in 2006. I n terms of percentage women staff, every region has shown an overall decline from 2003 to 2006. The Europe/MENA region has the highest percentage of overall women staff with 68% in 2006, down from 71% in 2003. The lowest percentage is in the Asian region, with 31% in 2006, down from 49% in 2003. I n terms of middle management, MENA/Europe and LAC have the highest percentages and both have witnessed increases since 2003, from 65% to 70% and 58% to 66% respectively. The Asian region has the lowest percentage of women in middle management and has also had the greatest decline over the past four years, from 43% in 2003 to 30% in 2006. nuanced the issue is; just capturing numbers and percentages doesn’t necessarily tell the whole picture. Women’s World Banking has always prided itself on being a women-led network, but what we’ve realized is that sometimes organizations that should pass the “women-led” criteria don’t because of numbers. For example, our network member in Jordan,4 which I would put up against any MFI in the world for being sensitive and responsive in terms of personnel issues such as recruitment and retention of women, as well as product offerings that are women-oriented, is not considered “women-led” because less than 50% of the Board is women.

“In fact, research has shown MFIs managed by women as having systematically higher returns on assets than MFIs run by men.

”

So, we are giving serious thought to re-examining what criteria we should be measuring against and looking much more holistically at an organization and its policies, rather than just how many

Board members are women and whether or not the CEO is a woman. We think that there are some terrific organizations that are extremely supportive of both women’s leadership in the industry and women clients, but they might not necessarily meet the numerical criteria. Insights: Is there a gender mandate that MFIs must pass in order to become WWB members? Ms. Iskenderian: To date, our performance standards are good, and unlike any other network, we track the percentage of women clients, the percentage of women in senior management, middle management, on the board of directors and total staff (see Tables 2-5), but it has not been more than a 50% requirement. In other words, the majority of the workforce does not have to be women. In fact, before our “Microfinance and the Capital Markets Conference” in New York in February, we brought our network together to talk about precisely these issues, i.e. should we use our Gender Audit as an annual or bi-annual due diligence exercise for maintaining network membership? We are planning to put in place

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microfinance insights

gender gap a pledge or commitment on the part of network members so they do not just maintain numbers, but implement a more effective, holistic organizational policy that enables women to be attracted, recruited and retained. We are still in the development stage of the Audit, keeping our network members in mind. Insights: We’ve always found it a little ironic that microfinance is talked about as a tool to empower women, and yet there’s not a “mother of microfinance”… with all due respect, it’s always Muhammad Yunus we hear about. Ms. Iskenderian: The industry as a whole is very excited about the recognition of

microfinance, and there were a lot of early women founders and pioneers whose work began at the same time as Professor Yunus’ work with Grameen. Certainly Ela Bhatt, one of the founders of Women’s World Banking, was an extraordinary early advocate for the impact that a financially and economically empowered woman can have on the life of her family and those around her. We were delighted that Ela was recognized as a founding member of The Elders (a group of world leaders led by Nelson Mandela who contribute their wisdom, leadership and integrity to tackle some of the world’s toughest problems). WWB was founded by a group of women who met at the first United Nations Con-

Table 2: WWB Network Members with: Smallest percentage of women staff SHARE Microfin Limited

India

ASA

Bangladesh

11%

GAWFA

The Gambia

31%

PADME

Benin

32%

Kashf Foundation

Pakistan

33%

Smallest percentage of women executives

SHARE Microfin Limited

India

17%

PADME

Benin

17%

FinComun

Mexico

25%

ADOPEM

Dominican Republic

28%

Association Al Amana

Morocco

30%

Greatest percentage of women executives

Janashakti

Sri Lanka

100%

Russia Women’s Microfinance Network Microfund for Women

Russia

86%

Jordan

75%

Banco da Familia

Brazil

70%

FMM Bucaramanga

Colombia

68%

1 www.swwb.org 2 ASA offers services to over 15 million people in Bangladesh with loan disbursement, savings mobilization, health and insurance facilities; the NGO was ranked first in Forbes’ “Top 50 MFIs” 3 Mersland, Roy and Strøm, Reidar Øystein. “Performance and corporate governance in microfinance institutions.” Unpublished. Munich: Personal RePEc Archive paper No. 3888. May 2007. 4 Microfund for Women

microfinance insights

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ference on Human Rights for Women, and certainly some of those early conference attendees recognized the importance of economic empowerment as a furtherance of women’s rights. Insights: Do you think that there is a role for donors and government to play in ensuring that women are represented in HR in microfinance in this sector? Ms. Iskenderian: My feeling about donors and particularly bi-lateral and multi-lateral donors, with the enormous influx of commercial capital in this sector, is that they really need to purposefully move into areas where there are still gaps. Rather than competing with or seeing their money going into the operations side, they should be looking at places that commercial finance is less concerned about, and human resources issues are certainly listed by our network as their number one in terms of obstacles to scale. So, if you take gender equality, employment of women and leadership of women in the sector as an HR issue, then I think that there could definitely be a role for government donors to play. Norway, in particular, has just this past year established — separate from its NORAD (Norwegian Agency for Development Cooperation) microfinance budget—an explicit gender budget, and a significant portion of that will be dedicated to microfinance and gender related issues in microfinance. n

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perspective

Judging an MFI: Through a Banker’s Lens When lending to an emerging sector like microfinance, unique in terms of its target clientele, social dimensions and legal structures, a banker looks at a number of financial indicators, including capital adequacy, trends in cost and profitability ratio. Further, in contrast to a traditional lending evaluation, when determining whether to loan money to an MFI, banks also give as much or more weight to non-financial indicators such as governance, reputation within the sector and internal systems. What may come as a surprise is that many proposals for loans from MFIs are turned down or approved for a lesser amount than applied for, due to human capital-related issues.

hy Bankers are “People” People A typical MFI’s balance sheet rarely provides the clarity or 360 degree view a banker needs when evaluating whether to grant a loan. At best, a banker may find a capital adequacy of 10 to 12 percent that, being deployed in the form of small collateral-free loans creates a perception of high risk. This risk gets accentuated by the fact that there is little standardization in the format and language of MFI financial statements. This is especially true in the case of less regulated entities that comprise the majority of India’s MFI population.1 In addition, it is almost impossible to physically fully verify the veracity of the portfolio-at-risk (PAR) and repayment rates, the outreach figures, and the number of staff and branches due to the granularity involved in the nature of the microfinance business. A typical due diligence of three to five days can barely cover a sensible sample of groups and centers, and the banker is usually dependent on the MFI to carry out the field visit. Though, MIS systems and in-house monitoring technology in the sector are evolving, they are not yet fully reliable for data integrity. Rating reports can help, but most raters face the same constraints as those of bankers during the due diligence process. The only option for the banker is to trust the organization under review, and this trust is dependent on his/her perception of the people directly and indirectly involved with the MFI. All told, financial and operational indicators tell only half the story—that of the past. The other half, the potential, is reflected in the structure and thought processes of the human resource leaders in the organization. As counterintuitive as it may sound, a banker wants to know if an MFI’s heart is in the right place. www.microfinanceinsights.com

Through the Looking Glass: What does the Banker See ? Evaluation of Human Resources goes beyond “HR” For a banker, HR means far more than the conventional definition of the term that includes top, middle and lower levels of staff. A banker looks at the entire ecosystem of an organization, consisting of all the people involved including the Board, advisors, consultants, auditors, as well as the staff, especially the field level staff, that fills the organizational hierarchy. At different levels of the organization, he looks for signals that would help him to appraise the situation. The Board One of the most important decisionmaking factors in whether to loan to an MFI is the quality of the composition of the Board of Directors. An organization that is able to attract qualified Board members can usually raise debt funding despite an embryonic business model or modest financials. A banker evaluates the ability of the Board to attract equity, bring in talented managers, propagate organi-

zational values, and provide support in a time of crisis. It goes without saying that a good will attract talented top management who in turn can bring in competent people under them, initiating a top-down influx of talent. If an organization is unable to recruit able Board members due to structural constraints, like those of Mutually Aided Cooperatives, an advisory committee is an alternative to supplement the Board. In either case, well-documented Board meeting minutes that reflect the quality of deliberations, the decisions made, and the involvement of members will be important for a banker to examine. The Top Tier A professional management team is almost as important as having a strong Board. In fact, having professional, experienced top management has enabled second generation MFIs in India, like Sonata Microfinance Services, Kolkata-based Aarohan, UPDB Microfinance and Trident Micro Finance, to raise adequate funds with relative ease. However, the mere presence of

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microfinance insights

perspective professionally qualified employees may not create the required impact nor does recruiting MBA students straight out of school without assigning them meaningful roles. What is of utmost importance to a banker is to see conviction and demonstrated efforts towards a higher level of professionalism and adequate succession planning in the organization to match the growth or growth plans. The frequency of turnover among top management invites critical judgment from a banker. Therefore, it is better to exercise caution in recruiting externally for top positions. Organizations would do well to consider hiring a potential leader or c-suite addition for a probationary period or as a temporary consultant to lower the incidence of attrition at the top. Middle Management is Critical Assessing middle management staff proves difficult as they often work behind the scenes. Nevertheless, the middle is extremely critical. In a way, each hire is a jack-of-all-trades: he/she must tackle operational issues, lead a team, deal with the public and authorities, and simultaneously translate operational experience into policy inputs. After all, this is the breeding ground for future MFI leaders. In a high growth organization, it is very difficult to avoid risky hiring patterns. Because of the speed required to scale, it is not uncommon for a Zonal Manager just 2 years into the organizational hierarchy to handle a team of over 100 employees and a portfolio of over INR 150 million (USD 3.75 million). Branch managers, even if they are only 1-2 years deep into the hierarchy, can be responsible for over INR 10 million (USD 250,000) portfolios. From an outsider’s perspective, having so many green employees, with so much human and financial capital under their control, spells risk. These challenges must be addressed in a thoughtful way, and should be part of a strategic plan in addition to having adequate financial controls and auditable processes in place. Unfortunately, systematic grooming of middle managers, building loyalty

microfinance insights

and career planning are often not as well thought out as they should be in many MFIs. Clearly articulated career paths for talented people within the organization, a merit-based promotion policy, and numbers that indicate training completion by staff are key indicators. In addition, there is a need for sending middle managers— not just top management—for national, and sometimes international training.

“One of the most important

decision-making factors in whether to loan to an MFI is the quality of the composition of the Board of Directors.

”

HR and Legal Compliance Legal compliance is critical not only for the safety of a bank’s money but also for the message it conveys about the honesty and integrity of the client. Compliance with respect to minimum compensation laws, Employee State Insurance, and other employee entitlements is an area of HR where there is room for improvement. The current debates in the sector pertaining to improved legal compliance are encouraging signs for the banker. While a thinly staffed HR department, often manned by one or two employees, may suffice in the start-up phase, a movement towards professional management of this function must occur as soon as possible. Ideally, there should be a team of trained people focused on legal compliance, recruitment, training, compensation, and performance management. Some of these functions can be outsourced as well. Training Works With the dramatic scaling up of many Indian MFIs in the past few years, it is not unusual to see credit officers (CO) promoted to branch managers in an alarmingly short period, i.e. six months or less. The training system prevalent in MFIs usually requires a senior CO, who may have been in the role for only six months,

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to train the incoming CO. This often leads to improper and incomplete training, and can propagate incorrect practices, and create quality issues. (See Graham Wright’s piece in this issue where he refers to the “Chinese Whispers” effect). The assumption that all COs are natural trainers, well versed in operations who can effectively train new ones, is not valid. A select group of senior staff who are trained trainers would be more successful. A training schedule and evidence of trainings being conducted would boost the confidence of an outside evaluator. The Operations Level Appraisal at the credit officer level—the people who ultimately make the credit decisions—brings a new level of complexity, but is of no less interest to a banker than appraisals at other levels of staff. Substantial responsibility rests with the CO, who in many instances is not only the public face of the MFI but is also a banker, and the single point of interface between a unique client segment and the service provider. Assessing the motivation of employees at this level is of great importance to the banker. The key points that factor into the appraisal include the following: • Presence of a well-written and implemented HR policy, branch staff should be aware of and understand the policy. • A traceable incentive scheme which encourages COs to follow best and fair practices • Evidence that staff has been trained in job functions, as well as client handling. • A clear thought process on the chain of communication from the field all the way up to upper-level management, which enables early detection of fraud, collusion and moral infractions, things that may not surface in common meetings. • Reasonable caseload ratios, and contingency plans. Astronomical ratios of 700 and above (Indian MFIs have an average caseload of 439 while their counterparts in other regions of the world have anywhere between 54 and 219)2 make it difficult to serve clients when employees leave or fall sick. Ideally, there should be adequate staff

perspective on hand who can quickly replace a CO in case of an emergency. Essentially all of the above can be conveyed in a well-structured and purposefully executed HR manual. The Ground Realities On the practical side, two reasons often cited for not adopting best HR practices are the location of headquarters and cost constraints. Rural location should not be treated as an insurmountable constraint for providing professional training opportunities to existing staff or using expert trainers and consultants. For a growing organization moving beyond a certain scale, a change of location to a major city to attract talent could be beneficial. In the rare cases where cost, location and mandate are constraining HR development, commercial funding may not be the best source of capital, as it demands different performance levels compared to grants. Here, too, in staffing considerations for MFIs is the classical dilemma: to make or to buy? There are advantages in bringing in professionals from the outside and in grooming existing personnel to handle higher responsibilities. While the former is costly, and the latter is constrained by time, the MFI’s intentions are evidenced by the training opportunities (not necessarily confined to microfinance training) and incentive plans provided to employees. Use of consultants and trainers for longterm HR assignments can help some firms to overcome challenges. For the banker these measures serve as additional evidence of efforts to improve on the part of an MFI. An ambitious expansion plan without any reference to the HR strategy is a sure recipe for implosion from a banker’s view-

point. On the other hand, if the top management recognizes and appreciates critical aspects of HR and there are genuine efforts to overcome the challenges at hand, confidence in the organization’s potential will grow. The thought process is the key.

“An ambitious expansion

plan without any reference to the HR strategy is a sure recipe for implosion from a banker’s viewpoint.

”

Positive Trends First generation MFIs are improving substantially with respect to HR practices, driven by legal transformation, competition and commercial equity investors bringing in with them broad-based Board representation and best governance practices. One well-established MFI in South India has gained substantially through adoption of “best HR practices” with the help of an outside consultant engaged on a turnkey basis. However, widespread changes in the established cultures and thought processes of “old-guard” institutions may take time. The trends are quite positive for the banker and the efforts need to continue for increased faith of bankers evaluating the sector. Second generation MFIs, by virtue of recent vintage, seem to be taking the lead in the adoption of best practices in HR, perhaps driven by better governance structures and more professional management, and of course, learning from the experience of their predecessors. Because of their early implementation of robust systems including HR, they are able to access commercial funds in adequate volume

Girish Bhaskaran Nair is part of the Product Risk Group, MFI and SHG Initiatives, HDFC Bank Limited, India. Disclaimer: The views expressed by the author are his own and do not necessarily represent the organization’s viewpoints.

with relative ease. The competition in the market for experienced field personnel will be a key driver forcing MFIs to adopt best practices in terms of HR. Reaching Potential Relies on People The importance of HR as a key parameter in credit appraisals by banks is often not adequately communicated to MFIs. A banker’s approach towards an evolving sector like microfinance might resemble that of a venture capitalist: the decision to invest in an MFI or loan money is based on the future potential of the firm. For better or worse, fulfilling this potential largely depends on the people who do the work. Achieving an ideal state of affairs with respect to HR can be tedious and complex, however, if the creation of policies and hiring of staff is approached thoughtfully by top personnel, with an appreciation of short-term and long-term challenges and requirements, exploration of options, and demonstrated evidence of functioning systems, then an MFI will position itself well for a positive appraisal. Through this, an MFI can improve its credit worthiness and enjoy easier access to commercial funds. After all, financial strength is a necessary but not sufficient condition for sustainability of any organization. MFIs in India are among the most leveraged globally, and are highly dependent on banks borrowings for funding. The debt equity ratio of Indian MFIs is about 122, which is the highest among MFIs in regions across the world—South Asia’s average is 29.8, Latin America’s is 5.8 and Africa’s is 4.2.2 The banker’s perspective on HR practices may not be of interest to MFIs that do not use bank loans as major sources of funding. However, some of the above parameters might still be useful ones to benchmark, as these are equally relevant to equity investors, commercial funding agencies as well as donors. Moreover, following best practices in HR will lead to sustainable and well-performing institutions anywhere in the world that are assets to any society. n

1 Ghate, Prabu. Microfinance in India-A State of the Sector Report, 2006. Care India, SDC, Ford Foundation (2006): 49, 56. 2 Performance and Transparency: A Survey of Microfinance in South Asia (India: Microfinance Information Exchange, 2005) Appendix B.

www.microfinanceinsights.com

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microfinance insights

ER! D R O DAY TO

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Email Ranjit Koshi at publications@intellecap.net

training

The Biggest Challenge: Developing Trained Staff Some HR issues in the sector can be surmounted by increasing the number of high-quality trainers, which have a direct effect on the quality and quantity of trained staff in the sector. In the following piece, Graham Wright of MicroSave explores the challenge of developing the capacity of microfinance staffs.

raining and capacity development remain the single biggest challenge for microfinance institutions worldwide. Leaders of microfinance institutions report that there is no regular supply of trained manpower either at the grassroots level or at the management level. As a result they are forced to rely on ad hoc in-house training methods which do not yield the professionalism and competencies needed to build strong and effective financial institutions. Many organizations practicing microfinance around the world still need a cadre of high quality technical

service providers to train and service the sector in the future. Wanted: A New Breed of Trainer The current availability of service providers is inadequate in terms of numbers, and in some cases, in terms of capacities. The microfinance industry will have to look beyond the traditional microfinance training and technical service providers and start to involve accounting firms, management consultants, etc. Too many trainers struggle to use adult education techniques fully and many are unable to

translate the theory of the classroom into practice in the field. Thus training needs to move from theory into action and drive change within MFIs. Globally there is a growing consensus that high quality, effective training combines classroom theory and on-site followup to turn learning into practical action and catalyze change within institutions. This requires a different breed of trainer: one who can do more than present from a PowerPoint. What is most needed is a trainer who can implement and provide credible on-site technical assistance that

Table 1: Key Findings and Global Recommendations MicroSave conducted a study in 2005 to analyze the need for training and capacity development, to understand the optimal contents and structure of training courses, as well as to learn which organizations were best placed to deliver training in the different regions of India. The key findings reflected many of the issues in capacity development that are prevalent in microfinance across the globe. Appropriate Selection of Training Courses The large-scale and diversity of courses required by MFIs will necessitate the development of a system to assist each MFI in diagnosing its key issues and thus assessing and prioritizing its individual needs. Using participatory methods to identify training needs will increase buy-in and understanding of the role that capacity building can play in the overall development of an organization. This should reduce the number of participants sent to courses as a reward, and increase the expectation that those trained will actually apply the skills they have learned. In addition, it will be important to look at methods for sequencing the courses, so that MFIs first take and implement the more basic courses that necessarily underpin subsequent, more sophisticated ones. This will also relate closely to the state of evolution of the MFIs seeking the courses. Adult Learning Tools and Customized Class Work Respondents clearly articulated the need for training courses to model basic adult learning best practices in terms of using group exercises in conjunction with plenary sessions, summary discussions and practical examples. MicroSave’s experience shows that having participants conduct much of the classroom work using www.microfinanceinsights.com

their own institution’s data —- thus leaving the classroom with a significant part of the work completed and ready for implementation -— is extremely effective for driving change within organizations. On-Site Follow-up Post-training assistance to implement what has been learned in the classroom is of utmost importance. Worldwide there has been a move toward training that combines classroom-based learning with on-site, follow-up technical assistance, during which the participants work with the trainers or consultants to implement the learnings after the training. For example, after three days working on portfolio management (ideally using their MFI’s data), participants return to their organization with a trainer or a consultant to work on institutionalizing portfolio management systems and at their MFI. This approach is much more resource and labor-intensive, and requires a special kind of trainer who can put classroom theory into practice in a variety of institutions. However, this approach has been demonstrated to lead to far more effective change and improvement within MFIs participating in the training programs. The approach also means that the use of training courses as a reward system for staff members will decrease since the MFIs will know that the participants will be expected to work with the trainers/consultants to implement the training. This approach also offers a better business model for trainers/consultants because the revenue stream generated is for 3 days training, plus 5-8 follow-up, on-site assignments of a week or more, rather than simply a 3-day classroom based training. march 2008

microfinance insights

training provides real value to MFIs. MFIs that responded to MicroSave’s training needs assessment of 20052 put particular emphasis on the need for step-by-step “how to” guides or workbooks to guide the change process (see Table 1 for details). One Size Doesn’t Fit All Capacity building must be adapted to meet the differing needs of nascent or emerging MFIs and that of expanding or mature MFIs. There is a pressing need to develop comprehensive, relevant and integrated training modules on a wide range of topics to professionalize microfinance, thus building the much sought after second-tier management in MFIs. The industry continues to grow, and with it, the demand for competent middle management. Most front-line staff training in microfinance is done on the basis of a few days in the classroom followed by on-the-job training in the form of shadowing a peer credit officer or branch manager. This gives huge potential for a “Chinese Whispers” effect, through which errors and non-compliance with established policies and procedures are replicated and then amplified as they are passed on from person to another. When peer-to-peer training is used, it is essential to have rigorous internal audit and compliance systems to prevent errors and eliminate noncompliance. In the long term, it will be important for the microfinance sector to harness the potential of e-learning systems to train large numbers of low- and mid-level staff. However, efforts to do this in other industries such as insurance and even retail have highlighted the need for moderated e-learning systems to optimize impact. Thus, MFIs would do well to be significantly involved, both to modify content to reflect their systems, policies and procedures, and also to moderate interactive sessions. Who to Train At present, not enough attention is being paid to training for senior and middle management. This probably stems from

three incorrect assumptions: senior management does not really require training; senior management does not have the time to attend training; and senior management does not have the capacity to implement the outputs of training. Furthermore, many MFIs in countries around the world make the same mistake of selecting training participants for the wrong reasons. Organizations send staff members to attend trainings as a reward, or because it is “their turn” or because the course is being held in an employee’s home town. (See “Through a Banker’s Lens” in this issue to learn more about the payoff of training the right people). On the contrary, training should be implemented for the sake of skill development and should be used strategically to build the capacity of staff.

“The microfinance indus-

try will have to look beyond the traditional microfinance training and technical service providers and start to involve accounting firms, management consultants, etc.

”

Nearly all professionals seek challenging environments within which they can learn and grow. Over time, training needs to be built into staff retention systems or the microfinance sector runs the risk of losing its resources to other sectors. Institutionalization of the sector will necessitate the rise in salaries to bring them to bring them to more realistic and market related levels. Indeed, with the churn of staff at MFIs in many countries, this is already happening Make the Investment In line with private sector business, MFIs need to see training as an investment rather than as an expense. They need to pay more attention to capacity development, and all that that entails, as part of an integrated HR management system that

includes tools for retention. Those financing or supporting training should reassess their investments and how they measure progress, moving away from counting the “number of attendees” at a training to calculating the “impact of that training,” in terms of change that occurs within an MFI Training staff post-training. Given the sheer scale of the needs of the sector, approaches to training must be reevaluated and become more creative. It is inadequate to merely combine classroom training with technical assistance. MFIs will need to use technology to develop new methods such as distance or e-learning to build capacity commensurate with the growth and maturation of the industry. Equity and debt investors as well as the regulators and supervisors are going to demand that MFI staff members are better trained so that they can meet the growing demands for professional governance, management, systems and transparency. Only by changing our current mode of capacity building can we meet the challenges outlined herein and continue the worldwide growth of microfinance. n Graham A.N. Wright helped design and establish the MicroSave program and is currently Program Director for India, MicroSave.

1 This article draws extensively on MicroSave India Focus Note #11 “Capacity Building – Needs and Challenges in India” by Brij Mohan found on www.MicroSave.org 2 See MicroSave Briefing Note #46 “Catalysing Capacity Development: Assessing the Need for Training” by Graham A.N. Wright et al. on www.MicroSave.org.

microfinance insights

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training

The Rise of Social Entrepreneurship in Universities: A Fad or For Good? The demand and supply side factors of building social entrepreneurship in university curricula and how its study can be applied in practice.

usiness schools and graduate management programs around the world are responding to the swelling interest of students in social enterprise. Whereas in the 1990s such courses would have been unheard of in business schools, there are today, according to the Center for Social Enterprise at Duke University, an estimated 250 or more schools offering programs on social entrepreneurship. Similarly, electives, certificate and degree programs on microfinance are popping up in universities across the world. Microfinance lends itself particularly well to study as a social enterprise because it combines social impact with business models that are efficient, durable and scaleable, the characteristics of a social venture defined by the so-called father of social entrepreneurship as an academic subject, Professor J. Gregory Dees of Duke University’s Fuqua School of Business. Is this trend in social enterprise merely a passing fad? Is it just a response to the popularity of C.K. Prahalad’s book and work on “The Fortune at the Bottom of the Pyramid”? Or a swell due to interest in the subject after Professor Muhammad Yunus received the Nobel Prize? To the contrary, there is compelling evidence that student interest in social entrepreneurship is lasting. The March 11, 2007 edition of The Financial Times reported that nearly 40 percent of workers under 35 in the UK who are currently employees of private sector companies, are contemplating a move into the public sector and charity work. The survey further found that 60 percent of 18-25 year olds seek “more worthwhile work.” Meanwhile, microfinance institutions are clamoring for new, skilled employees to meet its growth opportunities and to compete for talent against the mainstream banking sector. The microfinance sector continues to grow at an increasing rate annually and there are massive gains to be www.microfinanceinsights.com

made in countries like India, where the majority of the poor still do not have access to financial services. Professor Allan Gibb, Professor Emeritus of Durham University in the UK, points to telling signs if a university is responding to an immediate and potentially fleeting market opportunity or if is taking the steps to “strategically embed” programs like social entrepreneurship. That is, to make the program stick for the longer term. The program must be backed by a credible and respected faculty champion and a supportive administration of the university. Research within the practice of social enterprise, or for example microfinance, is vital for faculty to develop a solid understanding of the field and to channel field experience back into classroom learning materials. Financial support of research and centers of excellence are good signs that a broader stakeholder and funding community is sympathetic to the cause. An embedded program will meet students’ and executive practitioners’ demand for courses for both students and executive practitioners. The last pillar is active publishing to push the frontier on theories, concepts and models. Professor Gibb’s experiences with starting a well-respected center for small business at Durham University suggest that getting programs to stick within universities is a long-term and gradual process, usually requiring ten to fifteen years of effort. For that reason faculty engagement and university commitment usually lags behind student enthusiasm. Students launch social enterprise, microfinance clubs, and investment funds, organize conferences or find internships among social enterprises often long before an elective is ever made available to them. This is particularly true in the industrialized world where there are fewer tangible business models like those of microfinance that are found in developing countries.

But faculty motivation may go much deeper than a review of a university curriculum may suggest. The Microfinance Management Institute (MFMI) in Washington, DC has worked with academic institutions in developing countries since 2004 to promote the integration of microfinance within the curricula of mainstream graduate management and business school courses. Many of the affiliate schools of the MFMI only offer a single course in microfinance to their graduate students. However, faculty from a cross-section of academic departments use funding from the MFMI to engage in case research and development, the output of which ultimately ends up in courses across the various functional areas of the business school from strategy to finance to marketing. Governments, foundations and other private sector supporters can play a vital role in fostering an interest and commitment among universities and in turning the ideas and concepts of social models debated in the classroom from theory into practice. Governments and foundations are needed to fund impact studies, faculty exchange, conferences, workshops and research and development on products and innovations that fully explore the questions and open the possibilities of blending social impact with business models and practice. Students of social enterprise who join the private sector are well-placed to lead the creation and implementation of new business models and partnerships. n

Leslie Barcus is the President of the Microfinance Management Institute in Washington, DC, a joint venture of CGAP and the Open Society Institute.

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training

SOCIAL STUDIES 101 The concept of social entrepreneurship and the business of “doing good” has grown in popularity in recent years. Both individuals and companies have realized that meeting your financial bottom-line is not the only measure of success. There are business schools and training centers all over the world that teach skills for navigating this burgeoning landscape. Below are some of the notable centers and programs focused on the study of social entrepreneurship, Bottom of the Pyramid (BOP) communities, and microfinance. For a more complete list, visit our website at www.microfinanceinsights.com.

Notable Centers/Programs for Studying Social Entrepreneurship

The Social Entrepreneurship and BOP lists are drawn from Beyond Grey Pinstripes, a research survey conducted biennially by the Aspen Institute Center for Business Education, and from program websites. • Th e Social Enterprise Program, Columbia University The curriculum explores social enterprise within four focus areas: Public and Nonprofit Management; International Development and Emerging Markets; Social Entrepreneurship; and Corporate Social Responsibility and Sustainability. • Center for the Advancement of Social Entrepreneurship, Duke University This research and education center based at Duke’s Fuqua School of Business promotes the entrepreneurial pursuit of social impact through the thoughtful adaptation of business expertise. In partnership with the Skoll Foundation, CASE is currently engaged in a study to identify the educational needs and key players in the field of social entrepreneurship. • S ocial Enterprise Initiative, Harvard Business School HBS’ “Required Curriculum” incorporates social enterprise cases and topics in several courses ranging from finance to entrepreneurship. There are also opportunities to design a field study, lead an immersion trip abroad or participate in the social enterprise business plan competition. • Berkley Center for Entrepreneurial Studies, New York University The Stewart Satter Program in Social Entrepreneurship offers Satter program offers a Business Plan competition, and Social Entrepreneurship Fund that supports start up nonprofits, double bottom line companies, research projects, etc. There is also a student-run social venture fund, the first of its kind in the US. • Center for Social Innovation, Stanford University The Center, with over 60 case studies on social innovation, leverages Stanford’s knowledge, expertise, and networks, bringing community leaders together with faculty, students, and alumni to address social problems. The Center produces the quarterly Stanford Social Innovation Review, and offers frequent events on social innovation. • Center for Sustainable Enterprise, The University of North Carolina at Chapel Hill The CSE provides education, research and outreach to business students, executives, and organizations to help them benefit from the opportunities inherent in sustainable enterprise. Practicum projects and CSE consulting partnerships with companies or nonprofits enable students to get real-world experience.

Notable Centers for Studying the “Bottom of the Pyramid” • Center for Sustainable Global Enterprise, Cornell University, The Johnson School The center offers compelling, ongoing research initiatives including the BOP initiative and Sustainable Innovation Research. • Graduate School of Business Administration and Leadership (EGADE, Monterrey) All core courses include social and environmental topics. Forty elective courses are designed in such a way that students are continually considering the social and environmental implications of decisions and strategies. • The William Davidson Institute, The University of Michigan Research units focus on Base of the Pyramid, Social Enterprise, and the Globalization of Services. C.K. Prahalad, author of Fortune at the Bottom of the Pyramid, is on the faculty. • Center for Business and Society, University of Navarra, IESE Business School The Center, in Barcelona, Spain focuses on Corporate Social Responsibility and has research units focused on social enterprise, CSR and reputation. Are social entrepreneurship programs at universities a trend, or are they just one more symbol of the way our world is changing? Let us know what you think by sending an email to team@mfinsights.com. We will publish the best responses in our next issue.

microfinance insights

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training

International Degree and Diploma Courses in Microfinance and Development

This list was developed using the Financial Services Resource Center and our own research. Although this list is not exhaustive, it offers a look at some of the best microfinance-specific curricula available. Visit www.microfinanceinsights.com for the complete list. • Frankfurt School of Finance & Management (earlier, Bankakademie International), Frankfurt, Germany provides technical assistance and training to banks and microfinance institutions worldwide. Annually, it offers a Summer Academy in Micro Banking for mid-level and senior managers of microfinance institutions that combines both technical and soft skill training. Visit www.frankfurt-school.de/content/en. • Bankers Institute for Rural Development (BIRD), Lucknow, India provides training, research and consultancy services in the field of agriculture and rural development banking. Visit www.birdindia.com. • CAPAF is a regional project based in Dakar, Senegal, promoting training, MIS and audit services, and information dissemination in the francophone African market. CAPAF works with 14 partners in Benin, Burkina Faso, Cameroon, Cote d’Ivoire, Guinea, Haiti, Madagascar, Mali, Morocco, Niger, Senegal and Togo. Visit www.capaf.org • C onsultative Group to Assist the Poor (CGAP) Skills for Microfinance Managers Training Program includes seven courses in the areas of Financial and Operational Management for MFIs. Each course lasts three to five days and is designed for senior managers, leaders and Board members from microfinance NGOs, credit unions, banks, and other financial institutions. Visit www.cgap. org. • EDA Rural Systems is a rural development consultancy organization in India, providing focused training combined with followup services. Visit www.edarural.com. • Giordano dell’Amore Foundation in Milan, Italy offers short-term courses on Banking and Finance as well as full time graduate and post-graduate degree programs. Visit www.fgda.org/formazione_corsiuk.php. • International Training Centre in Turin, Italy offers a wide range of courses on microfinance, including The Boulder Microfinance Training Program. Visit www.itcilo.org/en. • Indian School of Microfinance for Women in Ahmedabad, India, specializes in offering Management Development Programs not only for MFI Staff but also for grassroots workers. Visit www.ismw.org.in. • Institute of Banking Studies in Jordan implements the Sustainable Microfinance Training Program (SMTP) offering a basic introductory course directed to credit officers working in various finance institutions including Jordanian banks and an advanced course targeted at microfinance managers. Visit www.ibs.edu.jo. • I ntellecap (the firm that publishes this magazine) offers training in India to help build institutional capacity and expand market understanding across a wide array of industry players. Intellecap trainings are customized to clients’ needs. Visit www.intellecap. net. • O hio State University offers a Rural Finance Program that helps analyze rural financial markets and other finance and development questions. Visit http://aede.osu.edu/programs/RuralFinance. • Sanabel is a membership-driven regional network for microfinance institutions in the Arab world. Training course offerings include the CGAP Skills for Microfinance Managers Program, the International Training Center of the ILO “Making Microfinance Work” Training Program, and other courses developed in partnership with various organizations such as the Microfinance Center (MFC). Visit www.sanabelnetwork.org. • School of Applied Microfinance (SAM) offers a two-week program in East Africa which provides targets middle and senior-level managers drawn from MFIs, banks, consulting companies and NGOs. Visit www.samtraining.org. • Southern New Hampshire University holds an annual Microenterprise Development Institute training program for microfinance professionals. Courses focus on practitioner skill building in both financial systems and business development services and are designed for senior managers and leadership from microenterprises, credit unions, banks, and microfinance institutions. Visit www. mdi-nh.org. • Strathmore-WOCCU African Management Institute (SWAMI) in Nairobi, Kenya offers a microfinance diploma program that aims to provide participants with basic skills in microfinance by exposing them to effective ways of managing microfinance operations. Visit www.strathmore.edu/swami. • The Credit Academy offers consumer credit and risk management seminars in Johannesburg, South Africa and at client sites. Visit www.thecreditacademy.co.za. • University of Pretoria Centre for Microfinance in South Africa offers courses at formal and non-formal levels, including Executive Management courses in microfinance. Visit http://web.up.ac.za/default.asp?ipkCategoryID=3841. n www.microfinanceinsights.com

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training

New Foundation of Capital Structuring: You Thought you Needed Money? The new foundation of capital structuring should be found in the people—the people who lead MFIs and those who handle deals. As the microfinance sector develops, more complex and dynamic deals transpire that bring new capital into organizations in creative ways. Standardization of agreements and documentation would help immensely, but there is usually pushback from one stakeholder or another. The alternative is to get to the heart of the matter, and educate the people within MFIs who handle, or will need to start handling, capital structuring arrangements. Deborah Burand, a trainer at the Boulder Institute of Microfinance, specializes in training on debt and equity financing. She shares her experiences, and offers her thoughts on debt structuring as the sector moves forward.

he loan agreement that crossed my desk six years ago had been highly negotiated over several months between a microfinance institution and a socially responsible investor based in Europe. “Please take a quick look at the attached document,” the CEO of a microfinance institution urged in the email that transmitted the loan agreement to my desk in Washington, DC. “We want to sign it this week,” he added. “Tomorrow if possible.” As a lawyer by training, however, I can never just peek at a document. Hours later I sat scribbling still more comments in the margins of the document. One of my comments nearly leapt off the page: “Do you really think this is the best priced financing that you will be able to tap over the next three years?” I had written this comment in large letters and added an exclamation point for emphasis just in case he missed my sarcasm. Of course, it would not be his best financing option. This was a fast growing microfinance institution on the verge of transforming into a regulated, deposittaking financial intermediary. Other potential lenders and investors soon would be knocking on this CEO’s door with increasingly attractive and creative financing options. But the draft loan agreement on my desk made no provisions for a possible prepayment; so once the CEO accepted this debt financing, his microfinance institution was going to be stuck with this loan (and with this rather high interest rate) for the next three years. The day I read that loan agreement marked a turning point for me. At that moment my enthusiasm for helping microfinance institutions tap commercial

microfinance insights

Building Blocks of Capital Structuring: The People

“Over the last six years

I have seen microfinance institutions enter into loan agreements with little understanding of the true costs and structural or documentation risks of their borrowings.

”

sources of financing in order to reach greater scale began to evolve into concerns about the kinds of financings that were being agreed to within the microfinance sector. If this CEO, one of the more sophisticated and successful microfinance managers I had had the pleasure to meet, would willingly sign loan documentation that was so short-sighted (and embarrassingly lender-friendly and borrowerunfriendly), then what were some of the

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other microfinance managers with even less experience or bargaining leverage agreeing to when they entered into debt and equity agreements with their lenders and investors? As I started to read other MFIs’ financing agreements, the answer to this question was sobering and often troubling. Over the last six years I have seen microfinance institutions enter into loan agreements with little understanding of the true costs and structural or documentation risks of their borrowings. I have seen microfinance institutions sign financing documentation without understanding the agreements’ terms. I have seen microfinance institutions pledge microcredit portfolios to secure borrowings in countries where such pledges of intangible assets are legally unenforceable. I have seen microfinance institutions agree to sweeping cross-default clauses that, if the MFIs were to miss

training just one simple reporting deadline, could topple all of their outstanding debt into default like dominoes falling one upon another. I had embraced commercialization as a means to reach scale in the microfinance sector. Instead, I felt complicit in sowing the seeds of my next not-so-happy career – the restructuring and workout of troubled financings of microfinance institutions. However, it need not play out this way, if we invest in the people of microfinance. Standardization? No Thanks. My first “solution” was to encourage some of the most socially responsible investors within the microfinance sector to agree to a common form of loan documentation that all could use. Like other model documentation, key financial terms still would be negotiated deal-by-deal, and those agreed financial terms (such as term, interest rate, amortization schedule, etc.) would be attached as an annex to supplement the common terms presented in the form documentation. Other groups within financial markets (like ISDA – the International Swaps and Derivatives Association) have used a form of master documentation effectively and efficiently for well over a decade. This idea seemed a graceful and elegant solution for the debt obligations of microfinance institutions too. Not only would the standardization of loan documentation level the playing field between microfinance institutions and their lenders by ensuring that the documentation is more evenhanded, but the homogeneity of the documentation would also make it easier to bundle these debt financings into instruments that subsequently could be sold (perhaps in a securitization structure) to others and, thus, enhance the liquidity of the underlying assets. Standardizing loan documentation also had the added attraction that valuable negotiation time would be saved on both sides of the deal. Sure that I had found an ingenious answer that could deliver a win-win to all sides of the table, I eagerly approached several socially responsible investors and asked them to consider agreeing to standardized loan documentation for the unsecured debt fiwww.microfinanceinsights.com

nancings they offered to the microfinance sector. All listened politely to my idea; and then each said, in varying accents, “Thanks, but no thanks.” Invest in People I then turned to another startegy. If the investors/lenders wouldn’t agree to standardized documentation, then I needed to work with the investees/borrowers – the people working in microfinance institutions – to ensure that they were appropriately sharing information with each other about their various financings and the twisting road that negotiations leading up to those financings can take.

“The time is now, before a

crisis occurs in the microfinance sector, to train microfinance managers in sound debt management policies.

”

Over the last six years, this strategy of investing in the people of microfinance has taken several forms. First, two microfinance networks, FINCA International (where I was working at the time) and Women’s World Banking shared with a pro bono law firm the loan documentation that their various microfinance affiliates had recently agreed to. The law firm, while keeping the terms of each transaction confidential, then developed an annotated loan agreement that was written with the goal of translating often arcane and sometimes complex loan provisions and clauses into language understandable to a layman. We even went so far as to add smiling faces in the document where provisions were borrower-friendly, and, by contrast, to insert warnings, like “BEWARE!” where provisions could cause a borrowing microfinance institution problems in the future. Later, I worked with the same pro bono law firm to develop guides, published by CGAP, that provide general advice on negotiating a loan agreement and foreign exchange risk mitigation techniques (including an annotated sample letter of credit agreement and

sample reimbursement agreement). The Grameen Foundation and others are now working to expand the topics covered by these guides to include a “securitization guide,” an “equity guide,” and a “guarantee guide.” Given the controversy over the Compartamos IPO (Initial Public Offering) last year, a guide for microfinance institutions contemplating an initial share offering could be a timely topic for future drafters, particularly if the guide addresses possible structures for issuing shares to employees and customers. Role Playing and Story Telling Guides like these can be valuable reference tools. But like any tool, their value can be enhanced greatly when paired with training. Over the last several years, nearly every regional and global microfinance conference seems to have offered some kind of investment-readiness training for managers of microfinance institutions. These trainings are useful not only for the knowledge the trainer can impart, but also can be an important source of peer learning among microfinance institutions. In the “securing appropriate commercial financing” courses I often teach for the Boulder Institute of Microfinance (in Chile and Italy), our classroom time is split nearly evenly between sharing stories and lessons about deals and negotiations that we’ve each participated in, and role playing in deals and negotiations that we might next participate in. In each case, the goal is the same – to help microfinance managers become educated (and discerning) consumers of the growing number of financing arrangements that are now available to the microfinance sector. The Missing Link: Debt Management This investment in the people of microfinance has contributed to a stronger microfinance sector. However, as I prepare for this summer’s course in Turin, I must admit to having sleepless nights again. My newest worry is that, while microfinance managers may be making wiser choices about the kinds of financings they are accepting for their institutions and may better understand the documentation that they are signing, we now need to work on

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training growing debt management skills in the microfinance sector. Managing multiple financings is a challenge even when a microfinance institution is strong. Imagine the possible adverse consequences when a microfinance institution with multiple lenders and investors encounters prob-

lems. When times are tough, documentation guides and shared stories and lessons will help some, but not enough. This is the area where the least work has been done in the microfinance sector, perhaps understandably, as there are few examples to date of payment defaults

Deborah Burand, Esq. is a co-founder and President of Women Advancing Microfinance (WAM) International, and is Chairman of the Board of Directors of Microfinance Opportunities. She also sits on the investment committee of a $75 million microfinance investment fund managed by Deutsche Bank, and on the Advisory Council of MicroVest, a specialized fund investing in microfinance. Disclaimer: The views expressed by this author are solely her own and should not be attributed to any group with which she is now or has been affiliated.

by microfinance institutions. Yet lack of workout experience in the microfinance sector should not excuse a lack of planning for this eventuality. The time is now, before a crisis occurs in the microfinance sector, to train microfinance managers in sound debt management policies. This time, however, investors in microfinance also must come to the table for training and sharing. And, where microfinance is regulated, government regulators should also participate. For it is the culmination of everyone’s behavior, not just that of a weakening microfinance institution, that will shape the duration and extent of a possible microfinance crisis. To encourage responsible investments in microfinance, we must invest in the people of microfinance – all its people. n

1 “Commercial Loan Agreements: A Technical Guide for Microfinance Institutions,” Consultative Group to Assist the Poor (CGAP), 2006, http://www.cgap.org. 2 “Foreign Exchange Risk Mitigation Techniques: Structure and Documentation – A Technical Guide for Microfinance Institutions,” Consultative Group to Assist the Poor (CGAP), 2006, http://www.cgap.org 3 A notable contribution in this field is the work David Richardson has done in this area, including developing a course for the Boulder Institute of Microfinance on managing assets, liabilities and capital. 4 Burand offers additional insight on building an international financial architecture that can support large scale microfinance, in “A Vision for Scaling Microfinance: More than Dollars and Smarts,” Chapter 4, Financial Inclusion Symposium (Cornell University, to be published Spring 2008).

ERRATA for Microfinance Insights Vol. 5, December 2007 Issue While we spend a lot of time trying to ensure the correctness of our publication, a few errors escaped our attention during the review process. The Editorial Team apologizes for inadvertent errors in the last issue. In the Cover Story, “The macro picture of microinsurance: What works and what can be better?”, an important paragraph was cut out. The paragraph under the subheading ‘Why microinsurance?’ was to read: “For the poor, risks come in various forms – illness, death of a wage earner, fire, theft, flood, drought etc. Such frequent shocks create a huge pressure on their limited and often erratic household income. This is where microinsurance proves to be helpful for the poor. It becomes a means to fill the gaps that the vulnerability and shocks create, most particularly for households that otherwise lack proper government protection.” In the Calendar of Events section, the listing of International Conference on Rural Finance Research, Rome, Italy 19-21 March, 2008 was an error. The listed conference occurred during on the same dates in 2007. We apologize for the error.

microfinance insights

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improving performance

Owning a Piece of the Pie: Understanding Employee Stock Ownership Plans Company incentive schemes have the potential to not only build employee loyalty and retention, but also increase recruitment prospects and generate excitement in the market about a company. In our Human Resources survey this quarter, a majority of MFIs responded that they have implemented some kind of incentive scheme, either monetary, non-monetary or performancebased at their organization, but only 9% utilize ESOPs. In this article, two microfinance experts explain the challenges and benefits of ESOPs, and offer perspective on whether more MFIs should implement ESOPs to solve loyalty issues.

ccording to the Microcredit Summit Campaign Report for 2006 the microfinance sector grew at an average rate of 34% a year between 1997 and 2005. With a compound annual growth rate surpassing that of India and China, microfinance is undergoing extremely dynamic development. There are many ingredients that factor into the success of microfinance: excellent clients (it turns out that customers at the “bottom” of the pyramid are much more trustworthy than those at the top), good products and services, proximity to the clients, strong institutions, and—last but not least—hard-working and committed staff members. Around the world, staff incentive schemes play a pivotal role in boosting the performance of MFIs. Well designed incentive schemes help to align the objectives of the organization with those of its employees. For instance, a microlending organization may wish to grant many small loans to new customers in rural areas and at the same time maintain excellent portfolio quality. It is relatively easy to design and implement a monetary incentive scheme focusing on productivity and portfolio quality that would achieve these goals. The key to success is to construct compensation and bonus formulae that give higher compensation to the employees of an MFI when the institutional goals are reached. Incentive schemes can also help to reduce staff turnover and increase loyalty. Staff retention is becoming ever more challenging in an increasingly competitive industry. While all types of monetary incentives will tend to boost overall pay levels, schemes that focus on retention and loyalty are often designed over the long-term and are linked to institutional performance rather than to individual achievements. Such an www.microfinanceinsights.com

Offering Incentives can Improve Performance incentive scheme design sends a different signal to staff: incentives are not earned for outstanding individual achievements, but are provided as “overall gratitude” of the company to all employees that have contributed to the organization’s success over time. While there are countless variations of staff incentives, good incentive schemes typically share the following two characteristics: transparency and fairness. In terms of transparency, the incentive scheme should consist of tangible and measurable variables, the formula should make sense and be known to those affected, and the scheme should not be overly complex. To ensure fairness, there should be a direct link between performance and reward. As staff members do better on the indicators measured by the scheme, they should receive a higher remuneration. Two global surveys of MFIs conducted by the MicroFinance Network (MFN) and the Consultative Group to Assist the Poor (CGAP) in 2004 and 2007 conclude that staff incentive schemes are widespread and in fact increasingly popular. Especially in Latin America, Eastern Europe and the Middle East/Northern Africa, staff incen-

tive schemes are almost universal. However, MFIs in Asia are quickly catching up in terms of their use of monetary staff incentives. Most of the monetary schemes reward short-term performance such as the productivity and portfolio quality in a given month or quarter. A few MFIs such as PRODEM in Bolivia found that shortterm incentives did not have a good fit with their organizational culture and produced detrimental effects. Loan officer incentive schemes related to reaching the targeted number of clients, percentage of loans in arrears, and the average portfolio per loan officer backfired. The MFI began to suffer from a high rate of turnover, employees had a short-term outlook, and corruption began to run rampant within the MFI. Some organizations, PRODEM included, have replaced their short-term incentive schemes with longer-term incentives, such as ESOPs. Through Employee Stock Ownership Plans (ESOPs), staff members can participate in their organization’s share capital, and for that reason, they have huge motivational potential. Staff can be driven by knowing that they participate in the

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microfinance insights

improving performance success of their MFI. In contrast to many other types of financial incentive schemes (e.g. monthly cash payouts for loan officers), ESOPs aim at creating a “sense of ownership” that reinforces the employees’ overall commitment and loyalty to the organization. Thus, they motivate over the long term and in a very indirect way. ESOPs have a long history: they started to gain popularity in the USA in the 1970s, mainly due to tax reasons (company contributions to the cost of an ESOP are tax deductible). In the microfinance sector, ESOPs are not yet very common, but the concept is becoming increasingly fashionable. The two above mentioned surveys conducted by CGAP and the MFN showed a low incidence of ESOPs. While 4.1% of the 147 participating microfinance insti-

tutions (MFIs) employed ESOPs in 2004, 6.5% of 92 responding MFIs reported utilizing such schemes in 2007. The two surveys further revealed that about half of the

“It is difficult to imagine

that anybody would get up at five in the morning to recover a loan in arrears in order to increase the value or the expected dividends of his or her shares.

”

MFIs with ESOPs serve less than 10,000 clients and are not yet financially sustainable. The other half profitably manage over 40,000 customers each, including MFI heavyweights such as BRI (Indonesia),

Kenya Rural Enterprise Program’s ESOP1 K-REP (the “Kenya Rural Enterprise Program”) started in 1984 and continued its operations as an NGO until 1999. Today, the K-REP group includes three entities: the K-REP Bank (the first formal microfinance bank in East Africa), the K-REP Development Agency (KDA) and K-REP Advisory Services (KAS). When the organization transformed into a licensed commercial bank in 1999, it seemed like a good opportunity to give some of the ownership to the staff members who had invested much time and effort into building the institution. K-REP allocated a 10% stake to the K-REP Welfare Association (KWA) that was founded to manage an ESOP. These shares are held in trust and the trustees created “units” that represented the shares. A function of seniority and length of service was used to assign the units to KREP’s employees with tenure of at least 3 years. During the first year, around 50% of the units were distributed and the remaining 50% were saved for new staff members. Allocated units are options that employees can purchase at a price set

by K-REP’s auditors. Employees bought 90% of the units that were allocated to them, mainly using a special loan provided by KWA. One free unit was granted for each purchased unit, thus making the acquisition very attractive. Employees can sell their units to other unit holders during an annual trade, they can receive dividends, but they do not have voting rights and no staff member is allowed to hold more than 5% of the available units. Units are redeemed when staff members cease their employment at K-REP, upon their demise or bankruptcy. Employees with less than five years of service only receive a pre-defined percentage of the unit’s proceeds. Reviewing the ESOP’s effects on staff performance three years after its inception, the author concludes, “Quite clearly, the ESOP serves mainly to foster a sense of common ownership and thus provides motivation in the long run. In order to boost short-term productivity and increase outreach in operations, the Bank is currently developing a bonus plan for the staff members engaged in credit activities.”

1. John Kashangaki, “An Overview of K-REP Bank Limited’s Employee Stock Ownership Plan,” Designing Staff Incentive Schemes (2002), Microsave.

microfinance insights

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SKS (India), Equity Bank (Kenya), Acleda Bank (Cambodia), Banco Ademi (Dominican Republic), and of course PRODEM. MFIs with ESOPs are more likely to operate as banks than other MFIs. None of the 52 responding Eastern European/Central Asian or Middle East/North African MFIs reported the use of ESOPs. Do ESOPs motivate? While long-term incentives that are based on institutional performance rather than on individual achievements can be important tools to support staff commitment, their impact on short-term goals is very limited. If incentives were to stipulate outstanding day-to-day performance (as it is usually the case for credit officers’ schemes), rewards should not only be high enough to make a real difference to the employee’s monthly payroll but should also be linked directly to individual achievements. It is difficult to imagine that anybody would get up at five in the morning to recover a loan in arrears in order to increase the value or the expected dividends of his or her shares. In this light, it is not surprising that the mix of incentive schemes employed by MFIs is typically dominated by short-term individual cash bonuses for lending staff. However, long-term incentives might be more useful to get the best out of employees who are responsible for multiple, complex and long-term tasks that are difficult to operationalize and to evaluate. Senior managers are a prominent example. Employing short-term incentives for these functional levels of staff will produce detrimental effects. From the perspective of employee motivation, other forms of long-term institution-based incentive schemes, such as annual profit-sharing or gain-sharing schemes which provide staff members with a percentage of the MFI’s profit or some pre-determined goal such as a reduction in certain types of costs, respectively, should lead to similar results as ESOPs. Considering the ESOPs’ high set up and administrative costs, it might be a better option to utilize profit or gainsharing schemes if their single objective

improving performance was to foster long-term commitment and overall job satisfaction. ESOPs to retain staff Productive, committed and loyal staff members are the most important asset of microfinance providers. Staff turnover is costly, and experienced middle-level managers such as branch managers and department heads are very difficult to replace. As competition between microfinance providers increases in many regions, staff retention is becoming more challenging. Short-term oriented monetary incentive schemes can boost performance, but they do not help to reduce turnover. This is where ESOPs come in: they can be designed to retain staff. For example, ESOPs can be targeted at staff with a long service record and may exclude employees with low tenure. Or staff members might be barred from receiving 100% of their shares’ value until they have reached a certain length of service. The ESOP of K-REP Bank in Kenya uses both of these mechanisms (see Box on previous page). If share accumulations are encouraged by the ESOP’s design, the scheme incorporates components of life insurance and pension schemes that help to retain staff. Mechanics The concrete technical setup of ESOPs largely varies between countries. Typically, ESOPs are managed by trustees and funded through MFI and/or employee contributions. The plans can also borrow funds and repay their debt, e.g. using future MFI contributions. The ESOP trust acquires shares and creates units that represent these shares. The latter are distributed among the employees according to a pre-defined formula that may include their tenure and position. Employees can cash out when they leave the company or

after they have reached a certain length of service. Frequently ESOPs include an incentive for staff to sell their shares late. Most of the ESOPs known to the authors hold between 10 and 20 percent of the share capital.

“Short-term oriented mon-

etary incentive schemes can boost performance, but they do not help to reduce turnover…This is where ESOPs come in…

”

Governance and Distribution An opportune moment for implementing an ESOP is usually at the time of transformation from NGO status to a formal financial institution. ESOPs can then become a tool to cope with the need for diversified shareholders. By representing the interests of the employees who helped to build the organization, an ESOP can help retain the organization’s social mission that purely commercially oriented investors may not have. However, there are also a number of problematic governance and distribution aspects. Typically, the percentage of share ownership in an ESOP is determined by a formula consisting of tenure in the organization and the functional level reached. This will always favor the more senior people who helped to start the organization and possibly cement their ability to influence the future as well. Also, there is the question of how future staff members will be motivated if the existing employees take a significant share in the plan. Risks We have highlighted the fact that an ESOP can boost staff motivation by letting employees participate in the share capital of

Martin Holtmann heads the Microfinance Unit in the Global Financial Markets Department of the International Finance Corporation (IFC). Mattias Grammling is an independent microfinance expert who has done extensive consulting work on staff incentives for CGAP, MicroSave and the MFN. Together, they are the authors of the MicroSave Staff Incentives Toolkit. The opinions expressed in this article do not necessarily reflect any official positions of their respective employers. www.microfinanceinsights.com

the company. One often overlooked facet of ESOPs is that they actually increase the risk position of the employees as well. If the MFI goes into bankruptcy, staff may lose not only their jobs, but also that part of their “net worth” that is invested in the ESOP. When United Airlines, the largest employee-owned corporation in the US, went into bankruptcy, staff members lost out twice. Remember that equity holders are usually last in line when it comes to winding down a business! Costs Perhaps the most serious drawback of ESOPs from a practical point of view is the huge cost of actually implementing them. There are valuation expenses, custodian fees, as well as the cost of organizing a trading platform. Unless the MFI is listed on the stock market, these costs would render the design and implementation of an ESOP impractical in most situations. Conclusion Although ESOPs are not widely used by MFIs, they have become increasingly fashionable. ESOPs derive their appeal from the wide range of areas that they cover: staff motivation, staff retention, life insurance, pension plan, tax savings, and the opportunity to raise equity from socially committed shareholders. However, they will not be able to match short-term bonus schemes in terms of fostering loan officer productivity and portfolio quality because the ESOP’s link between staff performance and reward is too indirect. Like the more cost-efficient profit- or gain-sharing schemes, ESOPs can support staff loyalty and long-term commitment, which is particularly important to motivate senior management. But, keep in mind that if the main objective is to improve staff retention, there are alternatives such as pension schemes, for instance through life insurance contracts. In summary, ESOPs can increase the sense of ownership within an MFI’s staff and provide long-term motivation, but should not be considered the “golden bullet” in staff incentives. n

march 2008

microfinance insights

improving performance

Distinguishing the Best from the Rest: How Social Ratings Help Define Good HR Practices Although there is no standardized social rating system for microfinance institutions, several organizations have created their own tools for assessing the social performance of organizations in the sector. ACCION, M-CRIL, PlaNet Rating and Microfinanza, to name a few, have all developed social rating tools using their own methodologies. ACCION’s system is called SOCIAL; herein, Dr. Hema Bansal of ACCION, explains how HR fits into a social audit framework.

icrofinance institutions distinguish themselves from financial institutions based on their ability to fulfil both financial and social objectives. Over the years, stakeholders and MFIs have developed key financial indicators to measure and evaluate financial performance; however, initiatives to assess social performance have been largely scattered and sporadic. With emphasis shifting to the “double bottom line,” microfinance institutions will need to define the social value they create while holding themselves accountable for the goals articulated in their mission. An industrywide taskforce in March 2005 comprised of leading worldwide NGOs, microfinance network practitioners, donors, social investors and rating agencies defined social performance as the effective translation of an institution’s social mission into practice in line with accepted social values. However, there are no set standards for social reporting. Several social tools exist today, each with its own framework and level of detail, mostly representing the organization’s perspective on social performance measurement. ACCION’s reporting framework, called SOCIAL, covers six dimensions of social performance: Social Mission, Outreach, Clients, Information Transparency and Social Protection, Association with Community, and Labor. The framework draws from a variety of existing initiatives from various disciplines: some measuring social performance, some specific to microfinance, and other mainstream initiatives applied to businesses across all sectors. ACCION’s selection of “Labor Climate” as a criterion was based on ACCION International’s CAMEL (an acronym for five measurements of a financial institution: Capital adequacy, Asset quality, Management, Earnings, and Liquidity management) Financial Perfor-

microfinance insights

mance Diagnostic. The decision to include “labor” is based on the ACCION principle that “microfinance institutions should strive to develop their human resources and maintain active communication with their staff.” Employees are recognized as key stakeholders in microfinance institutions and are required to possess specific qualities like willingness to serve the poor, social communication skills and paradox values, i.e. one must understand the poor while maintaining financial discipline. In recognition of their employees’ unique qualities, MFIs have a strong responsibility to maintain policies and procedures that

“Microfinance institutions

will need to define the social value they create while holding themselves accountable for the goals articulated in their mission.

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”

promote staff satisfaction. ACCION’s labor dimension focuses on assessing the existence of policies and procedures to promote diversity, equality and existence of fair labor practices and initiatives to enhance employees’ personal skills and potential. In addition, evidence of a broad array of feedback mechanisms to promote communication between staff of all levels is a key component of this dimension. Information relating to labor is collected through interviews with the Human Resource department, and indicators within HR reports, like staff turnover ratios, exit surveys, etc. Staff interviews, policy and procedural manuals, and MFI staff-satisfaction studies validate this information. Table 1 provides an overview of the criteria used to assess “Labor” under ACCION’s SOCIAL diagnostic. ACCION’s experience with social auditing is based on six leading microfinance institutions in Asia, Africa, and Latin America. Starting in 2005, ACCION

A Good Social Rating Encourages Investor Confidence

improving performance

Table 1-Key Dimensions: Labor Climate Human Resources Policies

Staff Development: Training, Staff promotional polices Human Resource Policies: Availability; written policy against discrimination of sex, race, or ethnic group in hiring practices Fair labor market compensation: Comparison with minimum salary in the region

Use of Mechanisms to Gain Feedback Staff turnover ratio: Calculation and analysis by region, gender, field and head office level Staff Satisfaction: Assessment on staff satisfaction on compensation, work load, training, etc. Exit Surveys: Feedback from staff leaving the MFI Complaints: MFI’s system to respond to staff complaints and effectiveness of the system tested its social performance audit tool at six institutions: ASA-GV, India (2007), BanGente, Venezuela (2006), CREDIFE, Ecuador (2005), Fundacion Paraguaya, Paraguay (2006), Mibanco, Peru (2006), and Uganda Microfinance Limited, Uganda (2007).

“Rating systems like SO-

CIAL help assess an MFI’s ability to translate its mission into practice and can help outsiders evaluate how well an MFI is fulfilling its dual mission.

”

Among the six MFIs, CREDIFE in Ecuador (a subsidiary microfinance service provider of Banco Pichincha, a leading commercial bank in Ecuador) was rated “Excellent” for its performance with regard to the labor criterion. As a best practice institution, CREDIFE has clearly defined human resource policies in areas of hiring, orientation, training new staff, benefits and performance evaluation. Women

are strongly represented in both field and management positions. CREDIFE has clear salary scales and personnel receive excellent incentives for performance. Benefit packages include life insurance, medical insurance for the employee and his/ her family, vacation benefits, uniforms and options for loans. In addition, CREDIFE has dedicated significant resources to promoting staff development. New staff undergoes a month-long training program. In 2005, CREDIFE staff enrolled in trainings for 47 different job-specific and general courses. On average, each employee received approximately 6 hours of continuing education per year. Equally important, is the fact that CREDIFE calculates and monitors its staff retention ratio on a regular basis. In 2005, CREDIFE realized that its staff retention ratio was 80 percent—anything below 80 percent can be cause for serious concern—and immediately commissioned an extensive labor climate survey to arrest attrition. At the time of ACCION’s review of CREDIFE, the latter’s human resources

Dr. Hema Bansal works at ACCION Technical Advisors India. Her article is based on ACCION InSight Guidelines to Evaluate Social Performance, available at ACCION’s website: www.accion.org. For more information on SOCIAL in India, contact Dr. Bansal at hbansal@accion.org.

www.microfinanceinsights.com

department had just finished its extensive labor survey on areas such as salaries and organizational culture in all its offices. Human Resources managers were conducting regular exit surveys for all exiting employees. Staff had received feedback from their supervisors through a well-developed performance evaluation system. It was found, through the SOCIAL rating, that although CREDIFE had struggled with retention, they had well-established systems to assess and analyze attrition. The rating helped to not only identify challenges faced by CREDIFE, but recognized that the organization was doing a good job of taking care of any issues it had. While the sector is currently seeking ways to standardize the measurement of social impact, rating systems are being developed in countries around the globe, independently and in partnership with private sector players. These tools are necessary to learn which microfinance institutions are truly having an impact—and keep organizations from a mission drift. Rating systems like SOCIAL help assess an MFI’s ability to translate its mission into practice and can help outsiders evaluate how well an MFI is fulfilling its dual mission. In its effort to promote greater transparency, on social performance and encourage investments in MFIs with strong social performance, ACCION is looking ahead to bringing its SOCIAL tool to India. n

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march 2008

microfinance insights

improving performance

MFI Board Games: Making the Right Moves A Board of Directors can bring an organization credibility, clout, intellectual capital and experience. An essay on how to choose Board members and a word to those who want to contribute their time and energy to an MFI Board.

he rapid growth in the Indian microfinance industry in the past several years demonstrates the paradigm shift in the concept of “helping the poor”: institutionalized financial access has replaced traditional charity and subsidies. The ability of the poor to service microcredit and small loans is a direct consequence of the dignity, respect and trust afforded by microfinance institutions to disenfranchised communities around the country. So, is all-well? Yes and no. Yes, the sector constantly improves and reaches more bottom of the pyramid (BOP) communities each day, who desperately need a leg up. However, the sector has not been able to expand and touch the most affected. It has also struggled to transform “consumption borrowers” into “micro-entrepreneurs.” And the rural poor still pay exorbitant interest rates in comparison to urban middle-income borrowers. As one friend from the development sector recently put it, “Does microfinance leave behind wealth or merely replace one money lender with another?” Financially underserved communities need to utilize microfinance to create sustainable livelihoods through local economic opportunities. The direction, vision, process and metrics for achieving this second paradigm shift will indeed fructify only through leadership collaboration and stakeholder participation. Herein lies the case and opportunity to build a dynamic, constructive microfinance Board of Directors. Don’t Go It Alone While a typical MFI (NGO, emerging MFIs, Microfinance NBFCs) has a founder and/or directors who espouse the microfinance cause, surpassing endemic sector challenges as mentioned above requires multi-disciplinary professionals who can infuse their expertise where it is needed most: devising plans for outreach in more

microfinance insights

Making the Right Move far flung communities; the creation and implementation of growth strategies; organization building; applying new technologies; and interventions to create inclusive economic prosperity. These multifarious needs demonstrate the rationale for building a strong and diverse microfinance Board. Handpicking four to five qualified professionals, each with his/her—note that gender balance is important on a Board—own unique skill set and network, can boost the potential and stability of an organization overnight.

“Handpicking four to

five qualified professionals, each with his/her own unique skill set and network, can boost the potential and stability of an organization overnight.

”

Be Choosy Who should those carefully selected members be? Focus on the quality, not the quantity. Too often, organizations assemble a Board without coherent thought

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on the organization’s strategic needs and only with an eye on boosting numbers or names that hold clout. Big names can help an MFI, but it is more important to include people who can attend meetings and devote time and mental capacity to problem solving. Depending on your needs, the Board can serve in an advisory capacity or as auxiliary staff. It is essential to think holistically about an individual MFI’s profile and goals when searching for new members or additions to the Board. In general, drawing from different sectors and vocations can bring in new ideas and networks. It may be of use to bring together someone with a legal background, another with financial prowess, a person who has experience growing an organization or business, and one or two people with wide networks in tow. At a time when many MFIs are looking to scale up or transform their legal status, a Board can be critical to driving a growth plan and overseeing the expansion, not to mention ensuring the very survival of the MFI in question. In this case, a professional with legal skills would be an asset. They can help microfinance institutions to transform their governance framework to enable access to commercial

improving performance sources of funds through debt and equity instruments. In this instance, it would also be of use to have a Board member with financial acumen who could oversee your debt and equity structure, or speak the

“

The crucial differentiator for a microfinance Board is to ensure profitability of operations and a relevant business model to support the creation of wealth in consumers and the institutions who serve them.

”

same language as your current and future investors or lenders. When an MFI is newly established or has received negative press, a strong Board can bring credibility. In this case, wellnetworked Board members can be useful. The MFI, as a result, can access wider circles of influential people who can help source funding, generate positive word-ofmouth marketing and lend their reputation by presence on the Board alone. Granted, the responsibility of a Board member to perform and add value falls not only on the organization, but also on the member that signs on the dotted line. Want to Join an MFI Board? A word to those who want to give their time, brainpower and energy to microfi-

nance by becoming an MFI Board member: you’ve got to have skin in the game. MFIs welcome the entry of mainstream professionals, but in order to truly add value to the sector, Board members should proactively assume mentoring responsibilities for core issues like financial structuring, legal status, marketing, operations and general management. Above all, the Board should give effective guidance to senior management to help them critically analyze strategies and plans. Members with deep understanding of their own skill sets and domain specialization will be able to prove their value quickly. Equally, if not more important, is the impetus motivating the new joiner. Board members should understand the drivers of a microfinance institution—social mission and profitability—and should appreciate the balance between the two. Since individual Board members may not represent both objectives, the overall composition of the Board should strike a balance between these two perspectives. Time is on Your Side: Set Limits On the technical side, a forward thinking MFI should consider creating Board classes—a set period of service, with a transparent end date—which will protect the organization in the long-run. Even if a Board member is a trusted, personal friend, setting an expiration date on his/ her service will enable either party to leave the relationship if it proves not to be mu-

tually beneficial. In addition, individuals who know their service is only for a set period of time may perform better and have more impact if working on the clock. The Final Analysis While there are indeed many similarities in the manner in which MFIs and NGOs structure their Boards, the crucial differentiator for a microfinance Board is to ensure profitability of operations and a relevant business model to support the creation of wealth in consumers and the institutions who serve them. The measure of a good Board should be evaluated by the extent to which it makes recipient microfinance communities part of their own supply chain. In the final analysis, communities, investors and government regulators will look to MFIs for positive effects on the financial resilience and growth of communities. The communities themselves will want to rise up the aspirational curve and will consider the changes in their lives brought about by MFIs. Boards will and should play a significant role to achieve this eventuality. n Pari Jhaveri is the executive director of the socially-minded boutique search firm Third Sector Partners, which places CEOs and Board members. For more information, visit www.thirdsectorpartners.com.

CONGRATULATIONS Niranjan Sheelevant Nirantara Community Services INDIA

Didier Krumm

Luc Vandeweerd,

PlaNet Finance MOROCCO

ADA Microfinance Expertise, LUXEMBOURG

Microfinance Insights

Announces the Winners of its First Online Survey

on Human Resource Challenges and Solutions in the Microfinance Space Niranjan Sheelevant and Luc Vandeweerd will each receive a one year subscription to Microfinance Insights, worth US$55 and a copy of the Intellecap report Inverting the Pyramid: The Changing Face of Indian Microfinance, worth US$100. Didier Krumm will receive a US$25 Amazon.com gift certificate. The global survey received 92 responses from microfinance practitioners, recruiters, bankers and other financial institutions that target the microfinance sector from across the globe. To learn about future surveys and similar initiatives or for any other queries, please contact team@mfinsights.com

www.microfinanceinsights.com

march 2008

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improving performance

Bottleneck for Growth: the Human Capital Issue Conversations with MFIs CEOs and HR Managers yield insights about how their human capital management processes are not keeping pace with their growth and plans.

Survey Response Rate Two surveys were conducted: one that focused on CEO level respondents and another that focused on human resource managers. Seventeen CEOs responded from Africa, Asia, Latin America, and Eastern Europe. Additional information was gained through in-depth interviews with two CEOs and one Deputy CEO. Twenty-two institutions responded to the Human Resource Manager survey, again representing all regions. Information contained in the questionnaires was supplemented by in-depth interviews with three HR Managers. In the survey analysis, references to “HR Managers” refer to this group of survey participants. Thirteen institutions completed both surveys (CEO

microfinance insights

and HR Manager). In total, twenty-five different institutions completed at least one of the two surveys or participated through telephone interview.

“...less than half of the in-

stitutions surveyed had a system in place to address the challenge of adequate staffing alongside organizational growth

”

Consensus: HR is Integral to Organizational Strategy Among the twenty-five institutions surveyed, there were broad differences in HR management structures, decision-making methods, and the level of inclusion of HR in the strategic planning of the institution. Despite these variations at the organizational level, there was a surprising level of consensus about the most urgent HR challenges facing the institutions and the areas that needed more attention. Seventy five percent of CEOs cited HR as a “top priority” for their institution. All CEOs and HR managers reported that they included HR in the strategic planning for their institution.

Consuela Dantes, HR Manager at Planters Bank explained, “We believe that the success of a good strategy is largely dependent on excellent execution. People will execute. People will make the plans happen. It is therefore a must that HR needs are incorporated into the planning process. Do we have the talent? Do we have enough talent? Is our talent motivated to execute well? Are they trained to execute well? How will we retain our talent so that there will be no disruptions in execution [of the strategy]? These are strategic HR concerns that will have a significant impact on the success of [our] plans, and ultimately, the organization.” Current systems fall short Despite the rapid growth of these institutions and agreement about the importance of HR, less than half of the institutions surveyed had a system in place to address the challenge of adequate staffing alongside organizational growth. As further evidence that the sector offers little in the way of career planning or a clear advancement strategy for staff, the survey found that nearly 80 percent of the organizations did not have professional development procedures for staff in place, and if they were in place,

Graph 1: Top Barriers to Improving HR Faced by CEOs and HR Managers

No. of Respondents

he development finance industry is increasingly recognizing its human resource “bottleneck”: skilled middle and senior managers are difficult to find and retain; HR departments lack tools and systems to service ever-growing staff; limited resources are available for training and skills enhancement; and there is almost no knowledge sharing around best practices. According to some industry estimates, in order to meet the anticipated demand for microfinance, the industry will have to hire 12.5 million new loan officers, assuming a loan officer to client ratio of 1:300. This bottleneck threatens to constrain the growth, success and development potential of high-growth microfinance and small business finance providers. ShoreCap Exchange and Grameen Foundation have both witnessed their partner banks and microfinance institutions struggling with these challenges. In mid-2007, they worked with Mennonite Economic Development Associates (MEDA) to survey a number of microfinance and small business finance institutions around the world to pinpoint the exact HR gaps facing the industry.

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HR Managers CEOs

Not enough time / HR

Limited capacity of HR staff

Limited finacial Lack of support Lack of support from Sr. Mngmt from CEO/ED resources

Other

improving performance they were incomplete or not used. About Graph 2: What Type of Assistance Would be Most Helpful to You to Improve Human Resources WithinYour Institution? 40 percent of organizations surveyed had not implemented or put in place formal training policies. Accordingly, these arTechnology to automate HR systems eas ranked in the top three HR needs HR training for staff managers of the majority of institutions. Further compounding the retention issues echoed Manual for HR best practices for MFIs throughout the sector, thirty percent of Training opportunity on HR the organizations surveyed did not have an incentive system in place, or if it had Educating Senior Management on importance of HR been created, it was incomplete or not Hiring on external HR Consultant used. Priorities vary between CEOs and HR Managers There was disagreement between CEOs and HR managers about the top HR challenge and the barriers MFIs face in improving HR management. In order of priority, more CEOs cited the need for HR information systems or automation of current HR systems, i.e. technology issues, whereas HR managers said that staff capacity building and training were their main concerns. CEOs also voiced concern about the “lack of HR management capacity of MFI managers” and “increasing competition for staff in the market.” HR managers felt the lack of qualified candidates for open positions was also of concern. More research is needed to better understand the difference in viewpoint, but the survey initially points to the need for better communication between HR managers and their CEOs about the challenges each group is facing in HR management and strategy within the institution. Best Practices Information Gap The survey demonstrated that building HR management capacity is a serious challenge. Although there are some service providers such as training centers, management programs and consulting companies, there are few toolkits, resources and trainings focused on HR for the sector. There was an articulated need for best practices sharing and the development of HR tools and resources. Urgent Need: Training and Technical HR Assistance The survey asked both CEOs and HR managers how urgently they require training or technical assistance, relative to other instiwww.microfinanceinsights.com

tutional priorities and needs. Seventy-five percent of CEOs felt that training and/or technical assistance (TA) in HR was a “Top priority–among the most urgent needs” of their institutions, while only about half of HR Managers selected HR as a top priority. Wish List: Training, Improved Systems In order to determine the types of assistance MFIs are most interested in obtaining, HR managers were given a list of possible tools or interventions in HR, and asked to choose the three that would be most helpful for their institution. The results are in Graph 2. They closely follow the open-ended responses from CEOs and managers about their priorities with technology or management information systems (MIS) and HR training for staff managers both ranking high on the lists of both sets of respondents. A guide or manual for best practice in HR in microfinance institutions was also ranked as being of high importance for HR managers. Build Locally. Spend More on Training. MFIs and small business banks accessed external assistance on HR management from a variety of providers, but did have a preference for locally provided services, likely for the cost benefits and the knowledge of

local operating environment. For training on HR, they were equally divided between international and regional training opportunities for staff. Despite the financing constraint, more than half of MFIs had paid full, unsubsidized rates for training and/or technical assistance on HR management topics at least once in the past two years. Most institutions (two-thirds of CEOs) said they planned to supplement their own HR budgets with outside funding. Conclusion Industry players—microfinance and small business banks, capacity-building organizations, training groups, experts, investors and donors—can work collectively to develop resources that would be accessible to the entire community. Creating awareness among these institutions about best practices and benchmarks from both peer groups and other industries would be a significant first step to developing relevant in-house competence. Industry networks and associations are increasingly working on various fronts to address some of these gaps. Both ShoreCap Exchange and Grameen Foundation are committed to focusing on these issues and bringing valuable tools and resources to the industry. n

Urmi Sengupta is the Vice President, Knowledge Exchange at ShoreCap Exchange in Chicago, USA. Kate Druschel is the Regional Coordinator, East and Southeast Asia for the Grameen Foundation. To learn more about ShoreCap or the Grameen Foundation, visit www.shorecapexchange.org and www.grameenfoundation.org. march 2008

microfinance insights

sourcing

Locally Grown: It’s all Women’s Work in this Urban Slum Although there has been an influx of foreigners into India and other developing countries who want to work in microfinance or social business, not all MFIs choose to employ them. Some organizations prefer to fill their field and middle management roles with local employees, creating one more job opportunity in places where there are often few. In this article, Managing Editor Lindsay Clinton meets the women who help run an urban MFI located in a slum on the outskirts of New Delhi, and finds out why they work here when they might be able to make more money elsewhere.

he streets of Holambi are alive with vigor and flies as dusk, and dust, settles on this urban slum. On “main street,” vegetable sellers are peddling cauliflower and purple onions, small hills of garlic and green chilies. Chickens sit in cages next to their sellers soon to be chopped into piles of head, feet, hearts and bones. As the sun sets, the village gains energy. Workers are returning from a nearby factory. Women have come out to do their shopping. Holambi is a planned “slum-burb,” built by the government of India as a make-good for residents they booted out of New Delhi’s city center around 2001. Most of the people in this village worked as maids or shopkeepers or in other small jobs before they were moved, and they earned money with relative ease. But, when their homes were destroyed, so went their livelihoods. Now, in a self-contained village on the outskirts of India’s capital city, there is little to do in the way of work if you’re not a shopkeeper or a vegetable procurer. Some girls and women make money by separating plastic bottle tops—the factories make them in one piece, and then need human hands to take them apart. Others put caps onto medicine bottles. But, for many, the only steady stream of employment close by is at a factory. Workers get paid INR100 (US$2.50) a day for their work there. Aajeevika, a start-up microfinance NGO based in Holambi with a branch up the road in neighboring slum Bawana, is trying to change this. Both communities are considered urban slums even though they are surrounded by fields of green. Aajeevika started working in Holambi in 2004 by engaging in community building efforts. Along the way, it saw an opportunity to provide microfinance loans to its members, and it has gradually built its client

microfinance insights

Rashida Bano base since then. About 3,300 people are members of Aajeevika’s self-help groups, which have 5-10 members each; about 600 of those members are clients who borrow money on a cyclical basis.

“…by doing this work they

are not only improving the financial stability of the women around, but also their own financial stability.

”

Aditi Mehta, a member of the Indian Administration Services (IAS) for 29 years, started Aajeevika (meaning livelihood) to help the women in these communities. “We knew that the women needed something. They had lost everything and had nothing to do,” Mehta told me over coffee one morning. While some men still commute to their old locale to work, and others have found a job at the local factory, the women have very little to occupy them-

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selves. Aajeevika set out to change that. The organization only serves women, and tries to hire women whenever possible. Besides poor infrastructure, exclusion from public services, and the health costs of living in an unclean environment, lack of access to education tops the list of challenges for young women in Holambi. There are only two schools, but for girls older than 10th standard (around 14 or 15 years old), there is no opportunity for education. As a result, many girls have left their studies, and have very little opportunity. Aajeevika has changed that equation for some of the women living here. By choosing to hire only women for field staff positions, they are providing a new, much needed source of employment for a chosen few. Renu is a 21-year old mother of two who was recently promoted to branch manager from center manager after working with Aajeevika for a year and a half. Although she is young, Renu

sourcing carries herself with aplomb as she walks through the village lanes. She works in Aajeevika’s Bawana branch and takes her role seriously. When she is not tracking the money collected at the branch, she is attending center meetings to make sure they run smoothly and that the members are repaying. She has also taken it upon herself to hold awareness camps in the village to bring in more members and potential clients. All of the field staff at the organization are between 18 and 23 years old and none have any formal working experience. Like many small MFIs, Aajeevika hires its field staff locally, and believes that employing “insiders” strengthens their organization. But, Aajeevika is unusual in that all of its women staffers are from the slum itself. Rashida Bano, 23, another branch manager who is revered by almost everyone who works with her, finds that one of the most important parts of her job is motivating the center managers under her charge. She explains, “I try to reassure them that by doing this work with Aajeevika they are not only improving the financial stability of the women around, but also their own financial stability. They get the chance to progress with their education and career development.” Aajeevika’s women work a long day. They convene center meetings starting at 6:30 a.m. and sometimes don’t finish until 8:30 p.m. Salaries start at INR 2,000 a month (US$50) and there is an increase after six months. Although they could work elsewhere, and possibly make a higher salary—there are several nonprofits operating in this urban village—Renu and Rashida stick around. In fact, Renu seems to have hit her stride here. She likes to work in the field, and finds that in her position, she can teach others. Although she doesn’t say it explicitly, Renu is a leader at her branch, and within her community. Mehta, who echoed that sentiment, said, “Employing these women has demolished myths that young women/mothers can’t do this work. These are slum girls who have been given financial and psychological responsibility.” As unusual as it may sound, the urban www.microfinanceinsights.com

environment serves as an incubator for female MFI staff members. Renu might not be allowed to be a field officer if she worked at another MFI in India or elsewhere due to safety or cultural issues. But, the structure and culture of an urban MFI varies markedly from that of an MFI operating primarily in rural areas. A field worker at a rural MFI will spend most of his/her day traveling large distances. The isolated environment is also thought to be unsafe for a woman traveling alone. Culturally, in some areas, it is seen as inappropriate for a woman to be apart from her husband, children, in-laws, or parents. And, carrying large amounts of money is seen as more of a risk for a woman staff member than for a man. These difficulties are avoided in an urban environment. Rashida told us, “Some families are not as supportive as my family. They want their girls to get married and work at home, and not go out

“Employing these women

has demolished myths that young mothers can’t do this work.

”

and learn English and computer courses. I am fortunate that my family, with my parents and two brothers, supports me. They are proud that I have completed my studies and now contribute to the household income through a job that is close by. Although, when I come home late at night they worry.” Although there is tension in the slum— at night families can be heard fighting and neighbors squabbling—there is an aura of relative safety. It has the comfort of a small, “one horse town”, where everyone knows who you are and what you do. Most of that can be attributed to the density of the community. A center manager only has to walk a few streets to reach a group meeting, passing people she knows along the way. When she reaches the meeting, it is held outside in the lane, in public, which lends an additional quality of transparency and security. Generally, there are always curious passers-by who stop and observe the meeting. The open nature increases the sense that these women borrowers,

and the center managers have nothing to hide. Additionally, Aajeevika has created a system where none of the field workers carry money. They keep track of accounts, and ensure that each group member has the funds to pay her debt each week. But, the money is delivered to the branch office by a center leader (not the center manager) each week, taking the onus off of Aajeevika’s employees. Yet, the job is not without challenges, even in Holambi. For Renu, most group members are at least twice her age, and she must find a balance between discipline, camaraderie, control, and power in order to ensure that loans are repaid and that groups keep peace. She relays one story about a group, where a woman flat refused to repay her loan, and then ran away to a faraway state, Bihar. The other group members were held accountable for loans in arrears, and they were vocal about their dissatisfaction with this arrangement. For Renu, this was a tough situation. It was her responsibility to ensure that the group would somehow repay the amount loaned, for the sake of the organization and to keep up Aajeevika’s 99 percent repayment rate. In this scenario, the group members ferreted out information that helped them track down the AWOL member, and pressured her to return. She did, and repaid her loan. Fortunately, most dicey situations seem to work themselves out through the application of social pressure. Aajeevika has its sights on expanding into neighboring communities, and with that expansion will come new hires. Mehta says that they will continue to hire from within slum communities, giving them a new opportunity for steady employment. For Mehta, hiring locally is like meeting another bottom line, and it’s not without its rewards. She explains, “To see a community of women leaders at that level, there…that’s something.” n

Microfinance Insights is one of the most popular microfinance groups on Facebook! Join our growing community today.

march 2008

microfinance insights

sourcing

Against the Grain: Reverse Migration at Work While many MFIs only hire locally—see our piece about the urban MFI that only hires women from the slums—organization managers now have the opportunity to bring on foreigners. Undeterred by low salaries and variable living environments, expatriates on a search for “meaningful” work are increasingly seeking out employment in developing countries—and microfinance stands to benefit. In February, Microfinance Insights brought together a group of foreigners working in India to gather information on what has compelled them to leave the Western world behind and pursue a new line of work in a new country despite significant pay cuts. Managing Editor Lindsay Clinton shares insights culled on the microtrend of reverse migration.

here was a time, not so long ago, when the flow of talent went in one direction—from developing country to developed. Asian and African doctors and engineers, IT experts and other skilled workers longed to move to the West, in fact, it was a symbol of the pinnacle of success. With changing global economies, however, the West, and the US in particular, has become less of a draw. In fact, many young people in dynamic developing economies, like China and India, have opted to stay home and ride the wave of economic advancement. They aren’t the only ones being lured by developing economies. According to the UN, in 2005 about 191 million people—3 percent of the world’s population—were international migrants1 The flow of people moving from one country to the next generally follows one of two patterns: from one developing country to another, e.g. from Bangladesh to India, or from a less developed country to a developed one, e.g. from Ghana to the US. It goes against the grain for people from developed countries to uproot and move to a developing country. However, in the last five years, the latter scenario has become a more attractive option for a certain cadre of people: those interested in social business, and consequently, microfinance, as a sub-sector within it. This development seems to be most applicable to young Americans, Britons, and Western Europeans. Their chosen countries of migration include Bangladesh, Benin, Guatemala, Ghana, India, Peru, South Africa, and Uganda, to name a few. And many of them move semi-permanently— meaning for at least a year and sometimes many more, although plenty come to work for short stints of a few months. Westerners have been living and working in developing countries for years, but

microfinance insights

Against the Flow the types of people moving now and their reasons for moving diverge from those seen in previous years. The 1970s and 1980s brought people to developing nations on behalf of multinational compa-

“...for plenty of people in the

West, the idea of leaving their jobs to join a company that nobody has heard of in a sector few people know about for a 50-95 percent pay cut is unthinkable.

”

nies, for the US Peace Corps, for a gap year after college graduation, or to work with a non-profit. Expatriates that moved for work often brought their entire families along and were usually equipped with a robust expense account, and perhaps a company apartment or a house in a gated compound, all of which countered the challenging and new landscape, and sometimes helped them avoid it altogether. Yet,

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completing a stint in a country like Senegal or Sri Lanka gave employees cachet and clout; in some ways, living abroad in a developing country was “doing your time” which could help you move up the ladder. The new influx of expatriates seeking opportunities in developing countries may be driven by some of the same compulsions of their predecessors, but their profiles are markedly different: financially solvent, college-educated and often carrying advanced degrees with several years of professional experience under their belt; and usually independent, single twentysomethings. Financial independence is key, because expense accounts and salaries are not guaranteed anymore—but people are making the move anyway and doing it willingly, and in some cases for the long term. This reverse migration has been keenly felt in India, an emerging market that presents an economically exciting environment. It offers a comparatively safe

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Indian Transplant Mark Straub, spent a year as a financial analyst at Lok Capital, a private equity firm in Delhi that mobilizes capital for microfinance in India, and recently moved back to the United States. We asked Mark to share his perspective on working in microfinance in India, and in particular tell us why he chose to work in this country in this field. Was it to push him along a business school trajectory? Or did he want to get “real world” experience?

he Draw of the Developing World I didn’t come to India as a stepping stone, and my choice to work in microfinance wasn’t part of an agenda to work up some ladder. I came to India because I had become jaded by the work I was doing in the U.S. (investment banking) and because I’d always wanted to work in a developing country, if you can call India that. I haven’t applied to business school, although some do use their experience to do just that and my current employer (a Silicon Valley venture firm) didn’t hire me because of any microfinance expertise or social work background. For me, the desire to work in a developing country was a mix of altruism, an interest in adventure and a chance to see a really different way of living life. And I would say that both the work and the time living in India did give me a different perspective on life. It taught me to value it a bit more. One of the things that impressed me the most about some of the people I got to know in India was the loyalty and honesty of locals that I was fortunate enough to count as friends. My guess is that most people who actually make the effort to come to India for more than just an extended vacation— that is, people who come here to really dig in and work—come because they have a passion for something, and they feel that their talents and drive can best be used here, in India, at this moment in its history. We come to feel a fulfillment about the work we do, as well as to experience the wonder and fascination that India fosters in outsiders—even in the modern age, it’s still a pretty mysterious place. India Calling South Africa was on my list of places to www.microfinanceinsights.com

go, but at the time I was deciding where on the map to go I knew less people from South Africa than I did from India, and that certainly contributed to my decision. The other factors, less comfortable to admit, would probably be the crime rate, HIV/AIDS and the fact that microfinance hasn’t taken hold as strongly in South Africa as it has in South Asia.

“I expected poverty, and

dust, I expected technology breakdowns and bad roads/traffic. But what I didn’t expect is how the outlook on life, and relationships, and interactions would be different.

”

Why Microfinance? I first heard about microfinance from my brother, a venture capitalist, who suggested I read Muhammad Yunus’ book. Like a lot of people, I was inspired by his willingness to challenge the conventional wisdom about poverty and by the apparent massive social and commercial opportunity that microfinance could tap. As I considered my options for working in development overseas; teaching English, building houses, working in a clinic, I wanted to find something that would make the best use of my finance skill set and background in banking. Microfinance fit the bill. I expected poverty, and dust, I expected technology breakdowns and bad roads/traffic. But what I didn’t expect is how the outlook on life, and relationships, and interactions would be different. And in this way, learning to do business, or any kind of work in India is an art, and it is an art that I became fond of practicing.

Thoughts on “Reverse Migration” I think it’s very positive if people come to a country like India from the US or the UK and intend to contribute something. I think its one thing to come here as a worker, or an entrepreneur or a student, it’s quite another to come on a prolonged vacation, or on a search for the best bar scene. I hope that the people who follow my path do it for the purpose of contributing to the Indian story, be it as part of the economy or the health system or the human rights or anti-corruption lobbies or as part of the newly burgeoning clean tech research and environmental community. Whatever their line of work, if people are coming to India on a social mission, they need to remember that purpose. This country has a rich narrative, and I was glad to be a part of it, not just an observer. Mark’s Next Move I was considering staying in India longer than a year, and was actively looking at companies in the mobile payments space – an area of technology that has broad application in microfinance. However, on a trip home to see family I received an offer from a leading venture capital firm in the US that was too good to pass up. I am now getting to look at companies that have the potential to change the world everyday, from advertising companies that could change the way we use the Internet to clean tech companies with the possibility to reduce our dependence on fossil fuels. n Mark Straub is an analyst with Draper Fisher Jurvetson’s Growth Fund in Menlo Park, California. He blogs about technology, travel and venture at www.graylightning.com.

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microfinance insights

sourcing atmosphere, whereas a Pakistan or a South Africa, colored by violent bouts of political turmoil and high incidences of HIV/ AIDS respectively, may make foreigners shy away. The prevalence of spoken English, an easily-navigable landscape, and a social business sector waiting to explode have made India all the more alluring. In the last two months, I have spoken with nine foreigners who have worked and lived in India, five of whom work for Intellecap, the company that publishes this magazine, and talked with them about the microtrend of people leaving the comforts of life in the West and moving to India to “make a difference” by working for a socially-driven company. To be clear, it may be aggressive to label this a movement or trend; for plenty of people in the West, the idea of leaving their jobs to join a company that nobody has heard of in a sector few people know about for a 50-95 percent pay cut is unthinkable. However, what makes this reverse migration so interesting is the shared impetus of its participants; in my conversations, a common thread emerged: this group desires work with meaning. Chris Mitchell, an Associate Vice President at Intellecap, and an emigrant from the US said, “We may be entering a less materialistic, less consumerist phase, and seeking lives that are more meaningful, with a more moral, social, and perhaps activist dimension. People’s lives and career choices are being guided by something bigger and greater than the simple accumulation of wealth. Traditional corporate jobs in the West don’tafford people the opportunities to make the kind of contributions which address this change in priorities.” There are several options for beating the tedium of the corporate world. Those drawn to social business have several options: joining the Corporate Social Responsibility arm of a company; working for a firm that has an innovative model that combines social good with business (think Acumen Fund, Endeavor, Unitus); starting a company (like Kiva.org); or finding a suitable position in microfinance where being part of the action requires relocating to a developing country. For

those interested in microfinance, India is a no-brainer; the sector is popular and widespread here, but there is still exponential room for growth. It is like living in Silicon Valley before the internet boom. However, not all microfinance institutions (MFIs) find it useful to hire foreigners: they are of little use in the field, where they do not speak the local language; they usually do not come with much local level knowledge and cannot leverage past networks; and MFIs don’t have the time to invest in training or hand-holding. As a result expatriates often seek out “microfinance hybrids,” i.e. companies or organizations engaged in microfinance-related work that can utilize foreigners for bigpicture aspects of their work. Many MFIs capitalize on foreigners’ experience and education and employ them to do higher-level evaluations of systems, conduct research projects, or consult. In this symbiotic relationship, foreigners often manage to skip a few rungs on the career ladder to tackle substantive projects. Often, because the companies they join tend to be leaner and less structured,

“There was a strong senti-

ment from those who have been working abroad for more than a few months that their move has caused a mental paradigm shift: they feel certain that the future no longer hibernates in the West.

”

expatriates have the opportunity to drive and shape the direction of the company they work for. An analyst at a mainstream consulting firm in the US might be considered for a senior position at a company abroad—a benefit for foreigners who want to advance their careers, position themselves uniquely for business schools, try out a management position, or take on more responsibility. Moving to a developing country, especially one undergoing aggressive eco-

1“World Population Highlights: Key Findings from PRB’s 2007World Population Data Sheet.”

microfinance insights

march 2008

nomic and cultural transformations like India—four of the ten richest people in the world are Indians and the Indian Supreme Court recently overturned a ban on women tending bar—can re-jigger your world map. There was a strong sentiment from those who have been working abroad for more than a few months that their move has caused a mental paradigm shift: they feel certain that the future no longer hibernates in the West. Granted, there are drawbacks for MFIs and social businesses who hire foreign talent. They usually come with an expiration date, as work visas are time-limited. And, there is the rare instance where an expatriate’s priorities are not in line with the company, i.e. the employee would rather see the countryside than do the work. With each hire, a firm risks time, energy and money by bringing the unknown into their work environment. However, in most cases, the short-term assignments (one or two years), and content-rich nature of the work, spurs foreign employees to accomplish as much as possible before time runs out. Surprisingly, out of all the people contacted for this article, only one confessed to having business school on his radar— rather, all professed genuine commitment to the social business sector, and they expressed ardent interest in remaining within this field long-term, without concern for remuneration. The social mission of many expatriates makes them hope that their visas will be renewed at the end of their year. Andre Wegner, an Intellecap Associate, said, “The interesting thing is that for the [social entrepreneurship] space, and [India] in general, there is real opportunity, business opportunity…We have so much opportunity to make change.” n

If you would like us to cover a particular theme in the future, send us your suggestions at team@mfinsights.com.

service providers

Matchmaker, Make me a Match The practice of using online job portals as a microfinance recruitment tool has grown in popularity over the last few years, with more and more MFIs becoming comfortable with the web as a way to find talent. Although newspapers are still a more popular method of recruiting according to the Microfinance Insights survey, the utilization of online portals has been growing. Rahul Nainwal, founder of the site MicrofinanceJobs.com, explains how MFIs can optimize online recruitment.

ne of the biggest challenges for any organization making the transition from the start-up stage to the growth stage is to find suitable human resources that will enable it to make the leap. A larger client base and an increased volume of transactions make for inherently complex situations which require quality manpower at all levels of the organization, from those in supervisory roles to those in middle- and senior-level management. The gap between demand and supply of required human resources is widening day by day. A Challenge Unique to the Sector Recruiting people to work in microfinance is a challenge in general because of the nature of the work: staff members often travel or work within rural areas and regions with poor infrastructure. In addition, although the sector has received accolades and attention, the ins and outs of the industry are relatively unknown to outsiders, and few people are aware of career opportunities that the sector offers—perhaps because organizations do a poor job of communicating them to current and prospective employees. If a prospective candidate has an opportunity to work with an multinational corporation (MNC) or bank—with the accompanying perks such as a pleasant work environment, good salary and growth opportunities—it is less likely that she/he will want to join the microfinance industry where the environment is generally less comfortable, the salary lower, and a clear career path is less obvious. While there are so-called “Good Samaritans” who are motivated to join the microfinance sector because they see their work as impacting the lives of the poor, those numbers are limited. For the sector to grow and thrive, it will have to position itself as a mainstream sector with career opportunities at every level for every candidate. Leaders, HR managers, and job www.microfinanceinsights.com

service providers will need to work collectively to attract not only those who are passionate about microfinance, but also those who are looking to build their skills and find a career path. A lot of work must to be done to create awareness about the microfinance sector and the career opportunities it provides. Professionalizing HR systems within organizations will do wonders for those struggling to retain employees. Even if the sector gains traction in attracting candidates, retention will become increasingly difficult without a clearly defined organizational structure, career planning, clear job descriptions and regular performance appraisal systems in place.

“For the sector to grow

and thrive, it will have to position itself as a mainstream sector with career opportunities at every level for every candidate.

”

The Value of Niche Online Job Sites When it comes to recruitment, online models are one of the most popular and effective ways to get the job done. Simply put, an online platform aggregates the demand and supply of jobs, bringing together job hunters and job seekers in any or all industries. Monster.com is a classic

example of a global job service provider for people from all sectors. Niche sites specifically targeted to the sector, like Microfinancejobs.com and Microfinance Gateway’s Jobs Section, not only aggregate demand and supply but also educate prospective job seekers by publishing relevant content and showcasing a variety of job opportunities that are available in the sector. They are not only recruit, but also build the market. Using a niche site also automatically narrows the candidate pool, which saves time and money. Another advantage is that of cost. Organizations can gain branding and visibility for a fraction of the cost that they would incur on general job sites. Because mainstream employers, e.g. banks, Information Technology (IT) and the FMCG (Fast Moving Consumer Goods) sector, use high-profile, broadspectrum job sites, there is more competition among organizations vying for top candidates. For example, candidates who post their resumes on Monster.com may be inundated by dozens of prospective employers from various sectors. Microfinance institutions stand a better chance of hiring the candidate they desire if they source him/her from a job site that specializes in microfinance rather than an all-purpose job site. Even though specialized microfinance job sites have a fraction of the traffic that Monster.com and other high profile sites do, the number of quali-

Top Job Sites Used by Microfinance Organizations to Advertise Open Positions:

Channels Used by Microfinance Organizations to Advertise Jobs:*

Microfinance Gateway MicrofinanceJobs.com

61.4 % 36.4%

Print Publications

57%

Monster.com/Naukri. com/JobsAhead.com Idealist.org

13.6 %

Word of Mouth

50.6%

Online in the region Colleges and Business Schools Headhunter

48.1% 26.6%

9.1%

*Results of Microfinance Insights online survey

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21.5%

microfinance insights

service providers fied candidates the employer receives is much higher. Through Monster.com, an MFI might get hundreds of resumes but only a portion of those would be relevant, whereas a niche site like Microfinancejobs.com would bring in 20-30 resumes of high quality candidates who have, just by applying on the site, already identified themselves as ready and willing to work in the microfinance sector. Getting the Most Out of an Online Job Platform One of the barriers to utilizing online job portals is low awareness among microfinance organizations of how to use them effectively for recruitment. The first hurdle is the accompanying job description. Developing a solid job description is the most important component in using any online media for recruitment. As simple as it sounds, having a well-written job description not only helps in attracting the right candidate but also builds a professional image of the organization. Since many MFIs in the sector are still small and not well known, candidates make judgements based on the only information readily available to them—the job description. Poorly written descriptions reflect negatively on the organization; the result is that many good candidates choose not to apply for those jobs, and several may retain a negative impression of the organization. Sector leaders and HR managers must remember that we are competing for talent with other industries; a descriptive, specific job description is one way to differentiate your organization from the rest. Table 1 describes the elements crucial to writing a job description.

“

A well-written job description not only helps in getting the right candidate but also builds a professional image of the organization.

”

After you’ve created a great job description, it’s equally important to ensure that you respond in a timely fashion to the candidates who apply for positions. Recruiting is similar to doing effective customer

microfinance insights

Table1 : Four Elements to Writing a Good Job Description Describe the Position Well: Explain why the position is needed. Mention the overall purpose of the job. Mention Requirements Upfront: What qualifications are needed? What is the essential experience a candidate must have? Be realistic and try and differentiate what is mandatory to suit your needs, and what is merely desirable. State Duties Clearly: Explain the day-to-day responsibilities of the position. State Remuneration, if Possible: Do indicate a salary range and whether it is negotiable, the reporting officer and the location of the job.

Development Sector Job Sites: Careers without Borders – www.careerswithoutborders.com Deal Jobs – www.dealjobs.net Devjobs – www.devjobsmail.com DevNetJobs – www.devnetjobs.org The Economist – www.economist.com/classifieds Idealist – www.idealist.org International Career Weekly – www.internationaljobs.com MicrofinanaceJobs – www.microfinancejobs.com Microfinance Gateway – www.microfinancegateway.com Relief Web – www.reliefweb.int The Development Executive Group – www.developmentex.com UN Microfinance Jobs – www.unjobs.org/themes/microfinance relationship management. Sometimes organizations do not communicate well with the people who apply to work with them. Either the response is late and poorly drafted or it never comes. This can create a bad impression of the organization. Organizations must realize that in an online environment, people expect fast responses or they lose interest. Online Isn’t the Only Solution For the most part, online job sites are a great way to recruit, but they do have with a few drawbacks. The sheer number of responses is greater that you will get using word-of-mouth or print, which means that organizations have to spend more time and resources short listing resumes. While online platforms are good for recruiting junior, and middle management positions they are rarely effective for senior management positions. Such positions often require more detailed and

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thorough searches, and it is advantageous for microfinance institutions to use multiple channels, including the services of a specialized search firm. In some cases traditional media like newspaper advertisements can work better when recruiting in large numbers, and at lower levels of the ladder. However, the first step of any good recruitment strategy is a nicely written job description whether used on a website or any other medium. Candidates today have many choices and the sector must position itself competitively to bring newcomers in, and keep those already working in microfinance within the sector. n

Rahul Nainwal started Microfinance Jobs.com, an initiative of MITRA, a leading volunteer recruitment organization in India.

events

Microfinance Insights Roundtable: Building Networks and Knowledge In February, to prepare for this issue on human resources, Microfinance Insights invited key stakeholders from the microfinance sector to discuss the most pressing human resource challenges faced by managers and organizations while scaling up. We assembled a cross-functional group of experts that included job service providers, microfinance leaders, an MFI franchise developer, and a practitioner from the private sector with the goal of creating a dynamic discussion and sharing knowledge. Key Findings

Recruitment and Retention It was no surprise that recruitment and retention emerged as the larger challenges faced by MFIs and for-profit companies as they strive to reach more clients and expand their geographical scope. Attracting the right talent proves difficult because candidates must have, as a prerequisite, a mindset that fits with the organization’s mission. If they don’t, MFIs have found that some potential employees can be lost only a month or two into training. MFIs employ multiple channels such as newspapers, word of mouth, online job matching services and campus recruitment to attract staff. The highest turnover rates exist amongst front line staff, i.e. those who work in the field and are not part of a head office. There is also the tendency of “front line” or field staff to be swayed easily by incrementally higher salary opportunities at other organizations. “Front line staff is known for having lower salaries and being price sensitive; as a result it restricts the size of the hiring pool,” says Apu Gupta, COO and CMO of MedPlus Pharmacy, a network of pharmacies that started two years ago and today has 1,500 employees. Unfortunately, there isn’t much loyalty to any particular MFI at this level of staffing. Pari Jhaveri, Executive Director of Third Sector Partners, a boutique head hunting firm for social and corporate sector clients, offered her perspective from the supply side, saying, “The reason for high attrition is that people do not have a road map ahead of them. An improved structure needs to be in place to attract and retain the right talent.” Unclear communication between employers and potential applicants can often be attributed to an ineffective or www.microfinanceinsights.com

Discussion at the Microfinance Insights HR Roundtable

non-existent career path. Rahul Nainwal, Co-Founder of MITRA Technology Foundation which developed the site, MicrofinanceJobs.com, explained, “If an applicant is misled and takes up the position based on a vague job profile, he/she will leave when expectations are not met. Thus clarity within the organization is imperative.” (You can find more of Nainwal’s perspectives on how to position an organization more competitively for a job search within this issue). Jhaveri added that poaching from within the sector from one MFI to another contributes to high turnover rates and recommended that steps be taken to widen the recruiting pool by attracting talent from outside the sector (see Jhaveri’s piece on building an effective MFI Board in this issue). Testing and Training Generally, MFIs hold an assessment test to check candidate capabilities. Some take this a step further by assessing social and emotional maturity, which can prove to be one of the most important evaluation factors. All of the MFI representatives

spoke about the trainings they offer for new recruits. Training may include formal classroom and field training or on-the-job training, where trainees get the chance to shadow agents. In the case of Pradan, an NGO, where Ankur Singhal worked for several years, a framework modeled on the recruitment system of Indian Defense services is used to recruit new staff. Monitoring trainees as well as employees is integral to maintaining an efficient and motivated workforce. “Middle management [serves as] the eye[s] of the top level management and they need to reinforce the culture of the organization so that they can motivate staff. This is where the real retention takes place,” said Vidya Sravanthi, Chairman and Managing Director of Asmitha Microfin which operates in South India. “[Also] the executive level should have an ongoing relationship with field staff.” We learned that setting up automated monitoring systems is equally important. In addition, appraisals and marking out a career path are essential to retaining staff and encouraging them to climb

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microfinance insights

events up the ladder. Singhal, currently a Senior Associate on Intellecap’s franchising team IntelleCash, said, “During appraisals at Aajeevika (an IntelleCash franchisee) when field staff were asked what more they would like to gain from the organization, their response was ‘Developing English speaking skills and computer skills.’” Singhal and the IntelleCash team have also learned that it can “increase job satisfaction and productivity to arrange a trainer at the location itself.” On Gender Jyoti Gujaran, HR Manager of Swadhaar FinAccess, an urban MFI said, “Ninety percent of management at Swadhaar are women. On the field there are fewer

women because they prefer working [at the] back end.” Reasons for this can be due to harsh weather conditions, early morning meetings which require traveling long distances before the sunrise and family responsibilities. Nalini Beck, HR Manager of Grameen Koota in Karnataka, India discussed two model branches totally run by women: “The Kendra [center] meetings are held in close proximity to the women to facilitate attendance. Allowances are made in special cases such as maternity leave. There are plans to increase such branches run entirely by women.” Take a look at our interview with Mary Ellen Iskenderian of Women’s World Banking for more information on how gender impacts MFI staffing.

y ntr 008 e r 2 ou une y t J i bm 20th u S re fo be

Going Forward Valuable insights were shared and networks established during the roundtable. The team at Microfinance Insights plans to continue this model as we develop content ideas and themes for future issues. If you are interested in sponsoring an upcoming roundtable and helping us to create dialogue and build sector knowledge, please contact team@mfinsights.com. To participate in a future roundtable contact lindsay@mfinsights.com. n

Jerilene Creado, an Associate with Microfinance Insights, contributed this article.

Submit a Photo to win $150! Eligibility Open to all photographers; maximum of 10 entries per person. Evaluation Process Original photos will be judged based on creativity, composition and quality of representation. The images should capture one of the following themes: • • • •

Cash in Hand Microfinance at Work The Road Less Traveled Colors of Microfinance

Prizes 1st: US$150 Amazon.com gift certificate 2nd: US$50 Amazon.com gift certificate 3rd: US$50 Amazon.com gift certificate How to Submit Email: microfinanceinsights@gmail.com Mail Microfinance Insights, c/o Intellecap 512, Palm Spring, Link Road, Malad (W), Mumbai 400 064, India.

Microfinance

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Microfinance Photo Contest, 1 April - 20th June Dairy Farmer, Bhilwara, Rajasthan. Courtesy of Rajendra Shaw.

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Digital or print entries accepted. Negatives must be available for print photos submitted. For digital images, only minor image adjustment is permitted, such as cropping, sharpening, contrast, and levels. No composite images are allowed. Digital photos must be high res (at least 300 dpi). In order to protect prints, package with cardboard stiffeners and if posting slides, place in plastic sleeves. The following details have to be included with all entries: full name, mailing address, e-mail, contact number, photo description (max 200 words). Winners will be informed via telephone and e-mail on 27th June. All submissions should be original, and not previously published. The photographer has to own the rights to the photograph/s being submitted. We will not return any submissions and are not liable for missing, damaged, delayed entries or for technical problems. After submitting an entry, Microfinance Insights may use your photographs in all types of media at any location with attribution to you, the photographer, without further compensation. The judges’ decision is final and no correspondence will be entered into.

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Openings in Investment Advisory Firm for Social Enterprises Established in 2002, Intellecap is one of the fastest growing strategic services firm in the international development sector. Intellecap aims to build intellectual capital dedicated to facilitating investments into socially motivated businesses and to assist these businesses in becoming more profitable and achieving greater scale through consulting and advisory inputs. Working in both indirect strategic advisory roles and direct design and execution modes, Intellecap leverages its understanding of mainstream, profit oriented business models to create unique solutions that generate both financial and sustainable social returns. Intellecap connects to the social space through its emphasis on field exposure to its team, as well as by ideating and incubating innovative adaptations of mainstream, profitable solutions to address the broader challenges of businesses in development. Intellecap values success across various parameters: social, environmental and financial, thus attempting to achieve a multiple bottom line itself. The company is fast expanding its presence in areas such as provision of clean water, education, organic produce, green energy and clean technology to name a few others. Please visit our website (www.intellecap.net) to know more. Intellecap is looking for team members, and details are given below: Position: Associate Vice President - Corporate Finance Location: Hyderabad, India

Position: Engagement Manager- Corporate Finance Location: Hyderabad, India

Experience/ Education: • 8 -10 years in Investment Banking or Corporate Finance Advisory Roles • Chartered Accountant / MBA (Finance) from a premier B-School Skills: • Demonstrated ability of leading independent business units including accountability for unit’s revenue targets and profitability • Experience of leading a team of professionals • Understanding of social investment space • Track record of independently closing investment transactions on the buy and/or sell side • Strong network with venture capital funds/private equity investors • Sound knowledge of corporate finance principles and practices • Excellent communication skills

Experience/ Education: • 4-6 years in Investment Banking or Corporate Finance Advisory Roles • Chartered Accountant / MBA (Finance) from a premier B-School Skills: • Strategic and operational understanding of Social businesses preferably in market spaces such as microfinance, agri-business, clean energy, education and healthcare • Ability to independently manage engagements involving qualitative and/or quantitative analysis • Respect for deliverable quality, deadlines • Sound knowledge of corporate finance principles and practices • Excellent communication skills

Job responsibilities: • Building the investment advisory practice while being part of the strategic leadership team of the company • Working with the team during the selling stage and delivery part of multi-stage engagements • Building on relationships with potential and existing national and international clients; • Managing multiple roles that includes business development, client relationship management, team building and mentorship, and project delivery; • Relevant national and international field travel and exposure as and when required.

Job responsibilities: • Support the growth of the investment advisory practice by working in close coordination with the respective AVP/VP • Accountable for client deliverables on specific projects • Effective coordination with the team to ensure quality delivery on projects • Carrying out financial modelling, valuations strategic analysis and recommendations • Managing interaction with client and investors on specific assignments • Relevant national and international field travel and exposure as and when required

If you are motivated to join the Social Enterprise space and are looking for suitable opportunities, please address your applications to Ms. Shree Ravindranath with a cover letter and detailed up-to-date resume to: jobs@intellecap.net

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march 2008

microfinance insights

resources

Recommended Reading In the course of our research for this issue, we came across several resources that we would like to share with readers. Please consider this a non-comprehensive list of recommended reading on human resources challenges and solutions. Microfinance Banana Skins 2008: Risks in a Booming Industry, Centre for the Study of Financial Innovation, March 2008 This latest survey on the risk outlay for the microfinance industry ranks ‘management quality’ and ‘staffing’ among the five biggest risks to MFIs. A Fresh Approach in Human Capacity Development: The Establishment of a Certification System for Microfinance Managers in Indonesia, J Kerer, GTZ and Promotion for Small Financial Institutions, 2007 This paper highlights capacity-building systems developed for microfinance in Indonesia, focusing on how donor intervention can be efficient and effective. Building Human Resources Capacity: Developing Competencies for Microfinance Institutions, Women’s World Banking, 2007 The report shares WWB’s hands-on experience and lessons learned in the use of competency-based human resource systems to build organizational capability for MFIs. Staff Incentive Schemes in Practice: Findings from a Global Survey of Microfinance Institutions, Andrew McKim and Matthew Hughart, MicroFinance Network and CGAP, September 2005 The paper presents the findings of a worldwide study on the design and implementation of staff incentive schemes by MFIs. Gender and Development, Getting the Balance Right: ADB Review, 2004 This issue of the periodic publication explores the complexities of gender and development issues, and uncovers the success behind projects in Asia and the Pacific. Bridging the Gap between Gender Analysis and Gender Responsive Budgets: Key Lessons from a Pilot Project in the Republic of the Marshall Islands, Rhonda Sharp and Sanjugta Vas Dev, Hawke Research Institute, 2004 Approach and key lessons from a pilot project aimed to develop a process for linking an understanding of gender with the policy and project work carried out by the government of the Republic of Marshall Islands. The Changing Face of Management in South East Asia (Working in Asia): Chris Rowley, Routeledge, October 2002 This volume evaluates the changing management practices in South East Asia, focusing on human resource management, in the context of China’s growth and the evolving economic scenario. From the Roots Up: Strengthening Organizational Capacity through Guided Self-Assessment, P. Gubbels and C. Koss, World Neighbors, 2000 This manual provides tools and methods for self-assessment, with the aim to strengthen organizational capacity. MAIN Seminar Theme N 2 - Resources for What Demands?, October 2000 This paper is the case study of Centenary Rural Development Bank (CERUDEB), Uganda presented at the MAIN Workshop on “The Levers of Financial Sustainability” at Antananarivo, Madagascar in October 2000. It describes the human resources policies and constraints faced by private companies operating in the microfinance sector. MicroSave Toolkit Series, MicroSave Four toolkits from MicroSave focus on topics related to human resources. These include toolkits on and Governance for Micro Finance Institutions, Human Resources Management, Training for Trainers, and Institutional Culture Change.

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resources

Calendar of Events Microfinance Cracking the Capital Markets – South Asia, New Delhi, India, 29 – 30 April, 2008 The South Asia leg of the Cracking the Capital Markets conference will bring together institutional and private investors, leading microfinance institutions in Asia, international and regional banks, market specialists and rating agencies, to discuss the successes, challenges and trends of microfinance investment in South Asia. • Sponsor: ACCION International and Standard Chartered • Website: http://www.accion.org/NETCOMMUNITY/Page.aspx?pid=1019&srcid=191 Managing Human Resources for Microfinance Institutions, Iloilo City, Philippines, 5 – 7 May 2008 This course will offer various human resources tools to MFIs that will help them, assess knowledge and skills needed, hire the right people, design incentive and compensation packages for staff, and promote employee commitment. • Sponsor: Social Enterprise Development Partnership Inc. • Website: www.sedpi.com Sanabel 5th Annual Conference, Tunis, Tunisia, 6 – 8 May 2008 This conference will bring together microfinance practioneers and stakeholders in the Arab world. The focus will be on greater social impact through inclusive financial systems in the Arab world. The program also includes Sanabel’s 2008 Regional Microentrepreneur Awards. • Sponsor: Sanabel Microfinance Network of Arab Countries • Website: www.sanabelnetwork.org/en/node/423 The Global Microfinance Investment Congress 2008, New York City, USA, 14 – 16 May 2008 This conference aims at evaluating not just the current market status of microfinance, but also the future prospects, potential demand, and resulting returns. • Sponsor: PlaNet Finance and American Conference Institute • Website: www.microfinancecongress.com/ index.htm Mobile Money Summit 2008, Cairo, Egypt, 14-15 May 2008 This is a two-day conference designed for senior executives from financial services institutions, mobile network operators, development organizations, solutions vendors and regulatory and policy makers. • Sponsor: GSMA, CGAP, IFC • Website: www.mobilemoneysummit.com Triple Bottom Line Investment Conference Asia, Bangkok, Thailand, 29 – 30 May 2008 The Brooklyn Bridge TBLI group will host this conference to bring together investors to discuss issues related to sustainable development, social entrepreneurships, and alternative investments. • Sponsor: The Brooklyn Bridge Triple Bottom Line Investment Group • Website: www.tbli.org 11th MFC Conference on Microfinance Institutions, Ulaanbaatar, Mongolia, 29 – 31 May 2008 The conference will address the challenges faced in scaling up microfinance, how to educate microfinance clients and issues of governance. The conference will also see an investment fair and pre-conference one day training on microinsurance. • Sponsor: Microfinance Centre (MFC) and XAC Bank • Website: www.xacbank.mn/mfc-conference2008/ Microfinance Management and Governance, Kristiansand, Norway, 2 – 3 June 2008 The conference is aimed at academics and researchers involved in microfinance management and governance and opportunity to showcase their work, and to stimulate and facilitate more cross border research cooperation. • Sponsor: University of Agder • Website: www.uia.no/en NetImpact Europe Conference, Geneva, Switzerland, 12-14 June 2008 This conference, targeted at business students, graduates and leaders, is focused on tackling the challenge of achieving and sustaining global prosperity. Tracks include Innovation, Leadership, and Managing Investments. There will be at least one panel focused on Microfinance. • Sponsor: NetImpact • Website: www.netimpact.org HBS-ACCION Program on Strategic Leadership for Microfinance, Harvard Business School, Boston, USA, 15 – 21 June 2008 This course, being offered by HBS faculty and ACCION experts, will focus on practical business lessons from the experiences of leading institutions, and will teach participants how to apply them to their own situations and organizations. • Sponsor: ACCION International • Website: www.accion.org/hbs www.microfinanceinsights.com

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microfinance insights

indicators

Microfinance Market Indicators

This page presents statistics and indicators related to human resources in microfinance, selected and compiled by the editorial team.

Efficiency Indicators 1 7

10% vs. 61%

6% vs. 65%

239

13%

Average salary burden of MFIs globally versus the average salary burden of MFIs in South Africa.2 Of MFIs surveyed that had Staff Incentive Schemes in 1990 versus the percentage who had them in 2005.3 Average number of clients per staff member serviced by the top 10 MFIs in India.4

Administrative expenses as a percentage of gross loan portfolios in Bolivian MFIs in 2006. A decrease in 3 percentage points.5

Global Microfinance Deals6

Reliance Capital

Citi Financial and IFC Sources :

The US$1.5 bn company has entered the Indian MFI space, setting up a corpus of US$25 m, with initial funds of US$1.33m going to two Gujarat-based MFIs. To loan US$22m to Bangladesh-based BRAC. Part of a larger financing plan of US$55m.

1. Adapted from: Microfinance Information eXchange. MicroBanking Bulletin. Issue. No. 15, Autumn 2007,

Govt. of Nigeria

Set up a US$426m microcredit development fund to be administered by the Central Bank of Nigeria.

Microfinance Bank of Azerbaijan

Completes the second part of its US$25m bond issue. Funds to be used for on-lending to small scale Azeri businesses.

MicroBanking Bulletin: Anniversary Issue Issue No. 13, Autumn 2006, MicroBanking Bulletin: Focus on Trend Lines Issue No. 10, 2005. 2. Baumann, Ted. “Pro-Poor Microcredit in South Africa”. Journal of Microfinance 7 vols. Sep 2005. 3. McKim, Andrew and Matthew Hughart. “Staff Incentive Schemes in Practice: Findings from a Global Survey of Micro Finance institutions.” CGAP and Microfinance Network Sep 2005. < http://www.microfinancegateway. org/files/29906_file_Staff_Incentive_Schemes_in_Practice.pdf> 4. Competitive Micro-Credit Market in India, The Eleventh Five Year Plan (2007-08 to 2011-12), January 2007 5. Bancosol Annual Report 2006 6. Adapted from Economic Times, Microcapital, Microfinance Gateway 7. Adapted from data received by Women’s World Banking Network Members, 2006 Annual Performance Updates.

microfinance insights

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indicators

Microfinance Market Indicators

This page presents statistics and indicators related to human resources in microfinance, selected and compiled by the editorial team.

Urban MFI Snapshots 10

Job Service Providers 8

Microfinance Gatewayâ&#x20AC;&#x2122;s Job Posting Region Breakdown* (Jan 2007 - Mar 2008)8

Boulder Institute of Microfinance MFT Program Participants12

* Figures rounded up Sources : 8. Microfinance Insights. Interview with Tarun Mapara and Sherry Sposeep. March 17, 2008. 9. BancoSol Annual Reports 2004, 2005, and 2006. 10. Adapted from a Bandhan presentation at the Microfinance Utsav, Thane, March 7, 2008. 11. Microfinance Insights. Interview with Rahul Nainwal. March 27, 2008. 12. Microfinance Insights. Interview with Shawn Hernandez. March 15, 2008.

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microfinance insights

survey

Microfinance Insights Survey Results: HR Challenges and Solutions Many thanks to the microfinance practitioners who responded to our online survey on Human Resources Challenges and Solutions. Ninety-two institutions involved in microfinance across the globe, from Ghana to Peru and Brazil to Iraq responded to our questions about training, incentive plans, gender balance and job service providers. We have assembled the most interesting facts that emerged from the survey in the following pages.

Microfinance Institutions Sample

The Challenging Issues in Microfinance HR

Motivating Microfinance Staff

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survey

Training Microfinance Staff Types of Induction trainings

Respondents were asked to describe the kinds of trainings they offer to incoming staff. Many prefer to give a simple, customized induction, offering a general overview of the company and providing operational guidance. However, quite a few offer more intensive training, from a week to six months, that includes in-class and job-specific field trainings. Some specifically address accounting practices, methodologies, and sustainability.

The Recruitment Issues Criteria for C-Suite Recruitment

Average Staff Growth (2004-2005)

Criteria for Staff Recruitment

Hardest Positions to Fill

The Gender Gap In Microfinance HR

The complete survey report will be available online at www.microfinanceinsights.com later this month. www.microfinanceinsights.com

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microfinance insights

books

The Human Side of Microfinance: Individual Stories of Success

Book Excerpt from Small Loans, Big Dreams Alex Counts, President & CEO of Grameen Foundation, presents Grameen Bank and stories of women who have benefited from microcredit in his new book, Small Loans, Big Dreams. This excerpt demonstrates the scope of the peer-lending model developed by Muhammad Yunus in Bangladesh.

Ordering Information Small Loans, Big Dreams, Published by: Weiss-VCH, due April 2008 ISBN-13: 978-0-470-19632-8 432 pages Price: US$29.95, EURO 22.90

miyale is a mother of eight who was born as Veronica Wilma Ramsey and raised in a Chicago housing project. Ever since childhood she’d suffered from a stutter, and spoke as little as possible when she wasn’t around family and friends. In the mid-1960s she met Paul DuPart, an aspiring artist, and they began dating…The two were married in 1965, and within a year Omiyale was pregnant…By the mid-1980s, Paul was working as a mental-health aide at a psychiatric clinic, earning less than $20,000 a year to support a household that included five teenage children and two grandchildren. The family lived in Englewood. Omiyale had taken up selling at flea markets and rented a thrift shop in Hyde Park, the most affluent neighborhood on the South Side. On weekends, she often closed her store and brought merchandise that wasn’t selling to Maxwell Street, where she frequently saw Thelma. The two women exchanged ideas and information, one suggesting a street festival that the other hadn’t heard of, the other leaking word of a going-outof-business sale where they could pick up merchandise for next to nothing. They came to respect each other’s business savvy and began to share booths at summer festivals and other events. When the landlord from whom Omiyale rented her thrift store (and with whom she had good relations) died, the

microfinance insights

new landlord doubled her rent from $250 to $500. She tried to continue running the store for a few months, but the higher rent cut too far into her profit margin. In late 1988, she closed the store for good. Omiyale worked the flea market/Maxwell Street/arts and crafts festival circuit during the spring and early summer of 1989, but when a lamp company advertised a position for an industrial polisher, she applied for and got the job. It paid $18,000 a year, and she was struck by the fact that she was the only black woman, and the only woman polisher, working there. Several colleagues remarked that she was chosen because of a new affirmative action policy, but that didn’t bother Omiyale. By that time, she was taking care of a grandchild and there was another one on the way. She supplemented her income by digging up worms in the parks after work and selling them to coworkers who liked to fish. She also sold them merchandise left over from the thrift store.

“

Omiyale was just weeks removed from being laid off, and the ability to get credit without regard to her credit history was an opportunity she couldn’t resist.

”

During the last six weeks of 1990, two events occurred that were to change Omi-

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yale’s life. The first was being laid off from her job; apparently, the lamp company didn’t limit affirmative action with minorities to hiring—it spilled over to firings as well. The second event occurred several weeks later—she heard about WSEP. Omiyale heard about the Full Circle Fund by chance from a balloon seller outside the 75th Street El station. Omiyale had never heard of anything like the fund before, but it seemed like a good idea to her. After attending an orientation meeting, she told Gwen Burns she would have a group of five ready to meet with her in two days’ time. Gwen was pleased and surprised by the eagerness Omiyale exhibited. After all, most women are somewhere between skeptical and afraid after they listen to her spiel, and many take months of coaxing before they are ready to commit. But Omiyale was just weeks removed from being laid off, and the ability to get credit without regard to her credit history was an opportunity she couldn’t resist. Omi-

books yale called Thelma late at night after she returned from the orientation meeting to tell her about the Fund. Thelma agreed to help her friend pull together three other women by Wednesday night. After Thelma hung up, she said a prayer to Almighty Allah that this might be a genuine program. If it was, Thelma knew, it could only have come from the Creator himself. Thelma, Omiyale, and three other women met that Wednesday at the home of Omiyale’s mother on Garfield Avenue in Englewood. To Thelma and Omiyale, joining the Fund meant more than simply access to a loan. In a pinch, both had usually been able to call in favors and borrow money from family members or other, more prosperous vendors. But the Full Circle Fund meant guaranteed access to

increasing amounts of working capital as long as they repaid on schedule. There’d be no more begging, no more imposing on friends. Now they could concentrate on building up dignified businesses. When Thelma took her first loan for $300, it nearly doubled the capitalization of her business. Omiyale was a bit more adventurous and took $1,500. In addition to credit, the program brought them in contact with other vendors, as well as with small, home-based manufacturers from whom they could buy wholesale. In the past, Omiyale and Thelma would hear of lucrative events only after they’d occurred, because fellow vendors were unwilling to share the information. Now, in a group with other women whose success was linked to theirs, they were more

Excerpted with permission from Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance Are Changing the World, by Alex Counts, to be published April 2008 by John Wiley & Sons, Inc. (Hoboken, New Jersey) © 2008.

likely to get timely information, and the support and encouragement that they would need. Shortly after 3:00 in the afternoon, Omiyale and Janet packed their merchandise into a taxi as they prepared to return home. They had grossed nearly $ 50 and heard about some upcoming events from other vendors. When everything was packed away, Omiyale jogged over to Thelma’s table on Thirteenth Street to see how her friend was faring and to discuss the agenda for the center meeting to be held the following evening. A few minutes later, Omiyale was off on her way to Chicago’s South Side. n

1 WSEP is an acronym for Women’s Self-Employment Project based in Chicago, Illinois. It was established in 1986 and offers a well-regarded business development program for low and moderate income women. WSEP was the first urban organization in the US to apply the Grameen Model of peer lending.

Contribute to Microfinance Insights Interested in sharing your point of view or an analysis on a pressing issue? We encourage you to submit your perspective by following the guidelines below: Articles (1,000 - 2,000 words) Opinions (500 – 1,000 words) Best tools/practices (1,000 – 2,000 words) Conference reports (500 – 700 words) Quotes (50 – 100 words) Submissions should be original, previously unpublished, and in English.

Want to write for Microfinance Insights? Become a book reviewer. Submit a proposal to write a review on a recent or forthcoming book related to the sector. The book reviewed should not be published earlier than 2006. Reviews have a word limit of 500 – 1,000 words Are you a publisher or an author? If you are a publisher, author or editor and would like for Microfinance Insights to review or excerpt your book, please contact us. The book must be related to microfinance, and should be a recently released or unreleased book. Excerpts have a word limit of 1,000 – 2,000 words.

Contact us at team@mfinsights.com (We advise you to write to us, indicating the concept of your contribution, before submission.)

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microfinance insights

books

Global Brain Drain

As the world gets seemingly smaller, it becomes easier for highly educated or specialized individuals to shift from country to country and company to company. These people—doctors, IT specialists, writers, artists—generally move from developing to developed countries, affecting economies, policies, and businesses along the way. Andres Solimano explores the affects of the “international mobility of talent” in his new book of essays from various experts on the subject and case studies from around the world. Our review is below.

Ordering Information The International Mobility of Talent Published by: Oxford University Press, due to be published May 2008 ISBN-13: 978-0199532605 352 pages Price: US$110, GBP 55

ndres Solimano, Regional Advisor at the United Nations Economic Commission for Latin America and the Caribbean, has assembled an engaging compendium that examines the global movement of human talent and its development implications both on source nations (often developing countries), as well as on recipient nations (often developed countries), both in the long and short term. The volume is organized into three parts, covering three broad types of talent: directly productive talent, academic talent and talent in social and cultural sectors, with analytical perspectives from international experts and case studies included. The volume provides a very compelling global picture on the appropriate policies and strategies to harness the mobility of talent in the best possible manner. All contributors present their point of view with a precision that keeps the reader interested through to the end. Expert contributions emphasize the necessity of giving due importance to the type of talent and the context under which it is moving while evaluating the costs and benefits of the mobility of human talent. The book also highlights that global migration is influenced not only by demand Shree Ravindranath, Associate Vice President and HR Lead at Intellecap, reviewed this book.

microfinance insights

and supply factors, but also by immigration policies and even by the business models being adopted.

“Talent has a large economic value and its mobility has increased with globalization, the spread of new information technologies, and lower transportation costs.

”

- Andres Solimano

While pointing out that the emigration of talent—examples include doctors from Africa or the Philippines, information technology experts from India or China, writers from Latin America, etc.—can be both a cause and a consequence of the underdevelopment and the development gaps observed in the world economy today, contributors to the book mention the need to be cognizant of the fact that talent, in order to be economically and developmentally effective, comes in a package with technology, capital, contacts, and market connections. The contributions to the book cover many talent groups that stand to add value both socially and economically to developing countries, and the observations and suggestions are insightful. The book also covers the mobility of entrepreneurs, as they are often agents of resource mobilization, innovation and investment, and serve to transfer innovative and wealth creation techniques from one country to another. Leveraging open migration chains and

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networks of diaspora is discussed, and the costs and benefits of emigration are analyzed. The book also provides interesting reflections on international organizations and the representation of women in them. The volume focuses prominently on the policy aspects of managing mobility. Private sector players such as multinational companies could have been better represented and multicultural work environments would have made interesting case studies. This information would perhaps make the analysis more useful to entrepreneurs and managers who are entrusted with the job of managing such talent. The book would appeal to a wide audience particularly policy makers, economists and human resources managers, including those interested in the macroeconomic aspects of mobility of talent, the motivations for mobility of a certain type of talent, and managers who are looking to harness international talent. The most important contribution of the book could be in aiding policy advocacy for creating better avenues for talent circulation globally. n

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Sun Tzu

A strong drive to understand microinsurance stems from the realization that insurance is an essential tool to provide protection against financial losses due to illness, economic activity, environmental and political issues. This issue provides insight into the growth potential for microinsurance and reveals how it can mitigate risks for the poor.

Issue V: Focus on Microinsurance

Globally, the microfinance sector is standing at a juncture where innovative mechanisms, to take financial services delivery to the last mile, are emerging regularly. The issue reveals the tip of the “innovations” iceberg and highlights examples of mechanisms that have made a difference and challenged established norms.

Issue IV: Innovations in Financial Service Delivery Mechanisms

Going Public: MFIs & Stock Markets

Investor Insights: Legatum & Aavishkaar Goodwell

Interviews: Vikram Akula, Vijay Mahajan, Udaia Kumar

Valuations: Chimera or Science?

Features

Investors, banks, and other financial actors play a crucial role in facilitating the growth of the microfinance industry and some deals have attracted attention to the capital markets. This issue seeks to discuss investors’ perspectives, various valuation methodologies, and recommendations for MFIs and investors.

Issue III: Tapping Capital Markets

For copies of archived issues, mail us at publications@intellecap.net

A quarterly publication by Intellecap

Where are we headed?

Cover Price: INR 35/ US$10

Microfinance & Capital Markets

Vol. 3, June 2007

Don’t let this one pass, book your copy today!

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Did you know? • Online interest in Microfinance Insights has increased by nearly 80% in the past three months. • Microfinance Insights is recognized in more than 140 countries. • In this quarter alone, the journal was placed at 10 events. We believe in not only adding value to ongoing discussions in the sector, but also bringing the diverse and varied perspectives within our magazine to new audiences. If you are holding an event in your region, and would like to partner with us, contact team@mfinsights.com. • In just five issues, more than 40 microfinance experts have voiced their experiences and perspectives through the journal. • Microfinance Insights strategically reached out to more than 13,000 people within the last quarter to disseminate sector knowledge.