• Guidance and evaluation

Guidance and evaluation

In the light of an increasing entry of commercial banks into the microfinance sector, this paper provides an overview of issues and options commercial facing bankers when designing and implementing microfinance programmes. The paper highlights that microfinance represents more than a new product line or client segment. Rather it is a new way of doing business and therefore requires changes in organisational culture, decentralised operations, and service that is sensitive to clients’ needs.

Unique characteristics of microfinance include:

• volume is achieved by reaching thousands of clients, each with numerous, small and short-term transactions
• service is delivered to meet the socio-economic needs of clients often living in the informal economy and traditionally marginalized from formal financial institutions
• risk is managed by people and systems customized to the high-volume of operations and informal nature of the clients, incorporating policies and procedures to eliminate, mitigate, off-set, and control risks.

The core principles of microfinance are defined as the following:

• autonomy of the organisation is necessary to uniquely service a non-traditional client segment
• the bank’s assets, like reputation, branch network, systems, financing, human resources, and so on, need to be taken advantage of
• point of service needs to be close to and attuned to the market, and capable of achieving massive scale while controlling risks
• the bank leadership needs to communicate the institution’s commitment to microfinance
• the manager of microfinance needs to believe in this business and is able and willing to implement change and innovation in the bank, motivate staff, and balance risk and growth objectives
• staff needs to be comfortable working with low income people, and taining programmes need to be in place to develop staff’s skills and abilities in client service, risk management, and achieving financial objectives
• financial products which are offered need to be diverse, appropriate, simple and easy to understand and efficient to administer.

• Full text of document
• Publisher details
• Send to a friend