Tweet

MFI Performance in Countries Visited: A Few Numbers

Written by: United Nations Capital Development Fund

Article Overview: Before reviewing the performance of MFIs in MicroStart, it is useful to consider what minimum level of performance would justify the expenditures MicroStart is making.

MFI Performance in Countries Visited: A Few Numbers

Before reviewing the performance of MFIs in MicroStart, it is useful to consider what minimum level of performance would justify the expenditures MicroStart is making. A simple thought experiment can provide us with the roughest order of magnitude. MicroStart programs generally spend $1.5 million per country, covering both technical and financial assistance. Let us assume that the average loan (or deposit, in the case of credit unions) that assisted programs make is $100, which is larger than average in some countries and smaller in others. A further (generous) assumption is that MicroStart can claim credit for all the additional clients of participating organizations. Finally, we assume that UNDP considers it acceptable to spend a dollar to increase the available amount of loan capital to a poor client by the same amount. This ratio falls well below the leverage ratios heralded by Rich Rosenberg when he pointed out the value of leveraging donor resources through licensing of MFIs. However, it is a reasonable or optimistic ratio for working with start-up organizations, and probably exceeds the ratio most donor programs achieve.

In order to achieve this one-to-one ratio, a MicroStart program of $1.5 million would need its participating organizations to add 15,000 additional clients. These new clients could be stretched out over a longer period of time than the three years of direct MicroStart support, but they should be sustained clients, which would require the organizations to be able to prevent the value of their capital from eroding due to operating shortfalls, loan losses, etc. (otherwise additional grants would be needed to sustain benefits). In order to "justify" the expenditure, therefore, MicroStart programs should not only add at least the requisite number of clients, but also score well on indicators of portfolio quality and financial viability.

The following table provides a snapshot of MicroStart MFI performance on two key indicators -- client growth and delinquency control -- in the three countries the evaluators visited. Each set of numbers requires interpretation in its own context.

In Morocco, the longest running program, we can see performance over a year and a half. The results must be interpreted in light of the fact that microfinance is very new in Morocco. These are first generation MFIs. Although all the organizations in Morocco have made internal strides as a result of their participation in the program, the success of the program rides on one breakthrough organization: Zakoura. During its MicroStart participation Zakoura has added nearly 9,000 clients, making it the second largest MFI in Morocco, and it has done so while maintaining close rein on delinquency. Zakoura staff expect to reach operational self-sufficiency by the end of this year. On the strength of Zakoura, MicroStart Morocco looks likely to achieve the hypothetical 15,000 client target by the end of the three years.

The remaining organizations, however, have contributed only 4,000 additional clients, half of whom are claimed by an organization, FONDEP, whose numbers are in dispute due to lack of transparency in reporting. Although these organizations are growing, they are all struggling with delinquency problems. Ismailia, the sole program reporting low delinquency, has no regular delinquency tracking system, and its PAR number is not reliable. These programs add little in terms of client numbers, and they are far from sustainable. Yet they have absorbed four-fifths of project resources.

In Ivory Coast, the picture is less promising. The situation in the Ivory Coast is dominated by the fact that the participating organizations are all credit unions, and that the TSP is a traditional credit union promotion agency. While MicroStart's standard design focuses on credit delivery, the credit unions focus on savings. There is accordingly some confusion among parties regarding the objectives of the MicroStart program in this instance. This issue will be discussed at greater length later. For now it is important only to note that there do not appear to be any organizations in the MicroStart Ivory Coast program that are likely to become major providers of credit, although two may become significant providers of savings services. Perhaps the Ivory Coast program will meet the "target" on the basis of savers (which would be a good outcome).


The MicroStart program in the Philippines has ambitiously selected 17 organizations to work with, only four of which could be visited during the evaluation. As the program is just starting, no results are yet available. However, it is possible to make some observations about the four selected programs. Of the four, only one, Bayan Microfinance, has the attributes that are likely to propel it toward substantial, sustained growth. The remaining organizations are all multi-purpose organizations whose commitments to microfinance are constrained by stronger commitments to other social goals. All are struggling with delinquency, low growth, and leadership turnover. MicroStart is likely to improve their efficiency, but the gains will probably be incremental. These programs represent the stronger among the group of 17, suggesting that the remaining programs will show fewer results. In the Philippines it is likely that the project will meet the "target" because it is working with so many organizations. The incremental gains will add up. One must ask, however, whether the 15,000 figure is an ambitious enough goal for MicroStart in a populous country with long experience in microfinance.

It is important to note that of all 14 organizations listed here, only four are able to provide a reliable portfolio at risk figure showing that they are substantially in control of delinquency. Given that PAR-30 is the only performance indicator widely available for MicroStart, it is the best available window into organizational potential. It appears from this sample that MicroStart is beginning mainly with organizations that have significant delinquency problems to overcome, which is usually a very arduous task.

If the trends suggested by these numbers hold, these three MicroStart programs will have achieved the hypothetical target of 15,000 additional clients by the end of their three year lifetimes, but most of those gains will be concentrated in one or two strong organizations per country. Most of the remaining organizations will have added significant numbers of clients relative to their starting points, but the absolute number will be small and the levels of delinquency and operating losses will mean that additional grants will be needed to sustain the gains in client numbers.

There are several important points to note in the preceding discussion:

MicroStart programs already depend for their success on finding breakthrough organizations. Incremental change is not enough.
Among the existing portfolios in the countries reviewed, only three organizations look like they will be breakthroughs: Zakoura (Morocco), Bayan (Philippines), and XAC (Mongolia).
Most of the resources within MicroStart are going to the low-performing organizations, simply because there are so many of them relative to the strong performers.

These observations suggest that MicroStart could greatly enhance its impact if it found a way to focus its energies more efficiently on finding and supporting breakthroughs.


MicroStart: Finding and Feeding Breakthroughs
Midterm Evaluation
Prepared for UNCDF/SUM
10 December 1999
Elisabeth Rhyne and Jill Donahue

Related Articles
  3.3 Conclusion: Economic Report on Africa 2007
  Adjustment and Recovery During 1995–97
  Startling ATS Hiring Stats! You Might Double Your Performance
  2.1 Growth performance I: Economic Report on Africa 2007
  2.1 Growth performance IV: Economic Report on Africa 2007

Article Tags: 5 million, assumption, credit unions, delinquency, donor programs, donor resources, financial assistance, financial viability, leverage ratios, loan capital, loan losses, mfis, microstart, order of magnitude, requisite number, rosenberg, simple thought, snapshot, thought experiment, undp



Related Forum Posts
ARTICLE: Performance coaching in the workplace - To create lasting performance change it is necessary to first understand the positive and negative influence that a person’s personal behaviors has on their execution and what impact these have on their ability to achieve success. Only when we fully understand a person’s behavioral patterns and create positive self-managing coaching strategies can we assist a person to create lasting performance change. The vast majority of employers believe coaching can deliver significant benefits to both individuals and organizations. The majority of employers plan to increase the use of coaching over the next few years, according to a new survey by the Institute of Personnel and Development. Nearly nine out of ten interviewed companies expect their managers and supervisors to deliver performance coaching as part of their day-to-day work. In another large industry-wide study it was found that most managers reported that they were confident in their ability to coach. However, the study also showed that the managers’ actual skills levels as coaches were typically poor. As a consequence they were not nearly as effective in their coaching as they believe themselves to be. Often times, they believed that coaching consisted of just providing 1-to-1 instructional feedback to their staff members on what to do in a given situation to perform better. Many recent studies have shown that technical skills only represent at best 20% of the contribution into our performance. The remaining 80% comes from our ability to choose or make a decision, assertiveness, commitment to grow, ability to concentrate, honesty, optimism, persistence, ability to perform well under stress and so on. These traits are commonly called our soft skills or attitude. Few managers understand just how deeply rooted their own behavior patterns are, let alone how to positively change them in other people. Performance coaching is frequently confused with other types of coaching, such as Executive coaching and Life coaching. Performance coaching is a form of Directive coaching. Executive coaching and Life coaching are both forms of Non-directive coaching. Directive coaching is usually more suitable for a manager who sometimes acts as a coach. Performance coaching in the workplace has developed immensely from what it was only 4 years ago. To choose the right coach will make a huge difference. You also better make sure to know what you want. If your coach knows what (s)he is doing – you will get on your way to get it! [i:38tu5pgr]- Peter J Karlsson[/i:38tu5pgr]
Google schmoogle! - [quote:5cpo5h9f]Google's update happened in the beginning of March and I tested out a few changes on my site through March and April before figuring out the right changes to make.[/quote:5cpo5h9f] Well, I'm bummed. I started my web magazine (on SF) a year and a half ago. Numbers were truly absymal until about October, when hits graduallystarted to increase. Then, in December, all of a sudden they doubled - and my Adsense income doubled as well. From December to the last two weeks of April my hits and adsense income were steadily increasing. Now in the last two weeks, things have been dropping off til I'm almost back to pre-October numbers! Well, maybe SF aficianados don't do much web surfing when summertime rolls around, but it's discouraging.
These maybe the coldest franchises out there: - Here are the worst 15 performing franchises in regards to having the highest Small Business Administration (SBA) loan failure rates. The list is dotted with sub sandwich shops, fitness centers and car shops. WORST FRANCHISE LOAN FAILURES Failure % 1 OBEE'S SOUP SALAD SUBS 55.56% 2 LADY OF AMERICA 41.94% 3 COUNTRY CLUTTER (BED & BREAKFAST) 41.18% 4 COPY CLUB 36.36% 5 ALL TUNE AND LUBE 35.71% 6 PICKERMAN'S 35.71% 7 PHILLY CONNECTION 35.59% 8 ROLY POLY ROLLED SANDWICHES 34.78% 9 COTTMAN TRANSMISSION 34.48% 10 HAIR COLOR EXPRESS 33.33% 11 LEE MYLES AUTOMOTIVE TRANSMISSIONS 33.33% 12 GODFATHER'S PIZZA 33.33% 13 SMOOTHIE FACTORY 33.33% 14 BLIMPIE 31.39% 15 GOLF U.S.A. (RETAIL GOLF EQUIP.) 30.77% Source: Small Business Administration, SBA Loan Performance Within Franchise Code for the Period of FY 2001 - 2005
Re: Women and Financing - It's Difficult! - I found this paragraph of interest (in the article from Nana's link: [quote="Nana":3r7womqv]Other studies show that women operate more service and retail establishments than men, which might explain their difficulty in getting financing since financial institutions often consider these two sectors more risky. However, although women are generally less inclined than men to apply for financing, when they do, they are more likely to get it. According to a study by Industry Canada on SME financing in Canada, in 2000 majority female-owned SMEs obtained a loan approval rate of 82%, which is slightly higher than the approval rate for majority male-owned businesses (80%). This suggests that when they do apply for financing, businesswomen submit excellent applications. [/quote:3r7womqv] They say, "Women are more likely to get [financing]." But the difference is only 2 percentage points! Big deal! And, that was only for one year, 2000. I'd like to know what the 10-year average is. Numbers can be manipulated to mean anything you want them to mean...it all depends on what you want to show.
Re: 40 cents per dollar is spent in a franchised business - Hey Ringo, In general terms the location itself isn't even looked at until the franchise agreement is signed and the fees are paid to the franchisor. Then and only then do they start looking for a location. This is common practice and with the plethora of commercial locations that are available right now we are seeing landlords bend over backwards on negotiations to get a good tenant. That being said, the area is what the franchisor will look at on the demographics, they won't generally put a franchise in an area just because a buyer wants it there, most times the buyers have a preconceived notion of what they consider "the right spot". The franchisor has the data to support specific demographics, so that is where the help comes into play. The due diligence items I recommend looking into prior to buying are: 1. Average Expenses. 2. Average Revenues. 3. Litigation. 4. Business model. 5. Training. 6. Existing franchisees. Most of the time once you get through those things the rest is easy to get through. You need to know how much it cost, how much you can make, what is your exposure legally, is the model right, who/how are you trained and talk to as many existing franchisees as you can. You are looking for consistency. There is absolutely no way that every single franchise owner is happy with the home office, it is just impossible. You are looking for consistency, hearing the same things in general. Numbers, support, training, advertising, marketing, ongoing training, growth, industry etc... If you don't hear consistent things, most likely the model isn't working in all markets or there is something else affecting it like industry or distribution or training.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Selling On Ebay The Good The Bad And The Ugly

Five keys to business success

Small Business Internet Marketing

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.