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Institute of micro-finance and cooperative development.

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Secrets of Success in Microfinance

A webinar talk (Series No 9) on Secrets of Success in Microfinance was organized by the Centre for Self-help Development (CSD) on June 16, 2021. The webinar focused on philosophy and objectives as well as factors affecting the success of long-term sustainability of microfinance institutions in Nepal.

Mr.  Ram Chandra Joshi, Chairman of the Neighborhood Society Service Center (NSSC) and founder CEO of the Chhimek Laghubitta Bittiya Sanstha Ltd (CLBSL), was the keynote speaker of the program and was moderated by Mr. Mani Kumar Arjyal, Chairman of the Nepal Rural Development Society Centre (NRDSC). As CLBSL is one of the topmost microfinance institutions in Nepal it is believed that the speaker can share the best practice of microfinance followed by him during his tenure as the CEO of CLBSL which could be adopted by participating microfinance institutions to suit their needs. It is believed that norms, ethics, and values that are followed by CLBSL may be guidelines for other MFIs as well.

In his opening remarks, Mr. Shankar Man Shrestha, Chairman of the CSD, said, “The contribution made in the microfinance sector by both the keynote speaker and the moderator is noteworthy and both can guide the overall microfinance sector and help uplift it from current position. As Mr. Joshi is not currently involved in any microfinance institution, he is not bounded by these institutions and can freely speak about the best practices, current status, and issues endemic to this sector. While working in the CLBSL, Mr. Joshi had good internal communication, transparency, internal control, and reporting mechanism. Similarly, he conducted regular field visits and queried about the need, aspiration, and demand and had built a mechanism to incite timely and periodic feedback that helped him to have fresh updates on maintaining policy level amendments and performance appraisal of staff. It also helped CLBSL to keep free of unionism.”

Mr. Ram Chandra Joshi said, “ In the earliest days when Chhimek was implementing microfinance service, Mr. Shankar Man Shrestha who was then the CEO of RMDC, had the major role in bringing CLBSL to its current status. The Nepal Rastra Bank (NRB) gave licensing but the concept and operation modality was provided by Mr. Shrestha.” He further added, “ Microfinance institutions should not be judged by the number of their clients but how they are adhering to the need and aspiration of clients and providing its services to the poor. When CLBSL had just received a license from NRB to carry out microfinance service, we briefed the board, promoters, and general shareholders that we should not be overly profit-motivated. My experience says the staff and even board members must be in touch with clients in order to bring success. Clients’ selection should also prioritize economically poor people but at present, mostly middle class and in some cases even rich people are enrolled as members by MFIs.  If we are in regular touch with members it will help in formulating effective policy in the organizations.”

With regard to the importance of clients in microfinance institutions, he said, “ Clients must be the number one priority of microfinance institutions. In my tenure as the CEO of Chhimek Laghubitta Bittiya Sanstha Ltd, we had practiced Branch Level Meeting of the Center Chiefs, where we had a practice of free and fair discussion with the participants about their problems without keeping any of the staff so that they can speak true things without any fear. This kind of practice made staff members accountable to the clients.”  Having said that, he shared that staff is also equally important to a microfinance institution. He added, “Staff is the major building block of an organization. The organization should develop positive reinforcement towards the staff and foster favorable policies in areas like promotion, salary, and transfer. At CLBSL field level, branch level, and area-level staff will decide where an individual staff should be transferred. There is a formula for salary increment which depends on inflation, performance appraisal, and salary structure of similar other microfinance institutions. In other microfinance organizations, the process of collective bargaining by unions with management disrupts the very operation and microfinance service to the clients.” He further highlighted that CLBSL has developed a competitive special formula that is sanctioned by the board with the unanimous approval of staff members. Similarly, in case of transfer, it is  decided by staff members with no interference from the CEO and the management team.” He also mentioned the importance of discipline where the board and CEO should lead by example.

He also shared his experience on the practice of micro-entrepreneurship development where he said, “The institution provides free training, insurance facility, technical support, and market access facilitation.  It also operates sales centers and streamline and expedite the selling of goods by the clients. There are 20 staff members of CLBSL who contribute to the promotion and development of micro-entrepreneurship. These staff members visit different parts of the country and carry out a briefing on micro-enterprise and share information on the progress of micro-entrepreneurship and successful cases through projectors.”

Regarding the use of technology, he said, “ Tablet Banking and software has increased the productivity and efficiency of staff members. In the initial stage, staff was reluctant to adopt tablets but gradually they found it effective to decrease their workload and at the same time enhance their productivity. Now payments are made by clients through the use of online payments systems like e-sewa. CLBSL is working on developing e-sewa facilities in all the centers. However, the use of common software in coordination with different microfinance institutions has a cost and compatibility issues.”

On the overarching goal of microfinance with respect to poverty alleviation, he said, “Board Members should focus not on profit but the service rendered to target clients. NRB should also focus on poverty alleviation and not only prioritize on a number of borrowers and members served.  Microfinance is currently targeting middle-class clients who will in the near future be the clients of commercial banks.  CLBSL has primarily focused on providing access to livestock facilities to the poor and ultra poor.  Ultra poor is also helped in improving their housing.”

Mr. Arjyal also raised the issues of informal money lenders like Shyam Pradeshi of Sarlahi District who charged exorbitant interest rates, where Mr. Joshi said, “The informal money lenders were more prevalent when access to microfinance was low. Now informal money lenders are on the decrease although they are still prevalent. The government should also be actively involved in eradicating these informal money lenders. “

Mr. Shankar Man Shrestha, Chairman of CSD, and Chairperson of the webinar said,” MFIs have short term interest and not on long term sustainability of the sector. Now the issue of economic upliftment has been sidestepped. They are extensively focused on profit, bonus, and other issues as discussed earlier by our keynote speaker. As in commercial banks, MFIs have also focused on the manipulation of data to show the excess amount of profit and to increase staff bonuses. Commercial banks have increased profit due to greening where they provide loans to loan defaulters by renewing their earlier loans. This kind of greed has also spread in MFIs where multiple financing, over-indebtedness, and proxy borrowings are rampant which leads them to loan trap. He said that the CEOs of the MFI should personally take initiative to reach the poorest of the poor to make our society free of poverty.

 

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