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SDF Microfinance Methodology

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					                                 RRO Microfinance Methodology
         1           Delivery Model

         Rural Reconstruction Organisation(RR0)is following a Joint Liability Group (JLG) lending methodology
         for its microfinance programme. The clients was organized in groups of five to form Joint Liability Groups
         (JLGs). These JLGs was further organized in centers (1-centre comprised of 2-JLGs) for effective
         administration of the groups. The JLGs meet regularly on weekly basis at a scheduled time and place for
         collection of installments. A Credit Officer (CO) from the Branch Office come to JLG meetings for
         conducting meeting and collection of loan installments.

         2           Operational Structure

         The operational structure defines the different units in the delivery models of RRO presently operate
         through 1-branch. The description of the different units in the operational structure of RROis given below:

         2.1         Clients

         A client is someone who agrees to join RROand abides by its rules and regulations. He/she will also
         become a member a JLG affiliated to RRO Clients are entitled to use the services of RRO as per its terms
         and conditions.

         2.2         Joint Liability Group (JLG)

         Up to five individuals will come together and form a Joint Liability Group whereby they give guarantee of
         each other for loan repayment. JLG members come together for the purpose of utilizing the financial
         services and it can dissolve after the first loan cycle. JLG will mainly be formed of small and marginal
         Dalite women and related job profiles.

                                                            Head Office




                     Area Office                                                                   Area Office




    Branch 1           Branch 2        Branch 3                                       Branch 1           Branch 2       Branch 3




JLG 1        JLG 2             JLG 3      JLG 4                                    JLG 1         JLG 2          JLG 3       JLG 4


   C1          C2          C3                                                          C1         C2          C3

                                                  Chart 1: Operational Structure
2.4       Branches

Branches will be the smallest administrative unit of RRO. A branch consists of the following staff:

                                          Table 1: Branch Staffing
       Designation                No      Responsibilities
                                            All administrative responsibilities
                                            Loan approvals
       Branch Manager             1         Target setting and their achievements
                                            Monitoring of Credit Officers
                                            Reporting to the Head Office/Area Office
                                            Preparation of books of accounts
       Branch Accountant
                                            Preparation of MIS reports
       (one of the Credit         1
                                            Budgets and variance analysis
       Officer)
                                            Reconciliation of collected amount
                                            Formation of JLGGs and their training
                                            Sourcing of loan applications and preliminary
       Credit Officers            6-8           appraisal
                                            Disbursement of loans
                                            Collection of installments

A branch will cater to around 3,000 clients. A branch will have an operational area of a maximum of 5-8
kilometers.




2.5       Area Offices/Regional Offices

Each Area/Regional Office in future will look after a maximum of eight branches. Only one Regional
Manager and possibly an accountant will man each Area Office. The responsibility of the Area/Regional
Office will be to monitor the branches and consolidate the reports produced by the Branch Offices to send
these reports further to the Head Office. It is not necessary to have a separate structure for the Area Office.
The Area Office could be based in one of the branches.

2.6       Head Office

The Head Office of RRO is based in Mukkudal.The Head Office coordinate the functions of all the
branches. More specifically the Head Office perform the following functions:

      1. Funds mobilization
      2. Financial management
      3. Coordinating with the Board of Directors
      4. Product development
      5. Systems development
      6. Internal audit
      7. Setting budgets and performing variance analysis
      8. Human resource management including trainings
      9. Performance management of the Branch as well as new branch opening
      Considering the wide variety of functions performed by the Head Office, we are planning it to divide
      into different departments. Various departments and their functions have been shown in the following
      table. The structure of different departments will evolve as the scale of operations increases.
These departments will function in coordination with each other through formal and informal interactions.
Initially, the functions of many of these departments will be combined but with increase in the scale of
operations, all these departments will be separated with a separate head of department for each.

                                      Table 4: Departments and Functions

Department                                                     Functions
                               Preparation and finalization of books of accounts
                               Preparation of funding proposals
                               Negotiation with lenders and investors
Finance                        Business Planning
                               Budgets and variance analysis
                               Treasury management
                               Statutory compliance and reporting
                               Collection of reports from the branches
                               Consolidation
                               Storage and dissemination of information
MIS
                               Preparation of IT strategy
                               Purchase and maintenance of hardware
                               Software development and maintenance
                               Formulation of operational strategy
                               Branch opening
Operations
                               Target setting for branches and other staff
                               Monitoring of branches and staff as well as operational reporting
                               Preparation of HR strategy
Human Resources &              Recruitments and training
Administration                 Payroll accounting
                               Performance appraisal
                               Purchases
                               Maintenance of fleet
Administration
                               Liaison
                               Estate management
                               Audit financial transactions
Internal Audit                 Audit of non-financial transactions
                               Review of internal controls

              Procedures of group formation, disbursement and collection of loans
Group formation

RRO follows the JLG methodology. Groups made up of 5 individuals. Once an area has been chosen a
credit officer and Branch Manager go to the field and conduct a general meeting. In the general meeting
they explain RRO, its products and methods to the people. The Branch Manager ask the people to form
into groups for the next scheduled meeting. For the second meeting in the field the credit officer go alone.
The credit officer explain the training and finalize groups. Training is then conducted and group members
are asked if they accept the group joint liability. If liability is not accepted the group was disbanded and the
process begin again.

Group Recognition Test

Once the training is completed, a test is administered. All group members must be present for the test to be
administered. If a member is missing then the test is cancelled and rescheduled. The test ensures members
have an adequate grasp of the loan program. A 100% pass percentage is required for a group to join the
microfinance, if there isn’t a 100% pass rate, the group receives further training and retake the test. Since
the credit officer is the person responsible for the training, he/she is not allowed to administer the verbal
test. The Branch Manager questions the group on loan specifics as well as the concept of joint liability.
The Branch Manager ensure that each member of the group has participated in the questioning. He/she
must also question the group members on the purpose of their loan and if these responses match the group
verification form.

Loan Application Process

The Credit Officer collects photographs and proof of addresses from each member to begin the loan
application process. If a member is missing any of the documents the process is cancelled. This enforces
the joint liability concept and method. A family member is then asked to sign the application form. (Other
arrangements can be made in extenuating circumstances for example as in the case of a widow living
alone.) The loan form and group resolution are then filled out. All documents are then sent for processing.

Loan Disbursement Process

Finally the loans are ready for disbursement. The Branch Manager personally disbursed the laon at Branch
Office to all members of JLG. Once again as before if all members are not present the meeting will be
cancelled. A promissory note is signed by all members for the loan amounts attesting to their liability.
Then loan cards(pass book) cards are disbursed along with funds. Each Client receives one passbook
mentioning all the details of laon disbursed and their loan repayment schedule. The loan card/pass book
will be notated and signed upon each payment. The loan card/passbook is for the clients records.

Loan Collection Process
Lastly is the collection process. During regular group meetings, members will decide on loan
disbursements and provide payments to the credit officer. The meetings allows for members to discuss any
issues or problems they may be facing. It also allows the credit officer to discuss any bad debt and the
general progress of the group’s portfolio. The credit officer will take attendance and collect cash. Any
cash that is short or late must be collected from the other members.

				
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