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Innovations by cuiliqing

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									 MICROFINANCE INNOVATIONS:
  WHY THEY WERE CREATED
    AND WHAT THEY SOLVE
MELIZA H. AGABIN, MICROENTERPRISE ACCESS TO BANKING SERVICES (MABS),
        PHILIPPINES; ELIZABETH LYNCH, WOMEN’S WORLD BANKING;
   LESLIE ZUCKER, ECHANGE; ANNA BANTUG-HERRERA, CHEMONICS INTL

MICROENTERPRISE DEVELOPMENT IN A GLOBALIZING WORLD:
           A USAID LEARNING CONFERENCE
                    JUNE 16, 2006
Elizabeth Lynch
Microenterprise Development in a
Globalizing World: A USAID Learning
Conference
June 16, 2006



  Women’s World Banking
                Changing the Way the World Works
  WWB’s Experience in Product Diversification




From 2001 to 2005, Women’s World Banking assisted its
network members in eight countries to build the institutional
capacity required for effective product diversification. In the
process, WWB has developed a framework for how to
approach transformational change.

The introduction of new products and new technologies both
represent transformational change.
     Key Steps to Introducing a New Product




• What’s the problem we’re trying to solve?

• What’s the appropriate innovation?

• Can we do it?

• What will it take?
               What’s the Business Problem?
  Many MFIs are looking to product diversification as a way to grow
             with their clients and remain competitive

      Introduce a new loan
            product?
                  Exploit new
            distribution channels?
Expand branch network
    to new region?                                              MFI Growth
             Move upmarket to target
                                            ???                  Strategy
               bigger customers?                                2006 – 2008
        Form alliance with
      bank or insurance co.?
                     Merge with a
 Transform legal     competitor?
    structure?


                     1. What’s my strategic growth objective?
                   2. How do I assess competing opportunities?
                           Can We Do It?
    Choices about product diversification need to be made in light
       of each MFI’s market, target customers and capabilities
  Getting the answers to a series of strategic questions can enable an MFI to
SCHEMATIC
               Segmentation by Net Monthly Business Income
  make the right choices around product diversification:
                                             > 7,000 DH
                                        5
      Understand            Analyze Your               Research Your            Assess Microenterprise Segment
                                                                                       Your          Make Strategic
     Your Industry          Competitors           4,001 –Customers
                                                         7,000 DH                      Gender:
                                                                                Capabilities Mostly men Choice
                                        4
                                                                                       Business characteristics:
   • Who participates in   • Who are our            • Who are our         • What capabilities do we
                                                                                          continuous cash flow
     our industry?           primary                  customers?            need to reach and
                                                                                          business outside of home with
                                                                                                          Position A
                             competitors?                                   serve our chosen
  •Net does the
    What                                            • What do our                                          Advantage Y
                                                        2,001 – value?      customers? mostly cash sales
Monthly look like
    industry               • Which customers          customers4,000 DH
Business
    now? How attractive
                                        3
                             are they serving?                            • How do our capabilities
                                                    • How well are we                                           Or . . .
    is it?                                                                  stack up against those
  Profit                   • How are they             serving them now?
                                                                            of other MFI’s?
   • How is the industry     serving customers,
                                                    • What else do they                                  Position B with
     changing?               and how well?                                • How do ourIncome Generating Segment
                                                                                        costs stack
                                                      need?                                               Advantage Z
                                                                            up against those of
   • How big is our                                                                     Gender: Mostly women
                                                                            other MFI’s?
     potential market,                  2
                                                                501 – 2,000 DH          Business Characteristics:
     and how saturated
     is it?                                                                               seasonal cash flow
                                                                                          home-based
                                                                                          sell on credit
                                        1                            < 500 DH

                           Number of Borrowers
          Segments have Different Needs for Financial
                         Products
               (example: Al Amana, Morocco)
              Segmentation by Net Monthly Business Income
SCHEMATIC
                                                                        Microenterprise Segment
                                    > 7,000 DH
                                5
                                                                       Individual “Enterprise” Loans
                                                                       Loan characteristics:
                                       4,001 – 7,000 DH
                                4                                      • loan amount based on client’s needs
                                                                       and capacity
                                                                       • repayment schedule tailored to the
                                                                       client’s cashflow
  Net
Monthly                                      2,001 – 4,000 DH
Business                       3

 Profit
                                                                        Income Generating Segment

                               2                                       Group Loans
                                                      501 – 2,000 DH
                                                                       Loan characteristics:
                                                                       • fixed amount
                                                                       • standardized repayment schedule

                               1                            < 500 DH

                     Number of Borrowers
Once you have made your strategic
  choice (s) about expanding your
product offering, you’ll need to build
the institutional capability to deliver
      a broader set of products
Addition of a new loan product can imply as little as minor
 adjustments in the current lending process or can have
   significant impact at all levels of your organization

                          Leadership Triad

                Vision                        Strategy



                             Leadership




                            Structure &
                            Processes



               Culture                    Competencies

                         Capabilities Triad
      Example of transformational change:
introduction of an individual loan product at MI-
                     BOSPO
      Incremental change                                       Transformational change

• In 2000, MI-BOSPO made a decision to add
  a microenterpise product to retain its top
  clients and expand its presence beyond                   Leadership Triad
  income-generating sector.
                                                  Vision
                                                  Vision                         Strategy
                                                                                 Strategy
• Vision: MI-BOSPO’s vision was expanded to
  include “providing services to women who run
  microbusinesses” in addition to those who are                Leadership
                                                               Leadership
  engaged in income generating activities.
• Strategy: MI-BOSPO’s strategic plan
  elaborated clear targets by product in each
  region of operations, i.e in large urban
                                                               Structure &
                                                               Structure &
  centers significant percentages of financial                 Processes
                                                               Processes
  and human resources were allocated toward
  individual lending.
                                                  Culture
                                                  Culture                      Competencies
• Leadership: Endorsed changes in
  organizational structure and processes, made
                                                            Capability Triad
  commitment in upgrading its own skills.
  Newly appointed credit manager emerged as
  a clear champion for the new product.
       Example of transformational change: introduction of
             individual loan at MI-BOSPO (cont’d)


   Incremental change                                      Transformational change

• Structures and Processes: The
  organizational structure was changed to
  include branch managers who could                      Leadership Triad
  manage both products. MIS was
  adjusted to support individual lending.       Vision
                                                Vision                         Strategy
                                                                               Strategy
  Marketing function was created and
  marketing strategy included differentiated
  targeting by client segment.                               Leadership
                                                             Leadership

• Competencies: Profiles of middle
  managers and loan officers changed to
  include deeper financial skills and
  educational background in economics.                       Structure &
                                                             Structure &
                                                             Processes
                                                             Processes
• Culture: MI-BOSPO’s culture shifted
  from that of a “humanitarian organization
  working with poor entrepreneurs” to a         Culture
                                                Culture                      Competencies
  professional financial institution striving
  to deliver on both social and financial                 Capability Triad
  goals.
As your organization is considering expanding its product offer, it is
critical to assess the institution’s readiness and capacity along the
                        following dimensions:


                   Vision is not an idea but a specific destination whose creation sets
                   ambitious goals and high standards of performance
    Vision
                   • What is the vision for a new product in three years? Why is it
                       important for the institution?


                   •   How does a new product fit in your institution’s overall strategy?
                   •   What are the targets for a new product for the whole institution?
                       By region?
   Strategy
                   •   What institutional upgrades will we need to make to reach these
                       targets?
                   •   Are we able and willing to allocate sufficient funds?


                   •   Are leaders supportive of the change?
                   •   Is there clear ownership for this change from top management?
  Leadership
                   •   Are leaders willing and able to allocate appropriate amount of time
                       for the change effort on a continual basis?
As your organization is considering expanding its product offer, it is
critical to assess the institution’s readiness and capacity along the
                    following dimensions: (cont’d)

                   •   What technical and organizational competencies are required at the
                       level of loan officers who are expected to deliver the new products?
Competencies           Supervisors? What is the best way to develop them?
                   •   What additional competencies must be built in order for other staff to
                       effectively support a new product launch and expansion?



                   •   Can the new product be effectively provided through existing credit
                       delivery structure?
Structures and
                   •   What changes have to be made in delivery processes, infrastructure,
  Processes            internal controls? Which changes can be made gradually, which ones
                       require immediate attention?



                   •   How is the introduction of a new product going to affect set behavior at
                       the branch level? At the head office level?
   Culture
                   •   How will the institution address resistance/fear of change (from one-
                       product to multi-product MFI)?
 WWB recommends a three-step process as you
          introduce a new product
               Planning the Product
Change             Introduction

           •   Conduct client segmentation
Process                                           Implementing the
           •   Assess demand for new
               product among current and            New Product
               potential clientele
Guided
           •   Design a product responsive
               to the targeted segment’s   •    Pilot test
               characteristics                                                    Integrating the Product
  by                                       •    On the basis of the pilot,
           •   Prepare financial forecast       make relevant adjustments
                                                in product design, systems,
           •   Assess implications of a new                                   •    Track progress
 Vision        product’s introduction on key
                                                processes and procedures
                                                                              •    Align organization
               institutional dimensions.    •   Roll out
  and      •   Assess the readiness                                           •    Capture learning
               of the organization
                                                                              •    Transform culture

Strategy
                                 Consistent Communication
     MOBILE BANKING
      APPLICATIONS:
   EXPANDING BANKING
  SERVICES AND MOBILE
COMMERCE OPPORTUNITIES
 BUSINESS PROBLEM DETECTED:

• Large numbers of microenterprises
and low income individuals
without access to financial services.


• High cost associated with reaching out
to this target group.
WHY WAS THIS INNOVATION CHOSEN?


• Emergence of low-cost cellular phone
  networks in the Philippines
• High number of users in the target group
• Literate population that was familiar with
  text messaging
• Introduction of mobile commerce that
  banks could build on to provide low cost
  mobile banking solutions based on short
  messaging service (SMS)
                                  A WIDE-REACHING
                                  NATIONAL
                                  NETWORK OF
                     Luzon        COMMUNITY BANKS

• 754 rural banks with over
  2,000 branches              Visayas
• Over 50 year history
• Over US$2 billion in
  assets
• Over 5 million deposit
  accounts
                                        Mindanao
• Over 1 million borrowers
MICROENTERPRISE ACCESS TO BANKING SERVICES
(MABS) PROGRAM


The RBAP-MABS Program (MABS) provides
technical assistance and training to rural
banks in microfinance best practices. The
program is designed to assist banks to
develop the capability to profitably provide
financial services to microenterprises.
GLOBE TELECOM

• One of the leading mobile phone operators in the
  Philippines
• Over 13.5 million subscribers
• Over US$2B annual revenue
• Cell phone industry processes approx. 200 million
  messages per day in the Philippines
• Alliance partners include 7 mobile operators in Asia with
  close to 70 million subscribers
• Over 220 remittance outlets in other countries to cater to
  overseas Filipino workers.
WHAT IS G-CASH?




Cash-less and card-less micro payment over a mobile phone.
The country’s first and only mobile wallet service
   Purchase goods and services
   Micro-finance applications
   Tax and bill payments
   Send and receive money person to person or P2P
   Domestic and international remittances
HOW WELL DOES G-CASH SOLVE THE PROBLEM:

 Customer Perspective
 • Features:
 • Accessibility
 • Affordability
 • Ease of Use

 Bank’s Perspective
 • Functionality
 • Efficiency Gains
    IMPORTANT FACTORS THAT MAKE THE
    INNOVATION WORK

•   Controlling Development Costs
•   Partnerships & Distribution Network
•   Multiple Business Cases
•   Enabling Regulatory and Policy
    Environment
SUCCESS FACTORS


• ICT infrastructure is in place
• There is a large literate user base
• Communication company willing and able to
  partner with institutions.
• Mobile banking can work when regulators are
  open to new technologies.
• Importance of Pilot Testing
• Management Commitment
• Training
CHALLENGES


•   Marketing
•   Building Volume to achieve Economies of
    Scale
•   Availability of G-Cash Outlets; rural areas in
    particular
          Microfinance
Innovations: Why They
Were Created and What
           They Solve

                  June 16, 2006
   Leslie Zucker, Vice-President
        and Training Consultant
       www.globalechange.com
             Why innovate?

  Today                       2015

50 million               500 million
Borrowers                Borrowers

80 million                   1 Billion
 Savers                       Savers
   But how will we get there?



Technology?      Not alone!

Money?           Not alone!


People!!         Trained and
                 qualified
                 employees.
     What business problem was
             detected?


MFIs are growing, mostly in rural areas.

Staff in rural areas need practical, timely
  and accessible training.

Current staff training delivery channels
 cannot keep up with growth.
What is the innovation?



Distance learning

Connecting learning resources and
 support to learners located in
 different locations.
               Staff Training


Traditional                 Innovative
Face to Face                Virtual (or blended)


Outside the workplace       Inside the workplace


Difficult to verify and     Easier to verify and
measure the results         measure the results


Indirect Costs: Travel,     Indirect Costs: none
hotel, opportunity costs,
etc.
Why was this innovation chosen to
solve the problem?


• Reduces costs
• Reduces time-lag
• Makes participants responsible
  for their results
• Allows measurement of
  effectiveness and efficiency of
  staff training
       How well does the innovation solve
        that particular business problem?
   Example: MABS project – Philippines
                                                  FACE-TO-FACE TRAINING                       DISTANCE LEARNING
                                                 (5 days, inclusive of day before/day after        (6 weeks)
      DIRECT COSTS                  Unit Cost                    travel time)

Training Hours:
   Weekday                                                    24:00 hours                         13:08 hours
   Weekend/after-office                                        0:00 hours                         8:29 hours
                                                              24: 00 hours                        21:38 hours
Salary (Average 6,800/month)        309.09/day                  1,545.45                            835.70
Training Fee (inclusive of board     3,500.00                   3,500.00                             0.00
& lodging)
Transportation                       1,000.00                   1,000.00                             0.00
Per Diem                            500.00/day                  2,500.00                             0.00
Internet Access
(Average cost/hour)                   10.00                        0.00                             216.30
Training Materials & Facilitation    1,323.24                   1,323.24                            360.00
Cost
                          TOTAL                                 9,868.69                           1,412.00
 How well does the innovation solve
  that particular business problem?

Example: echange Customer Service Course
Objective: “We will improve our customer
 service by reducing the wait-time for
 information on loans from 20 minutes to 12
 minutes in a period of three months.”

Result: Wait time at end of course- 15 minutes

Achievement: 62% of the objective


      (Branch Manager of FIE FFP, Bolivia)
   Why should others replicate this
            innovation?


• Allows for greater application of learning
  to the job

• Allows for personalized and continuous
  follow-up

• Reduces dependency on donors to
  subsidize training

• Encourages leadership and accountability
Why should others NOT replicate this
           innovation?



• Too few staff to merit the effort and
  start-up costs

• Application of the learning is not
  necessary or relevant to the job

• No appropriate or reliable technology is
  available
LEARNING CONFERENCE STRATEGIC QUESTIONS

• How do we ensure our work meaningfully contributes to the lives
  of the poor?
• How do we help link the poor into economic growth opportunities
  in this era of globalization?
• What is the current and potential role of private sector
  investment?
• How do we serve difficult-to-reach populations such as those
  affected by conflict, natural disaster, and HIV/AIDS?
• How do we define “success”? How do we achieve it? What else
  needs to be done, and by whom?
• How can we, as individuals and as organizations, leverage our
  comparative advantage and maximize opportunities through
  close partnerships and strategic alliances?
                                                    Elizabeth Lynch, elynch@swwb.org
                                              Meliza Agabin, m.agabin@rbapmabs.org
                                            Leslie Zucker, lzucker@globalechange.com
                                 Anna Bantug-Herrera, abantug-herrera@chemonics.com

								
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