Bank of Lao PDR

Asian Development Bank

ADB Catalyzing Microfinance for the Poor

Business Planning for MFIs Training Guidelines

Table of Contents
LIST OF ACRONYMS ................................................................................................................................................ IV INTRODUCTION ......................................................................................................................................................... V HOW TO USE THESE GUIDELINES ................................................................................................................................... V TRAINING TIPS .............................................................................................................................................................. V COURSE OBJECTIVES AND SCHEDULE FOR IMPLEMENTATION .......................................................... VI INTRODUCTION: OVERVIEW OF THE COURSE............................................................................................... 1 SESSION 1: INTRODUCTION TO BUSINESS PLANNING ................................................................................. 3 SESSION 2: ENVIRONMENTAL ANALYSIS ......................................................................................................... 7 SESSION 3: CLIENTS AND MARKETS ................................................................................................................. 12 SESSION 4: PRODUCTS AND SERVICES............................................................................................................. 17 SESSION 5: PORTFOLIO PLANNING ................................................................................................................... 22 SESSION 6: HUMAN RESOURCE MANAGEMENT ........................................................................................... 26 SESSION 7: MARKETING & PROMOTION ......................................................................................................... 31 SESSION 8: SOCIAL PERFORMANCE MANAGEMENT .................................................................................. 36 SESSION 9: FINANCIAL PLANNING .................................................................................................................... 40

LIST OF POSTERS AND HANDOUTS POSTER 1: BUSINESS PLAN OVERVIEW ........................................................................................................... 46 HANDOUT 1.1 - ROLE PLAY SCENARIOS .......................................................................................................... 47 HANDOUT 1.2 - MISSION STATEMENT .............................................................................................................. 49 HANDOUT 1.3 - ORGANISATIONAL GOALS / OBJECTIVES ........................................................................ 50 HANDOUT 2.1 - ECONOMIC CONSIDERATIONS ............................................................................................. 51 HANDOUT 2.2 - COMPETITION AND PARTNERSHIPS .................................................................................. 52 HANDOUT 2.3 - RISKS AND ASSUMPTIONS ...................................................................................................... 53 HANDOUT 3.1 - TYPES OF MARKETS / CLIENTS ............................................................................................ 54 HANDOUT 3.2 - CLIENT PROFILE ........................................................................................................................ 55 HANDOUT 3.3 - SEASONALITY OF DEMAND ................................................................................................... 56 HANDOUT 3.4 - INTERVIEW TECHNIQUES ...................................................................................................... 57 HANDOUT 4.1 - PRODUCTS & SERVICES .......................................................................................................... 58 HANDOUT 4.2 - PRODUCT & SERVICES ACTION PLAN ............................................................................... 59 HANDOUT 5.1 - SAVINGS PORTFOLIO ASSUMPTIONS................................................................................. 60 HANDOUT 5.2 - LOAN PORTFOLIO ASSUMPTIONS ....................................................................................... 61 HANDOUT 5.3 - SAMPLE SAVINGS PORTFOLIO PLANNING FORMAT ................................................... 62 HANDOUT 5.4 - SAMPLE LOAN PORTFOLIO PLANNING FORMAT.......................................................... 63 HANDOUT 5.5 - PROVISIONING & DELINQUENCY MANAGEMENT ........................................................ 64 HANDOUT 6.1 - ORGANISATIONAL CHART ..................................................................................................... 65 HANDOUT 6.2 - ROLES AND RESPONSIBILITIES............................................................................................ 66 HANDOUT 6.3 - STAFF TRAINING & DEVELOPMENT .................................................................................. 67

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HANDOUT 6.4 - HUMAN RESOURCE MANAGEMENT ACTION PLAN ...................................................... 68 HANDOUT 7.1 - MARKETING AND PROMOTION............................................................................................ 69 HANDOUT 7.2 - MARKETING & PROMOTION ACTION PLAN .................................................................... 70 HANDOUT 8.1 - SOCIAL PERFORMANCE MANAGEMENT .......................................................................... 71 HANDOUT 8.2 - PRO-POOR LOANS ...................................................................................................................... 72 HANDOUT 8.3 - SOCIAL PERFORMANCE MANAGEMENT ACTION PLAN............................................. 73 HANDOUT 9.1 - INCOME & EXPENDITURE PROJECTIONS ........................................................................ 74 HANDOUT 9.2 - BALANCE SHEET PREPARATION ......................................................................................... 75 HANDOUT 9.3 - SENSITIVITY / SCENARIO ANALYSIS .................................................................................. 76 HANDOUT 9.4 - MFI BUSINESS PLAN FORMAT ............................................................................................... 77

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List of Acronyms
BoL CoA MFI MIS Bank of Lao PDR Chart of Accounts Microfinance Institution Management Information System

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Introduction
How to use these guidelines
These guidelines have been developed to assist trainers in delivering business planning training to MFI managers. They provide a suggested schedule for delivery of the training, and the introduction to each session indicates timing, resources needed, and key objectives of the session. The session plans take you step-by-step through the activities suggested for delivering the training. Suggestions are provided for practical exercises, and some supplementary technical information is provided in the form of handouts for participants to take away. The trainer should be intimately familiar with the content so that they do not need to read from the materials in order to explain the concepts to participants. It is important that the facilitator concludes each session (or day) with a mini-review of the contents of the session. At the end of each session is a Review activity. This involves using a checklist and asking participants questions to make sure that each of the sessions objectives has been met.

Training Tips
Below are some tips on how to be a good trainer. 1. Manage Expectations: The objectives of the training must be clearly explained and understood by the participants at the beginning. These should be reiterated throughout the course. Do not create expectations that cannot be met. 2. Be Organised: Ensure that you are familiar with all of the training content, materials and handouts, and that these are prepared in advance of the training. Be ready and ensure that sessions start on time. 3. Make sessions relevant and interesting: The trainer will be required to explain various concepts and approaches. These presentations should be explained in simple terms and placed in real life context. Where possible interactive activities should be incorporated. By making the sessions interesting, participants will be more likely to remember what they have learned and how they can apply this knowledge in future. 4. Presentation Tips: Speak clearly, slowly and repeat important messages. A short introduction and review at the beginning of each session and another review at the end of each session will help participants to remember key points and important information. Encourage questions, actively listen to the speaker and encourage participants to respond to points raised by other participants. Be animated and move around while presenting information and monitoring activities. When using visual aids like flipcharts or projections, make sure they are visible to everyone. If practical, display important information around the room to remind participants of key content.

Course Objectives and Schedule for Implementation

Course Objectives This course is designed for managers of microfinance institutions. The objectives of the course are: 1. To understand the key elements of a business plan 2. To be able to complete a business plan for an MFI Suggested Schedule The following is a suggested plan for the implementation of the sessions outlined in these guidelines. Feel free to adjust this according to your own requirements.

Day
1 1 2 2 2/3 3 3 4 4 4/5 5

Time

No.
0 1 2 3 4 5 6 7 8 9 9

Session
Overview of course Introduction to Business Planning Environmental Analysis Clients & Markets Products & Services Portfolio Planning Human Resource Management Marketing & Promotion Social Performance Management Financial Planning Review and Present Biz Plan

Duration
100 mins 100 mins 150 mins 160 mins 115 mins 260 mins 195 mins 120 mins 100 mins 240 mins 120 mins

Facilitator

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Introduction: Overview of the course

Objectives: 1. to match the expectations of participants with those of the trainer 2. for participants to have a clear idea of what will be covered in the course and why 3. for participants and the trainer to agree on how the training will be conducted Time: Materials: 100 minutes Blank poster paper Poster with course objectivities and contents Preparation: Prepare posters on flip chart or wall Process 1. Welcome & Introduction (30 mins) 1.1. Welcome participants to the training. The trainer(s) should introduce themselves and tell participants a little about their background. 1.2. Ask each participant by introduce themselves by saying: Their name, organisation and position Their job responsibilities Any microfinance training or experience they have had What they hope to learn in the course (the trainer should note these comments down on poster paper, or participants write their expectations on small cards) 2. Managing expectations (15 mins) 2.1. Display the poster paper containing participants expectations of the course, and briefly summarise these. 2.2. Alongside this poster, paste another poster containing the objectives and contents of the course. Provide a brief overview. 2.3. Compare the participants expectations with the training plan. Try to match as many of these as possible. For participant expectations that are not listed in the training plan, explain why these are not covered. (or, if it is possible to cover these during the training, explain when you will do this). For items in the training plan that were not listed by participants, explain why these are important 3. Setting ground rules (15 mins) 3.1. Present the training timetable. Explain that there is a lot of material to cover, and we can only achieve this if we start sessions on time. Gain agreement on what time the participants will arrive each morning and afternoon. 3.2. Ask participants for their suggestions regarding ground rules for the training. Ground rules may cover the following (but feel free to add more): Listening to the speaker, and not talking while they are talking Asking questions (e.g. raise hand) Arriving at class on time Doing reading / homework 3.3. You may wish to agree to agree on penalties that will apply if anyone (including the trainer!) breaks the ground rules. 3.4. Write the ground rules on a poster and display this on the wall for the duration of the training.

Exercise

(40 mins)

Role Play Scenarios Explain that each of the participants is going to place themselves in the shoes of another person. They will receive a card that explains who they are and what their situation is. They should read this carefully and remember the details. Distribute the role cards to each person. Ask participants to read their card and then they should walk around the room and try to find other members of their group. Once the participants have formed themselves into 4 groups, rearrange the seating so that they can sit in their groups. Ask each group to choose one spokesperson to stand up and explain the background of their group (they are not permitted to look at their card, but other group members can give them reminders)

Session 1: Introduction to Business Planning

Objectives: 1. to understand the various components of a business plan 2. to be able to articulate an organisational mission and objectives Time: Materials: 100 minutes Blank poster paper Poster with course objectivities and contents Handouts 1.1, 1.2 and 1.3 Preparation: Prepare posters on flip chart or wall

Process 1. What is business planning? (30 mins) 1.1. Introduce the topic Business Planning and explain what it means:

A business plan is a plan that enables an organisation to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities. Business planning is about results. You need to make the contents of your plan match your purpose. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But they are also vital for running a business, whether or not the business needs new loans or new investments. Businesses need plans to optimize growth and development according to priorities. Business Planning incorporates both strategic and operational planning for achieving outreach and sustainability. Strategic Planning enables us to define broad institutional goals for the future based on an assessment of the current situation. Operational planning allows us put those goals into action by detailing specific activities, their costs and the sources of income that will be received as a result. Note: explain that during this training we use the term MFI to cover all types of microfinance institutions, including SCUs, Licensed MFIs and others. 1.2. Ask participants: Who has completed a business plan before? Why did you prepare a business plan? Ask participants to give their ideas on what a business plan is and their experiences using or developing a business plan. Discuss the business element of microfinance. Ask: Is microfinance a business? Why? / why not? If necessary, review the sustainability imperative of microfinance.

1.3. 1.4.

In order to be sustainable, an MFI must be financially self sufficient. It therefore needs to operate as a business. Sure it can have social objectives as well as financial ones, but the financial sustainability imperative makes it a business. And every business needs a plan. 1.5. 1.6. Whole group to brainstorm: What are the main components of a business plan? As participants call out their ideas, write these on the board / poster paper. Then present Poster 1 listing the elements of a business plan. Compare this to the items suggested by participants.

2. Components of the organisational profile (10 mins) 2.1. Explain that we are now going to look at the first section of the business plan the Organisational Profile. This contains the following elements: 1. Background brief history of organisation 2. Mission 3. Goals / Objectives 4. Organisational Structure - governance and legal structure, management & staffing 5. Clients / beneficiaries 6. Activities & Services Explain that this session will focus on developing organisational mission and goals/objectives. The other three components of the organisational profile, namely the clients/beneficiaries, organisational structure and activities & services are summaries of more detailed sections of the business plan that will follow.

2.2.

3. Overview of the organisation (10 mins) 3.1. Explain that this first part of the organisational profile gives some background on the organisation including how the MFI came into being, its founders, and a short summary of its history (including whether the institution has changed in legal structure). Indicate the core strengths or uniqueness of the institution or its founders. Present a completed example of the Organisational Profile for participants to review, and discuss the main features of the profile.

3.2.

4. Defining your Mission & Objectives (20 mins) 4.1. Explain that a Mission Statement is a declaration of organisational purpose. A good mission statement should state: What issues the institution is trying to address How the institution responds to these issues Who the intended clients are Present the following two examples and ask which is a better mission statement and why.

4.2.

Two example mission statements: 1. To deliver best practice economic and social development programs 2. To reduce poverty by providing training in business development that enables the poor to improve their businesses. Which of these sounds like a mission statement and why? 4.3. Organisational goals specify exactly what the MFI hopes to achieve. Typically, the goals of an MFI fall into 3 main categories: Impact to lead to a positive improvement in the lives of clients Outreach to improve the lives of many people, not just a few Sustainability to be able to continue assisting people to improve their lives indefinitely. The purpose of our business plan is to help us in planning how we will achieve these goals.

4.4.

4.5. 4.6.

We should define our goals with specific statements about: The core activities The outreach goals The impact goals The institutional goals Present some examples of organizational goals (see below). Ask participants which ones relate to outreach, impact, institutional goals? Explain the difference between organization goals and operational objectives.

Here are some examples of organisational goals: 1. 2. 3. 4. 5. To deliver efficient and affordable savings and credit services to poor rural households To reach at least 10,000 households with savings services For 50% of member households to move out of poverty within 3 years of joining To maintain at least 70% of women clients and staff To be financially self-sufficient

Note that these are different to operational objectives, which are more specific and will be developed later in the business plan. Examples of operational objectives are: 1. 2. 3. 4. 5. To extend savings and credit services to five new villages by December 2008 To commence using a computerized MIS by July 2009 To complete client surveys with at least 200 clients by October 2008 To recruit and train two new field officers by December 2008 To grow the outstanding loan portfolio to $10,000 by December 2009

Exercise

(30 mins)

Complete Handout 1.3 Mission Statement Explain that during this workshop each group will develop a business plan for their organization. They should start by thinking of a name for their MFI. Working in their groups, participants should complete the Mission Worksheet for their planned organisation. Complete Handout 1.4 Organisational Goals Working with colleagues, participants should identify the goals of their organisation. Ask participants to present their mission and goals to the group.

Session 1 Review
5. Review progress against session objectives (10 mins) 5.1. Explain that we will now check to make sure that we have achieved the objectives that were set. Fold down the lower half of poster 1: Step 1 Objectives and Checklist to reveal the Step 1 review checklist. Ask one of the participants to read out each of the questions. Ensure that everyone understands the questions.

5.2.

5.3.

Select a few participants and ask them the questions in the checklist. If there is any misunderstanding then clarify the concepts. Ask the group if there are any further questions. Congratulate participants on having completed Step 1. Explain that they now have completed the first few components of a strategic plan for their organisations. These include the Mission and Goals / Objectives of their organisation. Explain that the next session will look at environmental aspects that influence their MFIs operations, which is an important part of business planning.

Session 2: Environmental analysis

Objectives: 1. to understand and define the main environmental factors that affect the operations of your microfinance business 2. identify your competitors and partners and how you will respond to these 3. Identify risks to the business and articulate main assumptions that underlie your business plan Time: Materials: 150 minutes Blank poster paper Poster with course objectivities and contents Handouts 2.1, 2.2 and 2.3 Preparation: Prepare posters on flip chart or wall

Process 1. Present the session objectives (5 mins) 1.1. Show participants poster 2: Session 2 Objectives and Checklist with the session objectives written on. Ask a participant to read out the session objectives and clarify what they mean. Explain that at the end of the step we will check to see if the objectives have been met. Ask if participants have any questions.

1.2.

2. Why complete an environmental analysis? (5 mins) 2.1. Ask participants: What is the environment? Brainstorm answers.

The microfinance environment includes a range of factors such as: economic, business / competition, social / cultural, legal and regulatory, and political environment. For the purpose of the business plan we are going to focus on just a few of these: economic; regulatory; and other service providers. The environmental analysis should help to clarify the key areas that the MFI needs to consider in order to achieve its goals in the face of external factors. 2.2. 2.3. If most of the answers relate to the physical or natural environment, ask them about the environment that an MFI works in. Elicit more responses. Explain that the microfinance environment includes a range of factors such as: economic, business / competition, social / cultural, legal and regulatory, and political environment. Explain that for the purpose of the business plan we are going to focus on just a few of these: economic; regulatory; and other service providers. Explain that the environmental analysis should help to clarify the key areas that the MFI needs to consider in order to achieve its goals in the face of external factors.

2.4. 2.5.

3. Economic considerations (15 mins) 3.1. In this section we consider the local economic environment. Ask participants how economic factors may affect their business as an MFI. Brainstorm important economic factors both national level and local level. Some examples of important economic factors are: Inflation

3.2.

 3.3.

Main income sources for target clients Growth sectors / economic opportunities Paid employment levels Existence of cash economy at local level

Discuss how each of these factors may influence decisions you make about the way you run your MFI. For example: Product design loan terms, repayment frequency, loan uses Interest rates charged on loans, and paid on savings Geographic areas to target for expansion Economic sectors to target for expansion Particular types of clients to target The pace of growth

Exercise

(10 mins)

Complete handout 2.1: Economic Environment Work in your MFI groups Using Handout 2.1 describe the local economic environment (main income generating activities, existence of cash economy, inflation etc.) Consider how these factors may affect an MFIs products & services, operations, marketing and finances. Present your description and analysis to the group

4. Regulatory framework (30 mins) 4.1. 4.2. Now discuss the regulatory framework that an MFI operates within. Ask participants to brainstorm the various regulatory factors that they need to consider. Some examples of regulatory factors are: business registration legal system (e.g. for loan collection) financial accounting requirements standards for reporting capital requirements Distribute the relevant BoL regulation to each of the groups and ask them to read it. Ask if participants have any questions regarding the Bank of Lao regulations for MFIs. Discuss the features of the regulations relating to SCUs, licensed and non deposit-taking MFIs.

4.3. 4.4.

5. Competition & Partnerships (30 mins) 5.1. Explain that competition occurs when more than one MFI offers its services to the same group of potential clients. Ask participants if they think competition is a good thing or a bad thing. What happens when there is competition? Elicit or explain the following results of competition: MFIs need to be more efficient. This forces them to find better ways of delivering their services, and promotes innovation Greater efficiency can lead to lower interest rates for clients

5.2.

MFIs need to give clients what they want, or else they will not survive If the market isnt big enough for two MFIs then the weaker one will eventually leave.

5.3. 5.4.

5.5.

Write the word COMPETITORS on a poster. Ask participants: Who are your main competitors? Write these down on the poster. Ask: Why is it important to know who you competitors are? Participants should respond that you need to offer competitive products and services, as well as marketing strategies. For example, if the competition is too strong you may choose not to enter certain markets / areas. For each of the competitors listed on the poster, ask participants to list their strong points and weak points. At the end, you may have a poster that looks something like this: Strengthes (+) Low interest rates, fast approval, familiarity, convenient Fast approval, no paperwork, familiarity, convenient Weaknesses (-) Small loan sizes, limited capital, weak management, no savings services Small loan sizes, not always available, no savings service, high interest rate charges Branch infrastructure, plenty Difficult to access loans, of capital, low interest loans paperwork, too far away, inconvenient

Competitors 1. Village fund

2. Money lender

3. APB

5.6.

5.7.

Now add another heading, titled PARTNERS. Explain that partnering with other organisations can help your MFI to achieve its goals, improve your performance, increase outreach. These partners could be any company, organization, community group or government agency that can assist you in your work. Ask participants to list some of their potential partners. For each partner, identify how they will support you, and how you will support them. Here is an example: How they can support me Mobilise villagers, arrange meetings, promotion, loan collection Provide ag training to clients, more successful businesses How I can support them Provide useful services, help reduce poverty, pay small dividend to village Pay travel and per diems for staff; take photos and report on benefits to community

Partners Village committee

Agricultural extension service

5.8.

Now take a look back at your Competitors. Are there any competitors that could become Partners? Discuss ways that MFIs could potentially work with their competitors in a partnership arrangement.

For example: an MFI might use the APB branch to deposit the monthly savings, which could be deposited by a Village Committee member. This might save the MFI staff having to attend all meetings.

5.9.

Explain that for any competitors that do not become partners, you need to consider how you will compete. What will you do to ensure that your products / services are more attractive than those of you competition?

Exercise

(30 mins)

Complete Handout 2.2: Competition and partnerships Explain that in this section we will identify organisations that are operating in the same areas and then consider whether they are likely to be competitors or partners. Participants sit in their groups and complete Handout 2.2: Competition and partnerships for their planned MFI. They should use imaginary information based on their own real experiences. Ask a few groups to present their ideas 6. Major risks and assumptions (15 mins) 6.1. Explain that whenever we develop a plan or strategy, we should be aware of the assumptions we are making, and the risks we are facing. We will begin by looking at the risks and assumptions regarding the economic environment. Refer back to the list of economic considerations. Ask participants to list examples of risks or assumptions relating to these items. For example: i. Market for silk continues to grow ii. Inflation does not increase above 15% p.a. Now add more risks and assumptions relating to competition and partnership. For example: iii. APB is willing to open group savings account iv. Competitor MFI does not start offering savings services

6.2.

6.3.

Exercise

(10 mins)

Complete Handout 2.3: Risks & Assumptions Provide participants with a copy of Handout 2.3: Risks & Assumptions. Explain that as we develop our business plans we will record the major risks and assumptions. We do not need to record minor or highly unlikely risks, only those things that we think it is important to keep an eye on. Ask participants to complete the first section relating to the microfinance environment.

Session 2 Review
7. Review progress against session objectives (10 mins) 7.1. Explain that we will now check to make sure that we have achieved the objectives that were set. Fold down the lower half of poster 1: Step 1 Objectives and Checklist to reveal the Step 1 review checklist. Ask one of the participants to read out each of the questions. Ensure that everyone understands the questions.

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7.2.

7.3.

Select a few participants and ask them the questions in the checklist. If there is any misunderstanding then clarify the concepts. Ask the group if there are any further questions. Congratulate participants on having completed Session 2. Explain that they now have completed the first few components of a strategic plan for their own organisations. These include the Mission and Goals / Objectives of their organisation. Explain that the next session will look at environmental aspects that influence their MFIs operations, which is an important part of business planning.

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Session 3: Clients and Markets

Objectives: 1. to identify your main markets and clients 2. to be aware of techniques for determining client needs Time: Materials: 160 minutes Blank poster paper Poster with course objectivities and contents Handouts 3.1, 3.2, 3.3 and 3.4 Preparation: Prepare posters on flip chart or wall

Process

1. Present Session Objectives (5 mins) 1.1. 1.2. 1.3. Briefly summarise the progress we have made so far in the business plan. Show participants poster 3: Step 3 Objectives. Explain that at the end of the step we will check to see if the objectives have been met. Ask if participants have any questions

2. Understanding markets and clients (30 mins) 2.1. 2.2. Ask participants: When we talk about markets in microfinance, what are we talking about? Are we talking about the local market where people sell fruit and vegetables? Present the following scenario:

There are two MFIs operating in a district. Each one starts out in different locations, but gradually both of them grow until they start to overlap and offer services in the same villages. MFI 1 has a standard product. It offers 3-month loans, with repayment of principal at the end. It charges interest of 2% per month (flat). MFI 2 offers 3, 6 or 12 month loans. Principal is repaid in quarterly instalments. It charges interest of 3% per month (flat). Which MFI will be more successful? 2.3. Seek participants views on which MFI will be more successful. If participants are divided then take a vote. Ask: What will determine whether MFI 1 or MFI 2 is ultimately successful? Participants should identify that ultimately it will be the clients that decide. Whichever MFI meets the clients better is more likely to be successful. Now ask: So, how can we know what clients want? Elicit from participants that the best way to find out what clients want is to ask them.

2.4. 2.5.

While we often think we know what clients want / need, our assumptions are not always correct. In the past, many MFIs implemented a certain methodology without proper consideration of what their clients wanted. Nowadays, MFIs around the world have learned that just like any business they need to put their clients first. This means identifying and responding to their needs and preferences.

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2.6.

2.7. 2.8.

Explain that understanding markets and clients helps a microfinance institution develop the capacity to serve those clients in ways that: expand outreach achieve greater impact, and enhance institutional sustainability Learning more about clients needs and preferences helps an MFI to develop new products and delivery channels, or refine existing ones. Ask participants for their ideas about ways that an MFI can find out what its clients want. Elicit their ideas and write these on the board. Explain that MFI staff will often get informal feedback from clients, but it is also important to use more structured means of gaining client feedback. Some common methods that MFIs use to gain client feedback and suggestions are: Structured surveys Focus group discussions Suggestion boxes (placed at the branch or at the village meeting) Informal feedback given to field officers (need to have management meetings that collect this information)

3. Defining your markets (15 mins) 3.1. Explain that in order to help us clearly define our markets, we break them down into market segments. A market segment is a group of clients with similar needs that are different from those of other groups. Often we choose to disaggregate market segments by geographic location, or by economic activity.

Why look at market segments? Since a market segment is a group of people with similar needs, they often require a similar product or service. For example, an MFI may identify two main market segments: agriculturalists and traders. Assessing the volume of demand for products will inform management of whether the specified market is likely to be cost efficient for the MFI: this is critical to the future viability of the organisation.

3.2.

3.3.

Before entering a new market, it is important to consider key features of each segment: The estimated size of the market The overall level of demand for financial services The requirements in terms of products, services and delivery mechanisms Significant market trends is the market increasing or decreasing? This information should feed directly into your MFIs portfolio planning. So, how can we collect this kind of information? Secondary data in the form of government statistical data, industry reports, and donor studies may be a cost effective way of gathering such information. In your analysis of the market you should identify the sources of data and any assumptions made to arrive at your conclusions.

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Exercise

(20 mins)

Complete Handout 3.1 & Handout 2.3 Working with others from your MFI, use Handout 3.1 to describe your target market for your MFI, including existing and new clients you plan to acquire. Classify existing and potential customers by their geographic and economic activities. Once participants have completed handout 3.1 provide them a copy of Handout 2.3. They should list the main risks and assumptions that have been made in their analysis of markets. 4. What are the features of the target clients? (15 mins) 4.1. Once we have identified the market segments in which we work, it is important to understand more fully the clients we serve. We should now analyse the key characteristics of current and/ or potential clients. Consider both their economic and personal traits. This information will come from data collected through client surveys. Present a poster with the following information, and explain each item. Personal characteristics Gender Age Language and Literacy Education level Community cohesion Wealth level Financial literacy Location

4.2.

Economic characteristics Business type Demand for financial services and purpose of loan Income and assets Diversity of income sources Work / business experience Other financial services that are available and used Perceptions of credit and savings Seasonality

5. Assessing client needs and preferences (15 mins) 5.1. Surveys or focus group discussions may be used to determine client needs and preferences. Typically these will ask questions relating to some or all of the following: Main components of a client survey Background on the client Income - sources and levels, business experience Household situation # income earners, # family members, assets Savings and credit history past loans and uses, savings history, perception Literacy & financial literacy ability to manage money, numbers, words Likes or Dislikes with existing services Other sources of savings & credit available likes and dislikes Our MFI services (for existing clients) likes and dislikes of each product / service Savings & Credit needs Demand for savings levels, frequency, withdrawal needs, seasonality

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Demand for loans size, term, repayments, seasonality

Service delivery Feelings about group meetings usefulness, social, timing, location, activities Preferred method of conducting transactions village, branch office, other Other services required such as training Any other suggestions The survey is primarily a qualitative tool. The survey will inform the MFI of the types of products and services wanted/needed and how specific attributes of a product or service may be improved. 6. Seasonality of demand (10 mins) 6.1. 6.2. Ask participants if demand for loans is the same all year round. If not why? What about savings? Present the demand table below and explain its use. For each month of the year, indicate whether demand for savings, loans and other services (where applicable) is typically high, medium, low or non-existent. Place an X in the appropriate box for each month.
Demand for Loan Type 1: (insert name) MONTHS 6 7 8

DEMAND High Medium Low No demand Avg. no. loans / month

2 X

3 X

4 X

5 X

10

11

12

X 90 70 70 85 40

Demand for Savings Type 1: (insert name) MONTHS 6 7 8 X X X 3 4 5

DEMAND High Medium Low No demand Avg. member savings / month

2 X

3 X

4 X

10

11

12

X 5 4 4 3

Exercise

(60 mins)

Conduct a mini client survey and record the results Allocate participants into two groups: interviewers and clients. Interviewers should prepare their questions; they should think about their MFI and its possible products and services.

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Clients should list (1) their needs and (2) preferences. They should think of one of their real clients, and answer as if they were that person. A pair of interviewers should interview a pair of clients. One interviewer asks questions and the other records responses. Ask participants for their comments on the client survey. How might such a survey be useful?

Complete Handouts 3.2, 3.3 and 2.3 Participants should complete Handout 3.2 and summarise client needs and preferences based on their research Participants should complete Handout 3.3 Seasonality of Demand. Finally, participants should complete Handout 2.3 and list any risks and assumptions that have been made in their summary of client needs and preferences. Choose a few groups to present their seasonality calendars and get feedback from the rest of the group.

Dont forget the dropouts! In addition to surveying existing and potential clients, it is also important to talk to those who have dropped out. From both a business and a social perspective, it is preferable for an MFI to retain its existing clients rather that to always have to find new clients to replace the ones who are leaving. In order to improve client retention, you have to know why they are leaving and what you can do to avoid this.

Step 3 Review

7. Review progress against session objectives (10 mins) 7.1 Explain that we will now check to make sure that we have achieved the objectives that were set. Point to poster 3: Step 3 Objectives & Checklist with the objectives written on and ask participants to consider if they have met these objectives. 7.2 Select a few participants and ask them the questions in the checklist. If there is any misunderstanding then clarify the concepts. Ask the group if there are any further questions. 7.3 Congratulate participants on having completed Step 3. Remind the group that having explored the needs and preferences of their existing and potential clients they are able to develop demand driven services/products that will ultimately lead to improving their business. Explain that in the next session we will focus on describing the types of products and services they would like to develop or modify as part of their business plan.

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Session 4: Products and Services

Objectives: 1. To identify the products and services that your organisation plans to deliver to customers 2. to determine a plan of action that will ensure the organisation will reach its stated objectives in terms of developing its products and/or services Time: Materials: 115 minutes Blank poster paper Poster with course objectivities and contents Handouts 4.1 and 4.2 Preparation: Prepare posters on flip chart or wall

Process 1. Review Progress and Present Session Objectives (5 mins) 1.1. 1.2. Briefly summarise the progress they made against the objectives. Show participants poster 4: Step 4 Objectives & Checklist with todays session objectives. Read out each of the session objectives and clarify what each one means. Ask if participants have any questions.

1.3.

2. What do we mean by Products and Services in Microfinance? (20 mins) 2.1. 2.2. Explain to the group the difference between a product and a service and give examples to illustrate your explanation. Remind group that people often use the terms products and services almost interchangeably. For example, we may talk about savings services, or insurance services. One service offered by an MFI may be to provide a savings product. It really doesnt matter which terms you use, as long as you provide what your clients need! MFIs typically offer their clients a range of products. A product is a specific item that you may choose to use. Here are some examples of typical microfinance products: Savings products Savings Product 1: Transaction account; Savings Product 2: 6-month term deposit account Loan products Loan Product 1: Agriculture loan Loan Product 2: Regular loan Insurance products Insurance Product 1: Death insurance Insurance Product 2: Crop insurance In addition to these products, an MFI may also provide a range of services. Services involve the MFI performing work. For example: Remittance services e.g. client deposits money in one village and sends to a relative in another village Skills training e.g. coffee growing, IPM, sewing

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Business training e.g. doing market assessments, financial planning Financial literacy training e.g. how to calculate interest rates 2.3. Explain that the products and services section of the business plan gives a description of the products and services that will be provided and that any new or planned products should be clearly specified in the business plan.

3. Developing new or existing products the process (15mins) 3.1. Explain, in brief, the process for developing products carried out by best practice MFIs. Explain it is important that MFIs undertake a systematic process in developing or refining their loan or savings products. Products and services should be designed and delivered in such a way that they meet the current and evolving needs and preferences of the clients. Note: this section provides trainees with background information on how to develop new products or refine existing products. This is for their information only, and so you should point out that they do not need to define this process in the business plan. There are 4 main steps to developing a product, which can be understood as a cycle:

1. Market Research

2. Design

refine design

4. Evaluating new product

3. Testing

1. Market Research: In the last session we talked about the importance of understanding markets and clients through market research activities like client surveys so that the products and services are designed to be popular and successful. 2. Design: We use the information gained from market research to design the product. Design will take into consideration the various product attributes described below. Costing and pricing of products is an important factor in product design; Effective interest rates have to be high enough for the MFI to become financially self sufficient once scale is reached.

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3. Testing: Ideally you should test the new product with a sample group of clients before launching into on a large scale. Make sure you specify how you will evaluate this trial, so that later you will be able to determine whether or not the trial was successful. 4. Evaluating new product: Collect information and analyse the results to see how successful the product was with the sample group. Did the product satisfy your own objectives? Did it meet the needs of the client? What did the client dislike about the new product? Refine product: based on your evaluation of the test of the new product you can decide whether any further modifications are needed.

4. Key product attributes (25mins) 4.1. Each product has different attributes or features, which is what distinguishes it from other products. Also, loan products will have different types of attributes to savings products. Using the board, brainstorm the main attributes of savings and loan products, obtaining suggestions ideas from the group.

4.2.

Loan product attributes: 1. Size range: what is the size of the loan? This might be a fixed amount, but more likely, an amount within a range, i.e. $100-200 2. Term: Refers to the maturity or length of time until final repayment on a loan. 3. Repayment frequency: how often does the loan principle (and interest) need to be repaid? Weekly, monthly? 4. Collateral/guarantee: Collateral = assets pledged to secure the repayment of a loan, i.e. property. Guarantee = A pledge (could be by another person) to cover the payment of debt or to perform some obligation if the person liable fails to make repayments. 5. Interest rate (state period and flat or declining): Interest rate period = the period of time over which the interest rate is applicable i.e. 24% interest over 12 months term is the same as saying 2% interest rate per month. Which method of interest rate calculation do you use? Flat or declining interest rate method? (see box over page) 6. Current portfolio size: what is the total value of all your loans? Interest Rate Calculation Methods Flat vs. Declining Balance: 1. Flat Rate: Interest is charged on initial loan amount rather than outstanding loan balance. 2. Declining Balance: Interest is charged on outstanding loan balance at a given point in time, so interest amount is different for every period. For example, a 1-year loan of 600,000 kip at 12% p.a. interest, with quarterly instalments of principal: 1. Using the Flat Rate method, total interest payable = 12% * 600,000 = 72,000 kip. 2. Using the Declining Balance method, total interest payable = (12%/4 * 600,000) + (12%/4 * 450,000) + (12%/4 * 300,000) + (12%/4 * 150,000) =

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36,000 kip If the loan principal is all paid in one lump sum at the end of the loan term, then there is no difference in interest payable between the Flat and Declining Balance methods. Where instalments of principal are made, the declining balance method results in around half the interest rate cost of the flat method.

Saving Product attributes: 1. Minimum deposit: what is the minimum amount that a client must have in their account while their account is active (usually opening deposit)? 2. Frequency of deposit: how often does the client have to make deposits into their account? 3. Withdrawal conditions: what are the conditions (requirements set by the MFI) on withdrawing from the account? Are there any restrictions on the customer accessing their money, i.e. maximum amount allowed to be withdrawn, maximum number of times money can be withdrawn? 4. Interest rate: how is the interest earned on savings calculated? how often does it get paid on the balance? 5. Current portfolio size: what is the total savings your MFI is currently holding?

5. Getting the right products and services (10 mins) 5.1. Explain to trainees that products should be designed and delivered in such a way that they meet the current and evolving needs and preferences of the clients. Remind trainees that effective interest rates have to be high enough for the MFI to become financially self sufficient once scale is reached. Remind trainees that if there are any significant changes in your product portfolio, this should be specified in the business plan. Explain that trainees should emphasize any unique features of the proposed products/services and highlight any differences with what is currently being offered by others in the market. They should try to identify the competitive advantage of the product(s) over competitors. Finally, ask trainees to describe any barriers or risks to entry, if any.

5.2. 5.3.

5.4.

Exercise

(15 mins)

Complete handout 4.1 Working with other members of your MFI, complete Handout 4.1 Products and Services. List the products and services that your MFI plans to deliver over the 2-3 year period. Give as much information on each product or service. Describe how the product responds to the needs of your clients. List the risks and assumptions linked to the delivery of the product. Remember that risks and assumptions may be internal or external. Choose a few presentations to the made to the group.

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6. Action Plan (15 mins) 6.1. Explain to the group that an action plan is a good way of ensuring that their organisations achieve their stated plans for product development (new products of product refinement) or changes to service delivery. Explain that the action plan should define the specific activities the organisation must undertake to achieve its objectives, the person responsible for taking those actions and a timeframe within which the action will be completed.

6.2.

Exercise

(10 mins)

Complete Handout 4.1 Working in MFI groups complete Handout 4.2 Action Plan, filling in each column as previously described. Groups must assume that they are developing a new product or refining one of their products (one of the products they listed in Handout 4.1).

Step 4 Review 7. Review progress against session objectives (10 mins) 7.1. Explain that we will now check to make sure that we have achieved the objectives that were set. Point to poster 4: Step 4 Objectives & Checklist with the objectives written on and ask participants to consider if they have met these objectives. Select a few participants and ask them the questions in the checklist. Ask the group if there are any further questions. Congratulate participants on having completed Step 4. Explain that the group have been able to identify and detail the products and services they are planning to deliver over the coming period. Explain that during the next session participants will learn how to plan their portfolio in more detail.

7.2. 7.3.

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Session 5: Portfolio Planning

Objectives: 1. to identify assumptions about the savings and loan products 2. to produce a detailed plan of the organisations operations for the next 2-3 years 3. to understand the importance of and to be able to carry out loan loss provisioning 4. to be aware of how delinquency affects portfolio and to appreciate the importance of delinquency management Time: Materials: 260 minutes Blank poster paper Poster with course objectivities and contents Handouts 5.1, 5.2, 5.3, 5.4 and 5.5 Preparation: Prepare posters on flip chart or wall

Process 1. Review Progress and Present Session Objectives (5 mins) 1.1 Briefly summarise the progress they made against the objectives. 1.2 Show participants poster 5: Step 5 Objectives & Review Checklist with the session objectives written on. Ask a participant to read out the session objectives and clarify what they mean. Explain that at the end of the step we will check to see if the objectives have been met. 1.3 Ask if participants have any questions. 2. What is Portfolio Planning? (15mins) 2.1 Ask the group what they understand by the term portfolio. Clarify any gaps in their understanding and ensure that they fully understand the term. 2.2 Ask: why is it important to plan a portfolio? How far ahead should be plan? Elicit the responses in the table below. Why it is important to plan a portfolio? How far ahead should we plan? Planning future numbers of clients helps us to plan our expansion of operations e.g. moving into new villages, hiring new staff, increasing expenses Planning the value of a portfolio tells us how much our interest income will be on loans, and how much our interest expenses will be on savings Planning the value of money coming in and going out helps us to plan for cash flow. We have to make sure we always have enough cash on hand to fund our portfolio and our operational expenses MFIs usually like to plan their portfolio for 2-3 years into the future, so that they can plan their future operations. Usually you should plan as far ahead as needed to reach full cost recover (i.e. total income exceeds total expenses)

Exercise

(145 mins)

Complete Handout 5.1 Savings portfolio

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 Provide participants with a copy and Handout 5.1 and explain each item. As you present
each item in turn, explain why it is important.

Ask participants to complete the assumptions column for their own MFI products.
Complete Handout 5.2 Loan portfolio

Provide participants with a copy and Handout 5.2 and explain each item. As you present
each item in turn, explain why it is important. Ask participants to complete the assumptions column for their own MFI products.

Enter data into portfolio planning spreadsheet Provide participants with a copy of the portfolio planning spreadsheet (hide the financial section for now). Explain its use and then ask participants to enter their portfolio projections into the spreadsheet.

3. Portfolio Quality (20 mins) 3.1 Ask participants what we mean we talk about portfolio quality? 3.2 Present the terms listed below and explain what each one means. MFIs talk about portfolio quality. The quality of a loan portfolio is determined by the rate of delinquency among customers i.e. the percentage of loans that are not repaid. Gross Loan Portfolio: All outstanding principal of all active loans (i.e. current, delinquent and restructured loans, but not loans that have been written off). It does not include interest receivable. Current Portfolio: the outstanding value of all loans that do not have any instalment of principal past due. It does not include accrued interest. Delinquent Loan: a loan that has repayments due but not yet paid. Arrears: Value of late payments Portfolio at Risk (%): Unpaid principal balance of all delinquent loans / Total outstanding portfolio Loan default: refers to when a borrower cannot or will not repay his/her loan and when the MFI no longer expects to receive repayment, although it keeps trying to recover it.

4. Loan Loss Provisioning (30 mins) 4.1 Explain that when we have problems with portfolio quality, we need to plan for potential future losses. It is better to set aside some money so that we are prepared for when this happens. This is usually done monthly. 4.2 Explain the term: loan loss provision A loan loss provision is an amount of money set aside to cover potential future loan losses. The longer a loan is overdue, the greater the provision. Loans that have been rescheduled (i.e. loan terms extended) require a higher level of provisioning than regular loans, since these are already considered to be risky.

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4.3 BoL requires MFIs to provision on the following basis: Aging Status Current loans Loans past due 31-90 days Loans past due 91-180 days Loans past due > 180 days Loans in legal recovery Loan Loss Reserve (Percent) Regular Portfolio Rescheduled Portfolio 1% 25% 25% 25% 50% 50% 100% 100% 100% 100%

Explain the accounting treatment of a loan loss provision and loan loss reserve Loan Loss Provision: an amount expensed on the Income and Expenses Statement. It increases the Loan Loss Reserve Loan Loss Reserve: a balance sheet account that represents the amount of outstanding principal that is not expected to be recovered by an MFI. It is a credit balance on the asset side of the balance sheet (a negative asset), and reduces the outstanding portfolio. Microfinance organizations typically establish a loan loss reserve equal to 2-5% of the value of their active portfolios. Loan write-off: when an MFI decides that it is unlikely to receive a repayment, it removes the outstanding value of the loan from its overall loan portfolio. It uses the loan loss reserve to pay for this. Loan write-offs occur only as an accounting entry. They do not mean that recovery should not be pursued. They decrease the reserve and the outstanding portfolio 5. Delinquency Management (30mins) 5.1 Discuss with group what they understand by the term delinquency and how they treat delinquency within their own institutions. 5.2 Explain that MFIs need to instigate an institutional culture of zero tolerance for delinquency. This can be achieved by ensuring that portfolio quality is constantly monitored. 5.3 Discuss the main causes of delinquency with the group gage their thoughts before covering the following: Zero delinquency is: a reasonable and obtainable target an attitude the whole organisation must adopt if it is to become a reality. the result of a purposeful decision by the organisation Understanding causes of delinquency: can be internal (controllable) and external (uncontrollable but a response can be planned) internal causes: image of MFI; bad MIS; inappropriate products and delivery mechanisms; poor staff skills and/or morale external causes: government policies, natural disaster; economic conditions; personal crises. It is important for the management of an MFI to consider the internal factors of delinquency and to put in place measures that respond to any issues that may arise. All staff should be conscious of delinquency and its causes and the MFI should manage its delinquency in a structured manner with loan officers reporting delinquency and management reviewing its causes and providing appropriate solutions.

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Exercise

(15 mins)

Complete Handout 5.3

Working in MFI groups, complete Handout 5.3 Delinquency and Loan Loss Provisionning
detailing how your group will manage delinquency and provision for loan losses this should include a loan loss provision figure and loan loss reserve.

Step 5 Review 6. Review progress against session objectives Explain that we will now check to make sure that we have achieved the objectives that were set. Fold down the lower half of poster 5: Step 5 Objectives & Checklist to reveal the review checklist. Ask the group if there are any further questions. Congratulate participants on having completed Step 5. Explain that by setting out the portfolio projections for the coming years, they have completed a major part of the business plan. In the next session we will start looking at how the organisation can prepare itself for the implementation of its activities with a strategy for human resource management.

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Session 6: Human Resource Management

Objectives: 1. to understand the importance of human resource management in the context of business planning 2. to present an organisational structure with roles and responsibilities of board, management and staff 3. to understand the importance of staff incentive schemes and training opportunities Time: Materials: 195 minutes Blank poster paper Poster with course objectivities and contents Handouts 6.1, 6.2, 6.3, 6.4 Preparation: Prepare posters on flip chart or wall

Process

1. Review Progress and Present Session Objectives (5 mins) 1.1 Briefly summarise the progress they made against the objectives. 1.2 Show participants the poster with todays session objectives written on. Read out each of the session objectives and clarify what each one means. 1.3 Ask if participants have any questions. 2. Why include human resources in the business plan? (10mins) 2.1 Explain why a description of how MFIs human resources are managed is an important part of the business plan: mention that in addition to having a supportive external environment the institutional capacity is central to the ability of the microfinance institution to achieve its goals. Remember: An MFIs most important asset is its staff. So it is important to consider staffing and management when we are preparing a business plan. In order to be effective, staff must be competent, trained, and motivated. It is also important to make sure you have the right number and type of staff. Too many staff leads to inefficiencies while too few staff leads to inadequate attention to procedures and detail. All of this must be planned to ensure that you are managing your human resources optimally 3. Organisational Structure (30 mins) 3.1 Explain that by providing details on your MFIs organisation structure in the form of a chart (organigram) is a fast, simple way of assessing the human resources available to your business. The organigram allows you to assess the following considerations: When considering human resources, the first place to start is with an organisational chart. This enables you to see at a glance your overall staffing situation, including: o The major groupings such as branches and sections o The total number of staff, as well as the numbers in each section / branch o The number of managers compared to the number of other staff o The relationships between personnel (lines of authority and communication), and whether you have a very hierarchical or flat organisational structure.

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Gaps in staffing that need to be filled

The organisational chart can serve as a tool for employees to understand how and where they fit into the mission of the institution. You can draw your organisational chart any way you like. Some organisations place the Managing Director in the middle, others at the top, or even at the bottom. Draw your chart in the way that makes the most sense to you.

3.2 The business plan should show how the MFI is structured or may be structured in the future. Explain that participants should include details on the existing and planned number of branches, their location, and their size. 3.3 Remind trainees that they should relate this back to the market analysis, which will help them to justify their choices of location etc.

Exercise

(30 mins)

Example organisational chart

Ask for volunteers to draw an example of an organigram on the board. Discuss and
clarify any misunderstandings with the group. Remind group that there are various ways of drawing the organigram and no hard and fast rules. Most importantly, draw your chart in the way that makes the most sense to you! Complete Handout 6.1

Working in their MFI groups, ask trainees to complete Handout 6.1: Organisational
Chart. 4. Staffing (45 mins) 4.1 Job Descriptions: Explain that in this section of the business plan, they will describe the existing and planned staff positions, which may be broken down by branch and head office (if there is more than one office). Explain that job descriptions, clearly defining roles and responsibilities, can be used to summarise the main roles and responsibilities of each position in the business plan. 4.2 MFIs should ensure that job descriptions include the following: o The general and specific tasks that the staff member is required to perform o Who they report to o How they will be assessed o Incentives for good performance 4.3 Ask trainees how many of them have job descriptions? And if everyone they work with has a job description? If they do not have written job descriptions for all of their staff then start now! 4.4 Productivity: Explain to the group that when planning staffing it is important the productivity of staff. This can be measured in a variety of ways. Some simple measures of staff productivity are: o Field officer caseload = no. of clients per field officer o Field officer portfolio = loan (or savings) portfolio per field officer o Clients to staff ratio = total no. of clients / total number of staff

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4.5 Ask participants what their current levels are on each of the above. What do they think is an appropriate target? 4.6 Performance reviews. Ask the group if their organisations conduct these. Performance Reviews should take place at least once per year (or more often). It provides an opportunity for staff to hear from what their manager thinks of their performance what they are doing well and what they need to improve. It also provides an opportunity for the manager to hear the thoughts, concerns and suggestions of their staff. Performance should always be assessed according to the job description. It is not fair to judge someone by standards that they are not aware of. The performance review is a good time to review job descriptions, as well as wage levels and training needs. 4.7 Incentive Schemes: ask participants whether they implement staff incentive schemes in their own organisations and whether they view these as a useful strategy. Remind trainees that incentives are not an entitlement they should only reward good performance. 4.8 Explain why incentive schemes can be a useful strategy for ensuring high productivity and efficiency of MFI operations. 4.9 Discuss the different types and the advantages and disadvantages of staff incentive schemes Types of Incentive Schemes Staff incentive schemes take different forms and each has its own advantages and disadvantages: Individual: incentive payout made to each person individually Group based: incentive payout made to a team of people Profit sharing schemes: incentive payout made to individuals depending on overall profit gains of organization Employee Stock Ownership Plan: staff members own share capital Non-financial benefits: such as promotion, training and recognition (e.g. employee of the month) Performance Indicators Remember that your incentive scheme should match your organizational goals. For example, with regard to loan portfolio it is important to have both growth and quality. The most common incentives schemes apply to: o The number of new clients this period o The value of new loans disbursed this period o Portfolio quality (PAR or other measure) o MFI or branch-level profit this period Considerations The following are some considerations you should keep in mind when designing a performance based Staff Incentive Scheme: Timing: typically staff should become eligible for participation in bonus schemes approximately six months after joining the organization Frequency of Incentive Payout: ideally these incentive payouts should be monthly or frequently enough to relate the reward to particular efforts. Weight of Bonus in Total Remuneration: In practice, for effective incentive schemes the weight of the bonuses for credit officers typically ranges from 20% up to 50% of total compensation.

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Exercise

(25 mins)

Complete Handout 6.2

Working in your MFI groups complete Handout 6.2 Roles & Responsibilities When preparing your business plan, be sure to indicate your plans for future staffing.
What staff do you plan to recruit in the future what skills and qualifications do they need? You will also need to consider the costs involved when you are preparing your financial projections. 5. Staff training & development (10 mins) 5.1 Explain to the group that it is important for all organisations to define its plans for staff training and development and that an outline of these plans should be provided in the business plan. 5.2 Training Plan: Ask group if their organisations plan for staff training and development. Discuss how in practice their organisations conduct their staff training and consider their staffs professional development 5.3 Explain to the group that an MFIs training plan might include: a pre-service employee training programme: training on operating rules, policies and procedures of the MFI, and an introduction to the work ethic and philosophy of the organisation. in service training which aims to upgrade the skills and knowledge of employees in specific areas such as products and services; internal controls; systems and procedures; reporting; savings and loan account administration; branch accounting and Management Information System; Delinquency management etc. 5.4 Explain that it is important that the MFI can identify who is responsible for managing training activities and who the training activities could be provided by.

Exercise

(15 mins)

Complete Handout 6.3

Working in MFI groups, describe your staff training and development plans Complete Handout 6.3 Staff Training & Development Ask for volunteers to present their plan to the group
6. Action Plan (10 mins) 6.1 Tell the group that in this section of the business plan they will be expected to complete an action plan that clearly defines the specific activities that their organisation must undertake to achieve its human resource management plans. Indicate that the action plan may cover such activities as: o Plans for recruitment of new staff o Changes to organisational structure

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o o o

Employee performance review / job description review Reviews of incentive schemes A staff retreat or other activity

6.2 Remind trainees that when preparing an action plan they should be sure to identify the person responsible for each action and a timeframe within which the action will be completed.

Exercise

(15 mins)

Complete Handout 6.4 Working in MFI groups, complete Handout 6.4: Staff training and development Action Plan.

Step 6 Review
7. Review progress against session objectives 7.1 Explain that we will now check to make sure that we have achieved the objectives that were set. Point to poster 6: Step 6 Objectives & Checklist with the objectives written on and ask participants to consider if they have met these objectives. 7.2 Select a few participants and ask them the questions in the checklist. If there is any misunderstanding then clarify the concepts. Ask the group if there are any further questions. 7.3 Congratulate participants on having completed Step 6. Explain that we have now considered the main aspects of human resource management and that in the next session we will look at how MFIs use marketing to grow their business.

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Session 7: Marketing & Promotion

Objectives: 1. to understand the importance of planning marketing and promotional activities 2. to outline the main course of action that will allow you to achieve your marketing and promotion objectives Time: Materials: 120 minutes Blank poster paper Poster with course objectivities and session contents Handouts 7.1 and 7.2 Preparation: Prepare posters on flip chart or wall

Process 1. Review Progress and Present Session Objectives (5 mins) 1.1. Show participants poster 7: Step 7 Objectives & Checklist with this session objectives. Briefly summarise the progress they made against the objectives 1.2. Ask if participants have any questions.

2. What is marketing? (10 mins) 2.1. Discuss with group what they understand by the term marketing and what their experience of marketing is within their organisations. A broad definition: Marketing is the way an institution engages with the various markets it serves or would like to serve. Marketing focuses on what the market values, rather than what the institution wants to provide: The production concept: Make it and it will sell The product concept: Make it well and it will sell. The selling concept: Promote it well and it will sell. The marketing concept: Make something the market values and it will sell. Marketing brings together information from internal and external sources to determine the best answers to the following questions: Which products and services are needed and will be bought? What price is acceptable to clients? How can products and services be sold in the most efficient and effective manner? Which information channel is best able to reach clients to make the product known, valued and demanded? We have already discussed client needs and preferences in Session 3, and products in Session 4, so this session will focus on how an MFI effectively reaches clients with information about its products and services. Remember that marketing is more than selling and promotion of products. It is the customer focus of the whole organization.

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2.2. Explain to the group that marketing includes all aspects of the institution and its approach to offering products to its current and potential clientele. Remind group that marketing should not be seen only a means of selling more products more effectively or of developing new and more customer-oriented financial products, rather it should involve the entire institution, from the accounting department to the training department, from headquarters to branches, from the General Manager to the front-line staff. 3. Why do MFIs need to do marketing? (5 mins)

Financial viability is dependent on client satisfaction.

3.1 Ask participants whether MFIs need to do marketing. 3.2 Give a short background on why marketing has in recent times received little attention from MFIs and why now it is becoming an important aspect of operations. Little effort has been put into the field of marketing within microfinance institutions (MFIs) and this may be attributed to the fact that until recent times, microfinance has been considered a niche market. It remains niche in some countries, but as an increasing number of microfinance institutions are coming on the market it will be necessary for each to seek ways in which they can maintain and grow their market share increasing competition will require MFIs to put more energy into retaining and finding new customers.

3.3 Explain that MFIs need to respond to client demand if they wish to grow their business. 3.4 Explain that by responding to clients or potential clients needs may require the MFI to change existing products/services and that this would require a more simple refinement of the products/services. 4. How do MFIs do marketing? (30 mins)

The most important thing is to improve the amount and quality of attention given to the client. FUPACODE, Paraguay
4.1 Ask participants how they market their products in their own MFIs. Do they consider their marketing to be effective? What improvements can be made? 4.2 Briefly explain that marketing comprises a mix of 8 different features. Read about each of these below. For each product or service you offer, you should specify each of the following, and compare this with your competitors. Feature Product (design) Price Details Includes specific product features, opening/minimum savings balances, withdrawal terms, loan terms, loan disbursement times, collateral or guarantees, repayment structures Includes the interest rate, withdrawal costs, loan fees, pre-payment penalties, prompt payment incentives, transaction costs and other fees and discounts. Includes advertising, public relations, direct marketing, publicity, and all aspects of sales communication. Refers to distribution and making sure that the product/service is available where and when it is wanted. This includes such options as field workers or agents, branches, working with informal sector financial service providers, etc. Is the effort by the MFI to occupy a distinct competitive position in the mind

Promotion Place

Positioning

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Feature

Physical Evidence

People Process

Details of the target customer. This could be in terms of low price, security of savings, quick turnaround time, professional service, etc. It is a perception. This is what makes the MFI and its invisible, intangible services visible. It includes the presentation of the product, how the branch physically looks, whether it is tidy or dirty, newly painted or decaying, the appearance of the brochures, posters and passbooks, etc. Includes how the clients are treated by the people involved with delivering the product in other words the staff of the MFI. Includes the way or system through which products and services are delivered: the queues/waiting involved, forms to be completed etc.

4.1 Discuss the key aspects of marketing, giving examples of tools that can be used: Marketing is a continuous process that includes planning, implementing and evaluating performance. MFI marketing involves studying clients and developing products to meet their needs. It takes into consideration the competitive market, determines the position of the institution in that market, and promotes products to potential clients. Carrying out these activities effectively often requires a specific marketing plan. Market & Client Analysis Marketing begins with the clients, by identifying potential markets and then surveying clients to determine their specific needs and desires. These steps were covered in Session 3. Competitive Analysis By studying the competition, an MFI can be informed about the types of financial services that are offered by its competitors. The level and type of competition will affect how the MFI decides to position itself strategically in the market. SEWA Bank in India and Fundacin Mario Santo Domingo in Colombia offer corresponding social services along with their credit product to create a competitive edge. ACLEDA in Cambodia conducts regular questionnaires with 100 micro and small enterprises and 100 small and medium sized enterprise clients at each of its branches every year.

Strategic Planning and Positioning Assemble all of the market information you have and determine how best to place to your organization within that market. i.e. what image would you like to convey?

Promotion and Outreach Communications Financial services are intangible: you cant smell them, touch them or taste them. You are selling based on perception and trust, so you must build the right perception and deliver on the clients trust. Identify the message you want the clients to hear, then test it on a sample of clients to see what they think. Remember, customers buy benefits, not products, so the message needs to focus on the benefits that a product can provide. Karibu Bank Savings Account benefit statement The Accumulator Savings Account is easy to open, carries no hidden costs and pays high interest to accelerate your progress towards the lump sum of money you need to realise your dreams With the Accumulator Savings Account your dreams can come true!

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Once you have the core message, develop a branding strategy to support it. This may be a logo, a colour scheme, a tag line or something else that will help to carry the message. Mibanco MFI has a home loan with the following brand and logo (casa means house):

FINCA Uganda and K-REP have positioned themselves as being the oldest and largest MFI in the country that is, the market leader. When your message and branding is in place, you need effective promotional tools to reach the potential clients. Many MFIs use traditional media such as brochures, leaflets, posters, radio/TV advertising, as well as nontraditional media such as songs, theater, and film.

Marketing Plan To make your marketing effective you must have clear objectives for how the marketing function will be integrated into the institutions operations, an assignment of responsibilities, and a marketing budget to carry out the different steps.

Exercise

(15 mins)

Complete Handout 7.1 In your imaginary MFI groups, discuss who you plan to market your business to and how you will promote your activities Complete Handout 7.1 Marketing and Promotion. The questions on the handout will prompt you to consider the main aspects of your marketing plan.

5. Getting Started: An Action Plan (10 mins)

5.1. Explain to the group that before initiating any marketing activities, MFIs should consider the following: 1. Have you developed a Marketing Plan? 2. Who will be responsible for your MFIs marketing program? 3. How will you pay for your marketing?

Exercise

(45 mins)

Prepare and present your action plan

Working in your imaginary MFI groups, you must put together an action plan for marketing
activities that your imaginary MFI will conduct. Complete Handout 7.2 Marketing and Promotion Action Plan

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 3 of the groups should present their action plan to the 4th group, who will play the role of a
Board of Directors. The board will provide comments and a score for each groups action plan.

Step 7 Review
6. Review progress against session objectives 6.1 Explain that we will now check to make sure that we have achieved the objectives that were set. Point to the poster with the objectives written on and ask participants to consider if they have met these objectives. 6.2 Present the checklist below on a poster. 6.3 Select a few participants and ask them the questions in the checklist. If there is any misunderstanding then clarify the concepts. Ask the group if there are any further questions. 6.4 Congratulate participants on having completed Step 7. Explain that participants should be able to develop a basic marketing plan for their organisation. Explain that in the next session we shall discuss social performance management.

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Session 8: Social Performance Management

Objectives: 1. to understand what is meant by social performance management 2. to understand how social performance management can be integrated into the operations of an MFI Time: Materials: 100 minutes Blank poster paper Poster with course objectivities and contents Handouts 8.1, 8.2 and 8.3 Preparation: Prepare posters on flip chart or wall

Process

1. Review Progress and Present Session Objectives (5 mins) 1.1. Briefly summarise the progress they made against the objectives. 1.2. Show participants poster 8: Step 8 Objectives & Checklist with todays session objectives written on. Read out each of the session objectives and clarify what each one means. 2. What is social performance management? (10 mins) 2.1 Ask participants whether their MFIs have a social objective. If so, what is it? How do they know if they are achieving their objective. Social performance management = an ongoing process which involves setting clear social objectives, monitoring and assessing progress towards achieving these, and using this information to improve overall organisational performance.

Most microfinance institutions (MFIs) have explicit social goals within their mission
statements, but often these are not managed actively.

Social performance needs to be managed and reported as systematically as your

financial performance.

Social Performance Management can help your MFI stay focused on its mission and
maximise both aspects of its performance financial and social.

3. Assessing client satisfaction (15 mins) 3.1 Ask participants for their ideas of ways of assessing client satisfaction. 3.2 Discuss client satisfaction monitoring methods used by MFIs. Unlike financial performance which can be assessed with the use of statistical data provided from within the organisation (financial reports), social performance is much more qualitative in nature and therefore requires a more qualitative approach to data collection. Best practice market-led microfinance should assess client satisfaction on an on-going basis. Client satisfaction reports are also the most appropriate way for an organisation to assess its social performance against its pre-defined social objectives. As described in

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Step 3: Clients and Markets, client surveys and focus group discussions are simple methods that any organisation can employ to obtain such information. Remember: Client satisfaction surveys and focus group discussions should: be undertaken in a participatory manner MFI staff should consider various formats of interviewing, including the introduction of games, use of visual tools that will encourage more of a more qualitative analysis.

Pro Mujer uses the following information sources to evaluate its progress towards its social goals:

Client monitoring and evaluation: assess client satisfaction and

reasons for client exit. Use suggestion boxes, exit mini-surveys, staff and client feedback.

Social development services quality monitoring system: this tool

looks at the quality of health and training services, and staff attention to clients. When complete, it will be integrated into the MIS.

Monitoring of client poverty levels External social rating reports and impact assessment, conducted
every two to three years When planning your social performance monitoring, ask yourself: 1. What tools/methods will you use to measure social performance? 2. How often will you collect data? 3. Who will undertake data collection and analysis of the data? 4. Are you already collecting this data? 5. How will you monitor gender inequalities?

Exercise

(15 mins)

In small groups brainstorm the answers to the questions below: How will you assess the organisations performance? How will you assess social & poverty impact? How will you assess client satisfaction? How do you plan to monitor/evaluate impacts with regard to gender? How will you ensure that poverty and gender considerations are incorporated in to your regular operations? To check that groups have understood the questions, ask each group to present one question and answer to the rest of the group. Complete Handout 8.1 Complete Handout 8.1: Social Performance Management for your own organisation.

4. Pro-poor loans (30 mins)

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4.1 Explain what is meant by pro-poor loans and what the relevance of this measure is to MFIs? How can this measure be useful? A pro-poor loan is a loan that is designed to meet the needs of the poor (defined within a specific context). How can this measure be useful? MFIs that have specific social objectives that relate to reducing levels of poverty or increasing the percentage of poor clients they serve, can monitor these objectives by measuring the number of pro-poor loans disbursed to clients, the MFI can analyse the extent to which it is working with poor clients and therefore meeting poverty objectives. In this case, Pro-poor loans are defined here as falling into two categories: a) loans with an annualised loan size of 3.2 million Kip or less (per client) b) loans with an annualised loan size of 1.6 million Kip or less (per client) Note on annualised loan sizes: A 6 month loan of 500,000 kip = an annualised (1 year) loan of 1,000,000 kip; A 2 year loan of 3,000,000 kip = an annualised loan of 1,500,000 kip You should record your levels of pro-poor loans in a table as follows: Pro-poor loans Number of loans <= 3.2 mill Kip p.a. Number of loans <= 1.6 mill Kip p.a. Current 400 End of Yr1 1000 End of Yr2 2000

4.2 Explain that MIS data on pro-poor loans should be complemented by random sampling of poor clients.

Exercise

(10 mins)

Complete Handout 8.2 Pro-poor Loans MFI groups should complete Handout 8.2 for their own organisation.

5. Action plan (5 mins) 5.1 Explain that MFIs should describe what actions they plan to take in order to institutionalise social performance management within the organisation. Specific activities should be listed with a timeline and responsibility delegated.

Exercise

(10 mins)

Complete Handout 8.3 Social Performance Management Action Plan

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MFI groups should complete handout 8.3. Groups then present their action plan to the wider group.

Step 8 Review 6. Review progress against session objectives 6.1 Present the checklist below on a poster. 6.2 Select a few participants and ask them the questions in the checklist. If here is any misunderstanding then clarify the concepts. Ask the group if there are any further questions. 6.3 Congratulate participants on having completed Step 8. Explain that participants should now have a greater awareness of social performance management and how it can be integrated into their regular operations. Explain that in the next session we will complete the training workshop with financial planning.

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Session 9: Financial Planning

Objectives: 1. to understand the process and steps involved in preparing a financial plan 2. to prepare a 2-3 year financial plan for an MFI Time: Materials: 360 minutes Blank poster paper Poster with course objectivities and contents Handouts 2.1, 2.2 and 2.3 Preparation: Prepare posters on flip chart or wall

Process 1. Review Progress and Present Session Objectives (5 mins) 1.1. Briefly summarise the progress they made against the objectives. 1.2. Show participants poster 9: Step 9 Objectives & Checklist with todays session objectives written on. Read out each of the session objectives and clarify what each one means.

Exercise

(30 mins)

Money In and Money Out Exercise Provide each group with a set of cards with financial transaction. Tell the participants that they should group these cards however they like. Give them 5 minutes to do this. Compare each groups arrangement of cards. Lead participants to understand that there are 4 types of transactions: Income, Other Money In, Expenses, Other Money Out. 2. Income & Expenditure Projections (20 mins) 2.1 Explain that now that we have planned our portfolio, human resources, marketing plans etc, we now need to work out how much all of this is going to cost, and whether we will be able to afford it! The first step is to calculate our expected income and expenses. To help us plan future operations we need to know what income and expenditure we expect to incur. The easiest way to do this is by estimating our average monthly income and expenditure, then projecting this forward. If you are planning 2 or 3 years ahead then remember to factor in price rises each year.

Major income items

Typical sources of MFI income are: Interest received on loans Fees charged to clients Interest received on bank and other investments

Major expenditure items

Typical MFI expenditure items are as follows:

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Portfolio expenses such as interest paid on savings Loan loss provision expense Financing expenses such as interest paid on MFI borrowings Staffing expenses (branch and head office staff salaries) Other branch and head office operational expenses, such as rent, stationary, postage, utilities, consumables, insurance, repairs & maintenance, fuel for vehicles, vehicle maintenance, travel and per diem, training/workshops, marketing, recruitment, audit and external accounting support, legal and licensing costs Depreciation of fixed assets Taxes

Exercise

(15 mins)

Complete Handout 9.1 Working in their MFI groups, participants should list their assumptions and estimate their typical monthly income and expense amounts.

3. Sources of Funds (15 mins) 3.1 Explain that MFIs typically access funding from a variety of sources and these should be clearly identified in the financial planning section of the business plan. 3.2 Elicit the main sources of an MFIs funds and write these on a poster. The following is a list of some common sources of funds for MFIs: Donations/Grants: these can be cash or in kind donations (i.e. office space, seconded staff, legal services etc). Donations/grants are usually made by government, international aid agencies, international NGOs or individuals) Restricted grant funding can only be used for a specified purpose Unrestricted grant funding can be used for any area of MFI operations Savings: these may be deposited by members (those who have paid some membership fee) or non members (other clients) Loans: these are wholesale loans taken by the MFI. Loans may be available from government, international agencies or banks. Retained earnings: this is the accumulated profit made by the MFI. Retained earnings or reserves = the profit in the Incomes Statement. Investor Capital: this refers to shares or other capital invested in the institution.

4. Balance Sheet (15 mins) 4.1 Explain that we will now prepare a Balance Sheet. Write the headings ASSETS, LIABILITIES and EQUITY on a poster. For each of the sources of funds in the previous activity, ask participants where these belong on the balance sheet. 4.2 Then elicit suggestions for other items that belong in the balance sheet and write these under the appropriate headings on the poster. The balance sheet shows an organisations assets, liabilitities and equity (owner capital) at a specific point in time. The relationship between these items must always be: Assets = Liabilities + Owner Equity

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Assets - Cash and deposits - Loans - Fixed Assets - Other assets Liabilities - Customer deposits - Other borrowed funds - Other liabilities Owner Equity - Shares - Reserves and Funds - Retained Earnings When conducting financial planning, start with your current balance sheet. Then use your income, expense and portfolio projections to plan what your future balance sheet will look like. This will enable you to plan the right mix between debt, capital and assets. If for example, your projected balance sheet tells you that you need to raise more capital next year, then you need to make plans to achieve this.

Exercise

(30 mins)

Complete Handout 9.2 Working in their MFI groups, participants should specify the starting values for their balance sheet. These should be consistent with their previous assumptions regarding portfolio, income and expenses. Enter Income, Expense & Balance Sheet data into Portfolio Planning Spreadsheet Each group should be provided with a laptop computer. They should enter the data from handouts 9.1 and 9.2 into the spreadsheet.

5. Cash-flow Statement (10 mins) 5.1 Explain that cash flow is critical to all businesses, especially businesses that specialise in managing cash! You should always have a cash flow projection for at least 1 year ahead. A large proportion of business failures are caused by poor cash flow planning. A cash flow statement = a financial statement that shows a company's incoming and outgoing money (sources and uses of cash) during a time period (often monthly or quarterly). Remember that cash in does not equal income, and cash out does not equal expenses. There are other sources of money coming in and out such as loans and savings. Here as examples of typical cash flows for an MFI: Money in: income, deposits, repayments, other borrowings Money out: expenses, withdrawals, loan disbursements, repayment of borrowings

42

The cash flow statement is useful in determining the short and medium-term viability of a MFI, particularly its ability to pay bills. You should make sure you always have enough cash to pay for your near-term expenses and outgoings.

Exercise

(10 mins)

Ask participants to look at the cash flow section in the spreadsheets and determine whether they always have sufficient cash on hand. They should always have sufficient cash to cover the next 2-3 months of expenses and outgoings. If necessary they may need to adjust some of their other assumptions in order to manage their cash flow.

6. Financial Performance Indicators (35 mins)

6.1 Explain that the microfinance industry uses a set of basic indicators to measure the performance of an MFI. 6.2 Calculating performance indicators is a useful exercise for MFIs to monitor various key performance targets. These are presented in the business plan to give the reader a more general picture of how the MFI is performing, in terms of its sustainability, client outreach, and efficiency. A few of the most useful and common indicators used by MFIs are. Operational Self-Sufficiency (%): A measure of financial efficiency equal to total operating revenues divided by total administrative and financial expenses. If the resulting figure is greater than 100, the organization is considered to be operationally self-sufficient. In microfinance, operationally sustainable institutions are able to cover operational costs with their business revenues. O.S.S = (Total Income grant income) / Total Expenses Financial Self-Sufficiency (%): Total operating revenues divided by total administrative and financial expenses, adjusted for low-interest loans and inflation. In a microfinance context, an institution is financially self-sufficient when it has enough revenue to pay for all administrative costs, loan losses, potential losses and funds. F.S.S. = (Total Income grant income) / (Total Expenses + imputed cost of capital) Return on Equity (%): Profit for the period divided by the average owner equity. RoE = (Net Operating Income, less Taxes)/ Average Equity for the period Return on Assets (%): Profit for the period divided by the average assets. RoA = (Net Operating Income, less Taxes)/ Average Assets for the period 6.3 Ask participants to review their planned institutions performance indicators. 6.4 Ask groups to present their indicators to the wider group, and consider the reasons for different levels on these indicators.

7. Scenario and sensitivity analysis (10mins)

7.1 Ask participants: what happens if you decrease your interest rate due to competition? What happens if the average loan size is larger than expected?

43

 What happens if savings are less than expected? 7.1 Explain that changes in certain variables can have significant impacts on our performance, and it is important to identify which variables have the greatest sensitivity so we can monitor and manage these. Scenario analysis = describes how changes to the key portfolio variables (e.g. client numbers, loan sizes, interest rates) affect your financial viability. 7.2 Explain to the group how to conduct a scenario analysis. Explain that once the MFIs have completed the first draft of the portfolio plan spreadsheet, it is possible to change one variable at a time to see how this affects the MFIs financial viability. Explain that when a variable is changed in the assumptions sheet, the projections will automatically change. Tell the group that they will do this for various variables and consider the impacts that the change to each variable has on the financial viability of the business.

Exercise

(45 mins)

Conduct a scenario analysis Working in their imaginary MFI groups, groups should use the portfolio spreadsheet to change the variables (e.g. client numbers, loan sizes, interest rates) and see how these changes affect the MFIs financial viability. Complete Handout 9.3 Groups should complete Handout 9.3 to document the scenarios and impacts of changes in variables. List Key risks and assumptions Finally, using the information from the scenario analysis and other financial information, groups should record the main risks and assumptions. They should also take this opportunity to review the overall risks facing the institution.

Exercise

(120 mins)

Present Final Business Plan Groups should each present their final business plan. The audience should imagine it is an investor / client / donor and rate each groups business plan. Award a prize to the winning group.

Step 9 Review 8. Review progress against session objectives 8.1 Present the checklist below on a poster. 8.2 Select a few participants and ask them the questions in the checklist. If there is any misunderstanding then clarify the concepts. Ask the group if there are any further questions.

44

8.3 Congratulate participants on having completed their business plans. 8.4 Remind participants that this training has been the first step in developing their own organisational business plan and that they should now go back to their organisations, discuss their learning with relevant staff and work together to further develop the details. 8.5 Explain that follow up on the job training will be provided to MFIs to assist them in developing their business plans more fully.

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Poster 1: Business Plan Overview

Microfinance business plans contain the same elements as for any business. Plan formats and outlines may vary, but generally a plan should include the following components: 1. Organisational Profile: summarises the history, mission, structure etc. of the organisation. 2. Environmental Analysis: frames the economic, regulatory and business environment in which you operate 3. Market Analysis: you need to know your market, customer needs, where they are, how to reach them, etc. 4. Products and Services: describes what products or services you are providing, and plans for the future. 5. Portfolio / Outreach Plan: your expected level of activity for each product / service. This generates your financial plan, and determines your resource needs, so is critical to the planning process. 6. Human Resource Management: describes the staffing structure and the key roles and responsibilities, as well plans for staff development. 7. Marketing & Promotion: To be successful, people need to know about your services. Who will you target and how? 8. Social Performance Management: Non-profit agencies have a social agenda, how will poverty, gender and other social objectives be tracked and managed? 9. Financial Analysis: Identifies your funding sources, presents the balance sheet and projected Profit and Loss and Cash Flow tables.

46

Handout 1.1 - Role Play Scenarios

1.Your name is Kongtong and you are a successful businessman from Phongsaly. You would like to establish an MFI. Find other businessmen with the same interest as you. 2. business woman 3. retired government official 4. business man 5. Hotel owner 1.Your name is Bouathong and you are project manager of the Sayabouly Rural Development Project. You are responsible for the microfinance component. Find the other members of your project management team. 2. Finance officer 3. Project officer 4. Project officer 5. Extension worker 1. Your name is Saikham and you are village chief of Fangdeng village in Xiengkhouang province. You would like to establish a village SCU. Find other members of your village. 2. Farmer 3. LWU representative 4. Village accountant 5. Trader 1.Your name is Keasorn, you are the president of the Nadi Village Fund. Find the other members of your village fund. 2. 3. 4. 5. 4 sets of role play cards: (approx. 5 people per group) 1. Deposit-taking MFI

You are a group of local business people who have heard about the new BoL regulations and are interested in forming an MFI. Together a total of 12 investors has raised the minimum registed capital of $100,000, plus another $20,000 to cover the operational expenses for the first year. You plan to establish the MFI in the provincial town. As successful business people from your region, you would like to contribute to social and economic development in rural villages of your district. However, as business people, you also believe that it is possible to do good and make a profit at the same time. Therefore, you would like both a social return and a small financial return on your investment. BoL has asked you to prepare a business plan for your MFI. 2. Non Deposit-taking MFI

You are the project management team of a large rural development project that has received funding from an international organization. You have been given the responsibility of establishing the microfinance operations. Your plan is to register as a Non Deposit-taking MFI. You are thinking about creating an MFI association, comprising a range of villages across the district.

47

The international donor has provided you with a grant of $40,000 for microfinance activities, comprising $20,000 for loan capital and $20,000 to cover operational expenses for the first two years. After that, you are expected to earn enough income to cover all your expenses. You now have to prepare a business plan for your MFI. 3. Villagers

You are a group of villagers from Fangdeng village. You are concerned that young people leave the village in search of work, and you would like to promote the economic and social development of the village to help create a more vibrant community where young people choose to stay and raise families. There are 300 households in the village, with an average household size of 5 people. 70% are farmers, whose main income sources are rice cultivation, pig raising and cattle raising. Average annual income is 3,500,000 Kip. 10% of households have small businesses such as small shops, food stalls, sewing, beauty, motorbike repair, and traders. Their average monthly incomes range from 600,000 to 1,000,000 kip. 5% are government workers on a regular wage, earning an average of 500,000 per month. 10% of households receive remittances from family members working outside the village 5% of households have no income and receive government welfare. Your village is located about 1 hour from the district town, and is accessed via a bumpy road. There are no banks nearby. The only place you can borrow money is from the village moneylender, who charges 20% per month. You would like the whole village to have a safe place to save and borrow money, to help promote local development. You have heard about Savings and Credit Unions (SCU) and have decided to form one in your village. 4. Village Fund

You are the committee members of a large village fund in Nadi village. Your fund has been operating for 4 years and has 380 member households. Total savings is 48,000,000 Kip, and you have a seed fund of 15,000,000 Kip which were provided by a hydroelectric project. Almost all of the savings and seed fund is currently out in loans. There have been some problems with the management of your fund. The fund has grown so large that managing the loans has become complicated, and interest calculations are becoming difficult. At the beginning, you were happy to play the role of committee members, but now you are concerned about your ability to manage the funds properly. Some loans are very late or not being repaid at all, and villagers are starting to talk about withdrawing their money from the fund. You are aware of the benefits of savings and credit for the village, and so you would like to improve the management of the fund. You realize that in order to do this you will have to expand into nearby villages to increase your membership. You will also have to have 2 or 3 fulltime staff who are properly trained and able to manage the money well. You have heard about the new BoL regulations and have decided to register as a Non Deposit-Taking MFI. You would like to apply for some grant funding in order to train and equip your new MFI staff. In order to apply for the funding, you need to prepare a business plan.

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Handout 1.2 - Mission Statement

What issues is the institution trying to address?

____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ___________________________________________________________________________

How does the institution respond to these issues?

____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

Who is your organisation trying to serve?

____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

What are the institutions core values?

____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

Mission Statement Now try to summarise your responses to the above four questions into one short statement of a maximum of two sentences. ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

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Handout 1.3 - Organisational Goals / Objectives

What are the core activities?

What are the outreach goals / objectives?

What are the impact goals / objectives?

What are the institutional goals / objectives?

Now indicate which of the above are the main organisational goals / objectives, or re-write your organisational goals / objectives below.

50

Handout 2.1 - Economic Considerations

Describe the local economic environment (main income generating activities, existence of cash economy, inflation etc.)

____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

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Handout 2.2 - Competition and Partnerships

List and assess other organisations providing microfinance or related services in your planned areas of operation.
Competitors Strengthes (+) Weaknesses (-)

For your competitors, how will you compete with them? ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________
Partners How they can support me How I can support them

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Handout 2.3 - Risks and Assumptions

List your major risks and assumptions relating to each part of your business plan. Major Risks & Assumptions microfinance environment 1 2 3 4 5

Major Risks & Assumptions clients, markets & demand 1 2 3 4 5

Major Risks & Assumptions financial 1 2 3 4 5

Major Risks & Assumptions other 1 2 3 4 5

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Handout 3.1 - Types of markets / clients

Describe your target market including existing and new clients. Classify existing and potential customers by their geographic and economic activities.

A.

Main geographic areas

Location Brief description of the area Total # Existing households number of clients Potential number of clients

1 2 3 4 5

B. List the main economic activities in your target areas, and describe the features of each
Economic activity 1 2 3 4 5 Typical capital requirement Duration of business cycle Frequency of Income Season

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Handout 3.2 - Client Profile

Summarise client needs and preferences based on your research (such as a client survey). Consider the following: What are their savings needs? What are their credit needs? How do they save or borrow at present? What do they like or dislike about this? What suggestions or requests do they have? (e.g. products, delivery mechanism, meetings, support etc.)

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Handout 3.3 - Seasonality of demand

For each month of the year, indicate whether demand for savings, loans and other services (where applicable) is typically high, medium, low or non-existent. Place an X in the appropriate box for each month.

1. Demand for Savings MONTHS 6 7 8

DEMAND High Medium Low No demand

10

11

12

2. Demand for Loans MONTHS 6 7 8

DEMAND High Medium Low No demand

10

11

12

3. Demand for .................................................................................. (please specify) MONTHS 6 7 8

DEMAND High Medium Low No demand

10

11

12

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Handout 3.4 - Interview Techniques

Dos and Donts of Interview Techniques

Interviews are best done on a one-to-one basis Ask interviewees if he/she has time and is willing to answer some questions (find a time when they are not busy) Introduce yourself and briefly explain the reason for your interview Break the ice with some friendly conversation Ask open ended questions: What do you think about? Why do you buy this.? Avoid asking questions that have a Yes or No answer. Avoid suggestive questions that may influence the interviewees response. Be concise: Ask only a few questions that meet the objectives of the interview. Keep track of a logical sequence in your questioning. Thank the interviewee at the end of the meeting.

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Handout 4.1 - Products & Services

Provide a summary of the products/services that your organisation is currently providing or plans to provide (savings, loans, and other services).

Loan products 1

Size range

Term

Repayment frequency

Collateral/ guarantee

Interest rate

Current portfolio size

Savings products 1

Minimum deposit

Frequency of deposit

Withdrawal conditions

Interest rate

Current portfolio size

Describe any other services your organisation provides..

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Handout 4.2 - Product & Services Action plan

Describe the actions your organisation must take in order to achieve its product/ service objectives:

Product/Service Objective 1

Specific Activities

Person Responsible

Complete By (date)

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Handout 5.1 - Savings portfolio assumptions

Complete the following information relating to your savings products. This will help you to plan your future savings portfolio.

SAVINGS
Savings Type 1

Item
No. of accounts at beginning New accounts No. of accounts closed
Opening Balance % of clients saving each month

Description
Starting no. of accounts No. of new accounts each month % accounts closed each month
Starting balance of savings accounts

Value

Average monthly savings deposit Savings Deposits Savings Withdrawals Average monthly savings withdrawal

Savings Type 2 Starting no. of accounts No. of accounts at beginning New accounts No. of accounts closed
Opening Balance Savings Deposits Savings Withdrawals Average monthly savings withdrawal

No. of new accounts each month % accounts closed each month

Starting balance of savings accounts Average monthly savings deposit

Interest Payable on Savings

Savings Type 1 Savings Type 2 Annual % interest rate paid on Savings Type 1 Annual % interest rate paid on Savings Type 2

FEES

Item
New member fee Account closing fee

Description
Fee charged to new members / account Type 1 holders Fee charged when members leave / account Type 1 is closed

Value

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Handout 5.2 - Loan Portfolio assumptions

Complete the following information relating to your loan products. This will help you to plan your future loan portfolio.

LOANS
Loan Type 1

Item
Average loan term (3,6,12,18,24 months)
Opening no. of loans outstanding No. of New Loans Disbursed Installment Frequency Value of new loans disbursed Value of Repayments Not Received

Description
The average loan term
Starting no. of active loan accounts Expected no. of new loans disbursed each month Enter how many months between each installment Average loan size Expected % of loans not repaid

Value

Loan Type 2

Average loan term (3,6,12,18,24 months)

Opening no. of loans outstanding No. of New Loans Disbursed No. of Installments Received Value of new loans disbursed Value of Repayments Not Received

The average loan term

Starting no. of active loan accounts Expected no. of new loans disbursed each month Enter how many months between each installment Average loan size Expected % of loans not repaid

Interest Receivable on Loans

Loan Type 1 Monthly % interest charged on loan type 1 (declining balance) Monthly % interest charged on loan type 1 (declining balance) Fee charged for new loan applications % of loan amount charged as insurance fee

Loan Type 2

FEES
Loan Application Fee Insurance on loan

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Handout 5.3 - Sample Savings Portfolio Planning Format

Assumptions
YEAR 1
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Total

SAVINGS
Savings Type 1 No. accounts at beginning of mth New accounts No. of accounts closed No. of active accounts at mth end
Opening Balance Savings Deposits Savings Withdrawals Closing Balance

Savings Type 2
No. of accounts at beginning of month New accounts No. of accounts closed

No. of active accounts at mth end

Opening Balance Savings Deposits Savings Withdrawals Closing Balance

Savings Portfolio Summary

No. Active Accounts at Month End Savings Portfolio at Month End

Interest Payable on Savings

Savings Type 1 Savings Type 2 Total Interest Payable

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Handout 5.4 - Sample Loan Portfolio Planning Format

Assump.
YEAR 1
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Total

LOANS
Loan Type 1 Average loan term (3,6,12,18,24 mths) Opening no. loans outstanding No. of New Loans Disbursed No. of Installments Received No. of Loans Fully Paid Active loans at end Value of new loans disbursed Value of Repayments Expected Value of Repayments Not Received Value of Loans Written Off Outstanding balance Loan Type 2 Average loan term (3,6,12,18,24 mths) Opening no. loans outstanding No. of New Loans Disbursed No. of Installments Received No. of Loans Fully Paid Active loans at end Value of new loans disbursed Value of Repayments Expected Value of Repayments Not Received Value of Loans Written Off Outstanding balance Loans Portfolio Summary No. Active Accounts at End Outstanding Portfolio at End Interest Recievable on Loans Loan Type 1 Loan Type 2 Total Interest Receivable

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Handout 5.5 - Provisioning & delinquency management

Explain how you will manage delinquency, and how you will make provision for loan loss.

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Handout 6.1 - Organisational Chart

Complete an organisational chart for your organisation.

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Handout 6.2 - Roles and responsibilities

List the positions identified in your organisational chart with a short description of the roles and responsibilities of each.

Position 1

Main Roles & Responsibilities

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Handout 6.3 - Staff training & Development

Describe your staff training and development plans Training activity 1 Details (provider) Participants Timing

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Handout 6.4 - Human Resource Management Action plan

Describe the action your organisation plans to take regarding human resource management.

Staff training & development Objective 1

Specific Activities

Person Responsible

Complete By (date)

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Handout 7.1 - Marketing and Promotion

Describe your organisations plan for marketing and promotion

Who will you market your products to?

What message or product attributes will you feature in your promotional material?

How will you deliver the message? Advertising / logo / branding, community mechanisms

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Handout 7.2 - Marketing & Promotion Action plan

Describe the actions your organisation will undertake regarding its marketing and promotion plan Marketing & Promotion Objective 1 Specific Activities Person Responsible Complete By (date)

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Handout 8.1 - Social Performance Management

Describe how your organisation will manage its social performance

How will you assess the organisations performance?

How will you assess social & poverty impact?

How will you assess client satisfaction?

How do you plan to monitor/evaluate impacts with regard to gender?

How will you ensure that poverty and gender considerations are incorporated in to
your regular operations?

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Handout 8.2 - Pro-Poor Loans

List current and planned levels of pro-poor loans

Pro-poor loans Number of loans <= 3.2 mill Kip p.a. Number of loans <= 1.6 mill Kip p.a.

Current

End of Yr1

End of Yr2

Note: Pro-poor loans are defined here as falling into two categories: a) loans with an annualised loan size of 3.2 million Kip or less b) loans with an annualised loan size of 1.6 million Kip or less Note on annualised loan sizes: A 6 month loan of 500,000 kip = an annualised (1 year) loan of 1,000,000 kip; A 2 year loan of 3,000,000 kip = an annualised loan of 1,500,000 kip

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Handout 8.3 - Social Performance Management Action Plan

Describe the actions your organisation will implement in order to perform social performance management: Social Performance Management Objective 1 Specific Activities Person Responsible Complete By (date)

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Handout 9.1 - Income & Expenditure Projections

Enter your average monthly income and expenditure assumptions. You can then use this for your future projections.

INCOME AND EXPENDITURE

ITEM Interest income on loans Interest income from investments Other interest income Interest paid on borrowings Interest paid on customer deposits Commissions and fees Other non-interest income Gross Operating Income Salaries and wages Other personnel costs & benefits Rent Equipment expenses Stationery & supplies Travel Training and capacity building Communications Utilities Marketing Professional fees and services Other administrative expenses Depreciation Other operating expenses Net Operating Income Provision for loan losses Extraordinary and grant income Extraordinary expenses Profit before taxes Taxes Net profit for period Dividend payments Accumulated Profit (Loss) DESCRIPTION Annual % interest received on investments Annual % interest received on bank account Annual % interest paid on funds borrowed from other sources VALUE

Any other regular monthly income

Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Average monthly expenses Avg. annual % depreciation of assets Average monthly expenses

Average monthly expenses Average monthly payments

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Handout 9.2 - Balance Sheet Preparation

Enter the starting balance of each of your balance sheet accounts. You can use this as a basis for projecting what your future balance sheet will look like.
ITEM DESCRIPTION VALUE

ASSETS
Cash and Deposits Cash on Hand Deposits with BoL Deposits with other Financial Inst. Investments Loans Loans outstanding (Loan loss reserve) Fixed Assets Fixed Assets (Accumulated depreciation) Other Assets Other Assets Total Assets Starting balance Starting balance Starting balance Starting balance Starting balance Starting balance Starting balance Starting balance Starting balance

LIABILITIES AND EQUITY

Liabilities
Borrowed Funds Customers' Deposits Other Liabilities

Starting balance Starting balance Starting balance

Total Liabilities Shareholders' Equity

Ordinary shares Preference shares Funds, Reserves, Other Donations and grants

Retained Earnings Profit/Loss for current year Total Shareholders' Equity Total Liabilities and Equity

Starting balance Starting balance Starting balance Starting balance Starting balance

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Handout 9.3 - Sensitivity / scenario analysis

Describe how changes in key portfolio variables affect your financial viability (e.g. client numbers, loan sizes, interest rates)

Variable 1

Impact of changes in variable

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Handout 9.4 - MFI Business Plan Format

1. 1.1 Organisational Profile Background brief history of organisation

1.2

Mission

1.3

Goals / Organisational Objectives

1.4

Structure - governance and legal structure, management & staffing

1.5

Clients / beneficiaries

1.6

Main Activities & Services

2.

Microfinance environment analysis

2.1. Describe the local economic environment (main income generating activities, existence of cash economy, inflation etc.)

2.3.

Regulatory environment: Is the MFI registered or licensed?

2.4. Competition and partnerships: Describe any existing savings and credit services in your planned areas of operation? Who provides or supports these activities? How will you compete or interact with them?

2.5. Major risks and assumptions List the main environmental risks and assumptions that affect your organisation and which fall outside of your direct control. Major Risks & Assumptions microfinance environment 1 2 3 4 5

3.

Clients & Markets

3.1. Types of markets / clients Describe your target market including existing and new clients. Classify existing and potential customers by their geographic and economic activities.

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A.

Main geographic areas Location Brief description of the area Total number of households Existing number of clients Potential number of clients

1 2 3 4 5

B.

List the main economic activities in your target areas, and describe the features of each Economic activity Typical capital requirement of business Duration of business cycle Frequency of Income Season

1 2 3 4 5

3.2. Client Profile Summarise client needs and preferences based on your research (such as a client survey). Consider the following: What are their savings needs? What are their credit needs? How do they save or borrow at present? What do they like or dislike about this? What suggestions or requests do they have? (e.g. products, delivery mechanism, meetings, support etc.)

3.3. Seasonality of demand For each month of the year, indicate whether demand for savings, loans and other services (where applicable) is typically high, medium, low or non-existent. Place an X in the appropriate box for each month

78

to indicated high, medium or low demand. Then in the bottom two rows specify the estimated level of demand. A. Demand for Savings: DEMAND High Medium Low No demand Est. % of hholds saving Est. amount of savings / hhold Comments: 1 2 3 4 5 MONTHS 6 7 8 9 10 11 12

B.

Demand for Loan Type 1: (insert name) MONTHS 1 2 3 4 5 6 7 8 DEMAND High Medium Low No demand Est. no. new loans / month Est. loan size

10

11

12

Comments:

C.

Demand for Loan Type 2: (insert name) MONTHS 1 2 3 4 5 6 7 8 DEMAND High Medium Low No demand Est. no. new loans / month Est. loan size

10

11

12

Comments:

D.

Demand for: ....................... (please specify) MONTHS 1 2 3 4 5 6 7 8 DEMAND High Medium Low No demand Est. % hholds Est. level

10

11

12

Comments:

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3.4. Major risks and assumptions List the main risks and assumptions associated with working within these market segments/ client groups and any other assumptions that have been made regarding demand for your products and services. Major Risks & Assumptions clients, markets & demand 1 2 3 4 5 4. Products and Services

4.1. Provide a summary of the products/services that your organisation is currently providing or plans to provide (savings, loans, and other services) Loan product Size range Term Repayment frequency Collateral/ guarantee Interest rate (state period & flat or declining) Current portfolio size

1 2 3

Savings product 1 2 3

Minimum deposit

Frequency of deposit

Withdrawal conditions

Interest rate

Current portfolio size

Describe any other services your organisation provides

4.2. Action plan Describe the actions your organisation must take in order to achieve its product/ service objectives: Product/Service Objective Specific Activities Person Responsible Complete By (date)

1 2 3 4

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5.

Portfolio planning

Complete a portfolio planning spreadsheet with projections for the next 2 to 3 years. Provisioning & delinquency management:

Explain how you will manage delinquency, and how you will make provision for loan loss.

Sensitivity / scenario analysis: Describe how changes in key portfolio variables affect your financial viability (e.g. client numbers, loan sizes, interest rates) Variable 1 2 3 4 5 Impact of changes in variable

6.

Human Resource management

Complete an organisational chart for your organisation

81

6.2. Roles and responsibilities List the positions identified in the chart above with a short description of the roles and responsibilities of each. Position 1 2 3 4 5 Main Roles & Responsibilities

6.3 Staff training & Development Describe your staff training and development plans Training activity 1 2 3 Details Participants Timing

6.4. Action plan Describe the action your organisation plans to take regarding human resource management. Human Resource development Objective 1 2 3 4 5 Specific Activities Person Responsible Complete By (date)

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7.

Marketing and promotion

7.1. Describe your organizations plan for marketing and promotion

Who will you market your products to? Who is the main target market?

What message or product attributes will you feature in your promotional material?

How will you deliver the message? Advertising / logo / branding, community mechanisms

7.2. Action plan Describe the actions your organisation will undertake regarding its marketing and promotion plan Marketing & Promotion Objective 1 2 3 4 5 Specific Activities Person Responsible Complete By (date)

8.

Social Performance Management

8.1. Describe how your organisation will manage its social performance

How will you assess the organisations performance?

How will you assess social & poverty impact?

How will you assess client satisfaction?

How do you plan to monitor/evaluate impacts with regard to gender?

How will you ensure that poverty and gender considerations are incorporated in to your
regular operations?

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8.2. List current and planned levels of pro-poor loans Pro-poor loans are defined here as falling into two categories: a) loans with an annualised loan size of 3.2 million Kip or less (per client) b) loans with an annualised loan size of 1.6 million Kip or less (per client) Note on annualised loan sizes: A 6 month loan of 500,000 kip = an annualised (1 year) loan of 1,000,000 kip; A 2 year loan of 3,000,000 kip = an annualised loan of 1,500,000 kip Pro-poor loans Number of loans <= 3.2 mill Kip p.a. Number of loans <= 1.6 mill Kip p.a. Current End of Yr1 End of Yr2

8.3. Action plan Describe the courses of action that your organisation will implement in order to manage its social performance: Social Performance Objective 1 2 3 4 5 Specific Activities Person Responsible Complete By (date)

9. 9.1.

Portfolio & Financial Planning List your main funding sources Funding source Amount Use of funds

1 2 3 4 5

9.2.

Please attach the following documents Portfolio projections for min. 2 years Projected Income statement for min. 2 years Current balance sheet Projected cash flow statement for min.1 year

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 When do you expect to achieve 100% operational self sufficiency

i.e. (Total Income Grant Income) / Total Expenses >= 100%

9.3. Major risks and assumptions List the main financial risks and assumptions Major Risks & Assumptions financial 1 2 3 4 5

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