1 Business Planning Training Guidelines & Handouts

7/28/2019 1 Business Planning Training Guidelines & Handouts

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Bank of Lao PDR Asian Development Bank

ADB Catalyzing Microfinance for

the Poor

Business Planning for MFIs

Training Guidelines


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Table of Contents

LIST OF ACRONYMS .................................................................................................... ............................................ IV

INTRODUCTION ......................................................................................................................................................... V

HOW TO USE THESE GUIDELINES................................................................................................................................... VTRAINING 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 .................................................................................. 36SESSION 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 Bank of Lao PDRCoA Chart of AccountsMFI Microfinance InstitutionMIS 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 trainingto MFI managers. They provide a suggested schedule for delivery of the training, and theintroduction 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 thetraining. Suggestions are provided for practical exercises, and some supplementary technicalinformation 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 fromthe 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 thecontents of the session. At the end of each session is a Review activity. This involves using achecklist and asking participants questions to make sure that each of the sessions objectiveshas 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 andunderstood by the participants at the beginning. These should be reiterated throughoutthe course. Do not create expectations that cannot be met.

2. Be Organised: Ensure that you are familiar with all of the training content, materials andhandouts, and that these are prepared in advance of the training. Be ready and ensurethat sessions start on time.

3. Make sessions relevant and interesting: The trainer will be required to explain variousconcepts 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 whatthey 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 eachsession will help participants to remember key points and important information.

Encourage questions, actively listen to the speaker and encourage participants torespond to points raised by other participants.

Be animated and move around while presenting information and monitoringactivities.

When using visual aids like flipcharts or projections, make sure they are visible to

everyone. If practical, display important information around the room to remindparticipants of key content.


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Course Objectives and Schedule for Implementation

Course Objectives

This course is designed for managers of microfinance institutions. The objectives of the courseare:

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 theseguidelines. Feel free to adjust this according to your own requirements.

Day Time No. Session Duration Facil itator1 0 Overview of course 100 mins1 1 Introduction to Business

Planning100 mins

2 2 Environmental Analysis 150 mins2 3 Clients & Markets 160 mins

2/3 4 Products & Services 115 mins3 5 Portfolio Planning 260 mins3 6 Human Resource

Management195 mins

4 7 Marketing & Promotion 120 mins4 8 Social Performance

Management100 mins

4/5 9 Financial Planning 240 mins5 9 Review and Present Biz

Plan120 mins


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Introduction: Overview of the course

Objectives:1. to match the expectations of participants with those of the trainer2. for participants to have a clear idea of what will be covered in the course and why3. for participants and the trainer to agree on how the training will be conducted

Time: 100 minutesMaterials: Blank poster paperPoster 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 tellparticipants 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 brieflysummarise these.

2.2. Alongside this poster, paste another poster containing the objectives and contents ofthe course. Provide a brief overview.

2.3. Compare the participants expectations with the training plan. Try to match as many ofthese as possible.

For participant expectations that are not listed in the training plan, explain why theseare not covered. (or, if it is possible to cover these during the training, explain whenyou will do this).

For items in the training plan that were not listed by participants, explain why theseare important

3. Setting ground rules (15 mins)

3.1. Present the training timetable. Explain that there is a lot of material to cover, and wecan only achieve this if we start sessions on time. Gain agreement on what time theparticipants 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 thetrainer!) breaks the ground rules.

3.4. Write the ground rules on a poster and display this on the wall for the duration of thetraining.


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Exercise (40 mins )

Role Play Scenarios

Explain that each of the participants is going to place themselves in the shoes ofanother person. They will receive a card that explains who they are and what theirsituation is. They should read this carefully and remember the details.

Distribute the role cards to each person. Ask participants to read their card and thenthey 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 seatingso that they can sit in their groups.

Ask each group to choose one spokesperson to stand up and explain thebackground of their group (they are not permitted to look at their card, but othergroup members can give them reminders)


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Session 1: Introduct ion to Business Planning

Objectives:1. to understand the various components of a business plan2. to be able to articulate an organisational mission and objectives

Time: 100 minutes

Materials: Blank poster paperPoster with course objectivities and contentsHandouts 1.1, 1.2 and 1.3


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 yourpurpose.Unfortunately, many people think of business plans only for starting a new business or applyingfor business loans. But they are also vital for running a business, whether or not the businessneeds new loans or new investments. Businesses need plans to optimize growth anddevelopment according to priorities.

Business Planning incorporates both strategic and operational planning for achievingoutreach and sustainability. Strategic Planning enables us to define broad institutional goals forthe future based on an assessment of the current situation. Operational planning allows us putthose 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 microfinanceinstitutions, including SCUs, Licensed MFIs and others.

1.2. Ask participants: Who has completed a business plan before? Why didyou prepare a business plan? Ask participants to give their ideas onwhat a business plan is and their experiences using or developing abusiness plan.

1.3. Discuss the business element of microfinance. Ask: Is microfinance abusiness? Why? / why not?

1.4. If necessary, review the sustainability imperative of microfinance.

In order to be sustainable, an MFI must be financially self sufficient . It therefore needs tooperate as a business. Sure it can have social objectives as well as financial ones, but thefinancial sustainability imperative makes it a business. And every business needs a plan.

1.5. Whole group to brainstorm: What are the main components of a business plan? Asparticipants call out their ideas, write these on the board / poster paper.

1.6. Then present Poster 1 listing the elements of a business plan. Compare this to theitems suggested by participants.


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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 theOrganisational Profile. This contains the following elements:

1. Background brief history of organisation2. Mission3. Goals / Objectives

4. Organisational Structure - governance and legal structure, management &staffing

5. Clients / beneficiaries6. Activities & Services

2.2. Explain that this session will focus on developing organisational mission andgoals/objectives. The other three components of the organisational profile, namelythe clients/beneficiaries, organisational structure and activities & services aresummaries of more detailed sections of the business plan that will follow.

3. Overview of the organisation (10 mins)

3.1. Explain that this first part of the organisational profile gives some background on theorganisation including how the MFI came into being, its founders, and a shortsummary of its history (including whether the institution has changed in legalstructure). Indicate the core strengths or uniqueness of the institution or its founders.

3.2. Present a completed example of the Organisational Profile for participants to review,and discuss the main features of the profile.

4. Defining your Mission & Objectives (20 mins)

4.1. Explain that a MissionStatement is a declaration of organisational purpose. A goodmission statement should state: What issues the institution is trying to address How the institution responds to these issues Who the intended clients are

4.2. Present the following two examples and ask which is a better mission statement andwhy.

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 thepoor to improve their businesses.

Which of these sounds like a mission statement and why?

4.3. Organisational goals specifyexactly what the MFI hopes to achieve.Typically, thegoals 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 bus iness plan is to help us in planning how we will achievethese goals.


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4.4. We should define our goals with specific statements about: The core activities The outreach goals The impact goals The institutional goals

4.5. Present some examples of organizational goals (see below). Ask participants whichones relate to outreach, impact, institutional goals?

4.6. Explain the difference between organization goals and operational objectives.

Here are some examples of organisational goals:

1. To deliver efficient and affordable savings and credit services to poor rural households2. To reach at least 10,000 households with savings services3. For 50% of member households to move out of poverty within 3 years of joining4. To maintain at least 70% of women clients and staff5. To be financially self-sufficient

Note that these are different to operational objectives, which are more specific andwill be developed later in the business p lan. Examples of operational objectives are:

1. To extend savings and credit services to five new villages by December 20082. To commence using a computerized MIS by J uly 20093. To complete client surveys with at least 200 clients by October 20084. To recruit and train two new field officers by December 20085. 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 theirorganization. They should start by thinking of a name for their MFI.

Working in their groups, participants should complete the Mission Worksheet fortheir 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 theobjectives that were set. Fold down the lower half of poster 1: Step 1 Objectives andChecklist to reveal the Step 1 review checklist. Ask one of the participants to readout each of the questions. Ensure that everyone understands the questions.


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5.2. Select a few participants and ask them the questions in the checklist. If there is anymisunderstanding then clarify the concepts. Ask the group if there are any furtherquestions.

5.3. Congratulate participants on having completed Step 1. Explain that they now havecompleted the first few components of a strategic plan for their organisations. Theseinclude the Mission and Goals / Objectives of their organisation. Explain that the nextsession will look at environmental aspects that influence their MFIs operations,which is an important part of business planning.


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Session 2: Environmental analysis

Objectives:1. to understand and define the main environmental factors that affect the operations of

your microfinance business2. identify your competitors and partners and how you will respond to these3. Identify risks to the business and articulate main assumptions that underlie your

business plan

Time: 150 minutesMaterials: Blank poster paper

Poster with course objectivities and contentsHandouts 2.1, 2.2 and 2.3


Process

1. Present the session objectives (5 mins)

1.1. Show participants poster 2: Session 2 Objectives and Checklist with the sessionobjectives written on. Ask a participant to read out the session objectives and clarifywhat they mean. Explain that at the end of the step we will check to see if theobjectives have been met.

1.2. Ask if participants have any questions.

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 toconsider in order to achieve its goals in the face of external factors.

2.2. If most of the answers relate to the physical or natural environment, ask them aboutthe environment that an MFI works in. Elicit more responses.

2.3. Explain that the microfinance environment includes a range of factors such as:economic, business / competition, social / cultural, legal and regulatory, and politicalenvironment.

2.4. Explain that for the purpose of the business plan we are going to focus on just a fewof these: economic; regulatory; and other service providers.

2.5. 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.

3. Economic considerations (15 mins)

3.1. In this section we consider the local economic environment. Ask participants howeconomic factors may affect their business as an MFI. Brainstorm importanteconomic factors both national level and local level.

3.2. Some examples of important economic factors are: Inflation


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

3.3. Discuss how each of these factors may influence decisions you make about the wayyou 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. Now discuss the regulatory framework that an MFI operates within. Ask participants

to brainstorm the various regulatory factors that they need to consider.4.2. Some examples of regulatory factors are:

business registration legal system (e.g. for loan collection) financial accounting requirements

standards for reporting capital requirements

4.3. Distribute the relevant BoL regulation to each of the groups and ask them to read it.4.4. 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 nondeposit-taking MFIs.

5. Competition & Partnerships (30 mins)

5.1. Explain that competition occurs when more than one MFI offers its services to thesame group of potential clients. Ask participants if they think competition is a goodthing or a bad thing. What happens when there is competition?

5.2. Elicit or explain the following results of competition:

MFIs need to be more efficient. This forces them to find better ways of deliveringtheir services, and promotes innovation

Greater efficiency can lead to lower interest rates for clients


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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. Write the word COMPETITORS on a poster. Ask participants: Who are your maincompetitors? Write these down on the poster.

5.4. Ask: Why is it important to know who you competitors are? Participants shouldrespond that you need to offer competitive products and services, as well as

marketing strategies. For example, if the competition is too strong you may choosenot to enter certain markets / areas.

5.5. For each of the competitors listed on the poster, ask participants to list their strongpoints and weak points. At the end, you may have a poster that looks something likethis:

Competitors Strengthes (+) Weaknesses (-)

1. Village fund Low interest rates, fastapproval, familiarity,convenient

Small loan sizes, limitedcapital, weak management,no savings services

2. Money lender Fast approval, no paperwork,familiarity, convenient

Small loan sizes, notalways available, no

savings service, highinterest rate charges3. APB Branch infrastructure, plenty

of capital, low interest loansDifficult to access loans,paperwork, too far away,inconvenient

5.6. Now add another heading, titled PARTNERS. Explain that partnering with otherorganisations can help your MFI to achieve its goals, improve your performance,increase outreach. These partners could be any company, organization, communitygroup or government agency that can assist you in your work. Ask participants to listsome of their potential partners.

5.7. For each partner, identify how they will support you, and how you will support them.

Here is an example:

Partners How they can support me How I can support them

Village committee Mobilise villagers, arrangemeetings, promotion, loancollection

Provide useful services,help reduce poverty, paysmall dividend to village

Agricultural extension service Provide ag training to clients,more successful businesses

Pay travel and per diemsfor staff; take photos andreport on benefits tocommunity

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

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


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5.9. Explain that for any competitors that do not become partners, you need to considerhow you will compete. What will you do to ensure that your products / services aremore 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 thesame areas and then consider whether they are likely to be competitors or partners.

Participants sit in their groups and complete Handout 2.2: Competition andpartnerships for their planned MFI. They should use imaginary information based ontheir 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 theassumptions we are making, and the risks we are facing. We will begin by looking atthe risks and assumptions regarding the economic environment.

6.2. Refer back to the list of economic considerations. Ask participants to list examples ofrisks or assumptions relating to these items. For example:

i. Market for silk continues to growii. Inflation does not increase above 15% p.a.

6.3. Now add more risks and assumptions relating to competition and partnership. Forexample:

iii. APB is willing to open group savings accountiv. Competitor MFI does not start offering savings services

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 thingsthat 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


7.1. Explain that we will now check to make sure that we have achieved theobjectives that were set. Fold down the lower half of poster 1: Step 1 Objectives andChecklist to reveal the Step 1 review checklist. Ask one of the participants to readout each of the questions. Ensure that everyone understands the questions.


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7.2. Select a few participants and ask them the questions in the checklist. If there is anymisunderstanding then clarify the concepts. Ask the group if there are any furtherquestions.

7.3. Congratulate participants on having completed Session 2. Explain that they nowhave completed the first few components of a strategic plan for their ownorganisations. These include the Mission and Goals / Objectives of theirorganisation. Explain that the next session will look at environmental aspects thatinfluence 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 clients2. to be aware of techniques for determining client needs

Time: 160 minutes

Materials: Blank poster paperPoster with course objectivities and contentsHandouts 3.1, 3.2, 3.3 and 3.4


Process

1. Present Session Object ives (5 mins)

1.1. Briefly summarise the progress we have made so far in the business plan.1.2. 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.1.3. Ask if participants have any questions

2. Understanding markets and clients (30 mins)

2.1. Ask participants: When we talk about markets in microfinance, what are we talkingabout? Are we talking about the local market where people sell fruit and vegetables?

2.2. Present the following scenario:

There are two MFIs operating in a district. Each one starts out in different locations, butgradually both of them grow until they start to overlap and offer services in the samevillages.

MFI 1 has a standard product. It offers 3-month loans, with repayment of principal at theend. It charges interest of 2% per month (flat).

MFI 2 offers 3, 6 or 12 month loans. Principal is repaid in quarterly instalments. It chargesinterest 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 aredivided then take a vote. Ask: What will determine whether MFI 1 or MFI 2 isultimately successful?

2.4. Participants should identify that ultimately it will be the clients that decide. Whichever

MFI meets the clients better is more likely to be successful.2.5. Now ask: So, how can we know what clients want? Elicit from participants that thebest way to find out what clients want is to ask them.

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


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2.6. 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 newproducts and delivery channels, or refine existing ones.

2.7. Ask participants for their ideas about ways that an MFI can find out what its clientswant. Elicit their ideas and write these on the board.

2.8. Explain that MFI staff will often get informal feedback from clients, but it is alsoimportant to use more structured means of gaining client feedback. Some commonmethods 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 intomarket segments. A market segment is a group of clients with similar needs thatare different from those of other groups. Often we choose to disaggregate marketsegments 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 similarproduct 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 thespecified market is likely to be cost efficient for the MFI: this is critical to the future viability ofthe organisation.

3.2. Before entering a new market, it is important to consider key features of eachsegment:

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?

3.3. 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 governmentstatistical data, industry reports, and donor studies may be a cost effective way ofgathering such information. In your analysis of the market you should identify thesources of data and any assumptions made to arrive at your conclusions.


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Exercise (20 mins)

Complete Handout 3.1 & Handout 2.3Working 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 andpotential customers by their geographic and economic activities.

Once participants have completed handout 3.1 provide them a copy ofHandout 2.3.They should list the main risks and assumptions that have been made in their analysis ofmarkets.

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 tounderstand more fully the clients we serve. We should now analyse the keycharacteristics of current and/ or potential clients. Consider both their economic andpersonal traits. This information will come from data collected through client surveys.

4.2. Present a poster with the following information, and explain each item.

5. Assessing cl ient needs and preferences (15 mins)

5.1. Surveys or focus group discussions may be used to determine client needs andpreferences. 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

Economic characteristics Personal characteristics

Business type GenderDemand for financial services and purpose ofloan

Age

Income and assets Language and LiteracyDiversity of income sources Education levelWork / business experience Community cohesionOther financial services that are available andused

Wealth level

Perceptions of credit and savings Financial literacySeasonality Location


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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 ofproducts and services wanted/needed and how specific attributes of a product or servicemay be improved.

6. Seasonali ty of demand (10 mins )

6.1. Ask participants if demand for loans is the same all year round. If not why? Whatabout savings?

6.2. 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) istypically high, medium, low or non-existent. Place an X in the appropriate box foreach month.

Demand for Loan Type 1: (insert name)

MONTHS

DEMAND 1 2 3 4 5 6 7 8 9 10 11 12High X XMedium X XLow XNo demandAvg. no. loans /month

90 70 70 85 40

Demand for Savings Type 1: (insert name)

MONTHS

DEMAND 1 2 3 4 5 6 7 8 9 10 11 12High X XMedium X X XLow X XNo demandAvg. membersavings / month

5 4 4 3 3 4 5

Exercise (60 mins)

Conduct a mini cl ient 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 theirreal clients, and answer as if they were that person.

A pair of interviewers should interview a pair of clients. One interviewer asks questionsand the other records responses.

Ask participants for their comments on the client survey. How might such a survey beuseful?

Complete Handouts 3.2, 3.3 and 2.3

Participants should complete Handout 3.2 and summarise client needs and preferencesbased 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 thosewho 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 toreplace the ones who are leaving. In order to improve client retention, you have to knowwhy they are leaving and what you can do to avoid this.

Step 3 Review


7.1 Explain that we will now check to make sure that we have achieved the objectives thatwere set. Point to poster 3: Step 3 Objectives & Checklist with the objectives writtenon 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 anymisunderstanding then clarify the concepts. Ask the group if there are any furtherquestions.

7.3 Congratulate participants on having completed Step 3. Remind the group that havingexplored the needs and preferences of their existing and potential clients they are ableto develop demand driven services/products that will ultimately lead to improving theirbusiness. Explain that in the next session we will focus on describing the types ofproducts 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 customers2. 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: 115 minutesMaterials: Blank poster paperPoster with course objectivities and contentsHandouts 4.1 and 4.2


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 4: Step 4 Objectives & Checklist with todays session

objectives. Read out each of the session objectives and clarify what each onemeans.


2. What do we mean by Products and Services in Microfinance? (20 mins)

2.1. Explain to the group the difference between a product and a service and giveexamples to illustrate your explanation.

2.2. Remind group that people often use the terms products and services almostinterchangeably. For example, we may talk about savings services, or insuranceservices. One service offered by an MFI may be to provide a savings product. Itreally doesnt matter which terms you use, as long as you provide what your clientsneed!

MFIs typically offer their clients a range ofproducts. A product is a specific itemthat you may choose to use. Here are some examples of typical microfinanceproducts: Savings products

Savings Product 1: Transaction account;Savings Product 2: 6-month term deposit account

Loan productsLoan Product 1: Agriculture loanLoan Product 2: Regular loan

Insurance productsInsurance Product 1: Death insuranceInsurance Product 2: Crop insurance

In addition to these products, an MFI may also provide a range ofservices.Services involve the MFI performing work. For example: Remittance services

e.g. client deposits money in one village and sends to a relative inanother village

Skills traininge.g. coffee growing, IPM, sewing


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Business traininge.g. doing market assessments, financial planning

Financial literacy traininge.g. how to calculate interest rates

2.3. Explain that the products and services section of the business plan gives adescription of the products and services that will be provided and that any new orplanned 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 practiceMFIs. Explain it is important that MFIs undertake a systematic process in developingor refining their loan or savings products. Products and services should be designedand delivered in such a way that they meet the current and evolving needs andpreferences of the clients.

Note: this section provides trainees with background information on how todevelop 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 inthe business plan.

There are 4 main steps to developing a product, which can be understood as acycle:

1. Market Research: In the last session we talked about the importance ofunderstanding markets and clients through market research activities like

client surveys so that the products and services are designed to be popularand successful.

2. Design: We use the information gained from market research to designthe product. Design will take into consideration the various product attributesdescribed below. Costing and pricing of products is an important factor inproduct design; Effective interest rates have to be high enough for the MFIto become financially self sufficient once scale is reached.

2. Design

3. Testing

1. MarketResearch

4. Evaluatingnew product

ref ine des i n


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3. Testing: Ideally you should test the new product with a sample group ofclients before launching into on a large scale. Make sure you specify howyou will evaluate this trial, so that later you will be able to determine whetheror not the trial was successful.

4. Evaluating new product: Collect information and analyse the results tosee how successful the product was with the sample group. Did the productsatisfy 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 youcan 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 fromother products. Also, loan products will have different types of attributes to savingsproducts.

4.2. Using the board, brainstorm the main attributes of savings and loanproducts, obtaining suggestions ideas from the group.

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. $100-2002. 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 ofdebt 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 applicablei.e. 24% interest over 12 months term is the same as saying 2% interest rateper month.Which method of interest rate calculation do you use? Flat or declining interestrate method? (see box over page)

6. Current portfo lio 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 outstandingloan 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, wi th quarterlyinstalments of principal:

1. Using the Flat Rate method, total interest payable =12% * 600,000 =72,000kip.

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 isno difference in interest payable between the Flat and Declining Balance methods.

Where instalments of principal are made, the declining balance method results inaround 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 customeraccessing 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 doesit get paid on the balance?

5. Current portfo lio 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 waythat 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 tobecome financially self sufficient once scale is reached.

5.2. Remind trainees that if there are any significant changes in your product portfolio,this should be specified in the business plan.

5.3. Explain that trainees should emphasize any unique features of the proposedproducts/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 theproduct(s) over competitors.5.4. Finally, ask trainees to describe any barriers or risks to entry, if any.

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. Act ion Plan (15 mins)

6.1. Explain to the group that an action plan is a good way of ensuring that theirorganisations achieve their stated plans for product development (new products ofproduct refinement) or changes to service delivery.

6.2. Explain that the action plan should define the specific activities the organisation mustundertake to achieve its objectives, the person responsible for taking those actionsand a timeframe within which the action will be completed.

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


7.1. Explain that we will now check to make sure that we have achieved theobjectives that were set. Point to poster 4: Step 4 Objectives & Checklist with theobjectives written on and ask participants to consider if they have met theseobjectives.

7.2. Select a few participants and ask them the questions in the checklist. Ask the groupif there are any further questions.

7.3. Congratulate participants on having completed Step 4. Explain that the group havebeen able to identify and detail the products and services they are planning to deliverover the coming period. Explain that during the next session participants will learnhow to plan their portfolio in more detail.


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Session 5: Portfolio Planning

Objectives:1. to identify assumptions about the savings and loan products2. to produce a detailed plan of the organisations operations for the next 2-3 years3. to understand the importance of and to be able to carry out loan loss provisioning4. to be aware of how delinquency affects portfolio and to appreciate the importance of

delinquency management


Poster with course objectivities and contentsHandouts 5.1, 5.2, 5.3, 5.4 and 5.5


Process


1.1Briefly summarise the progress they made against the objectives.1.2Show participants poster 5: Step 5 Objectives & Review Checklist with the session

objectives written on. Ask a participant to read out the session objectives and clarifywhat they mean. Explain that at the end of the step we will check to see if the objectiveshave 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 anygaps in their understanding and ensure that they fully understand theterm.

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 p lan 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 onloans, 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 portfolioand our operational expenses

MFIs usually like to plan their portfolio for 2-3 years into the future, so that they canplan 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 portfol io


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Provide participants with a copy and Handout 5.1 and explain each item. As you presenteach 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 presenteach 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 financialsection for now).

Explain its use and then ask participants to enter their portfolio projections into thespreadsheet.

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 ofdelinquency 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 andrestructured loans, but not loans that have been written off). It does not include interestreceivable.

Current Portfolio: theoutstanding value of all loans that do not have any instalment of principalpast due. It does not include accrued interest.

Delinquent Loan: a loanthat has repayments due but not yet paid.

Arrears: Value of late payments

Portfolio at Risk (%): Unpaid principal balance of all delinquent loans / Total outstandingportfolio

Loan default: refers to when a borrower cannot or will not repay his/her loan and when the MFIno 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 potentialfuture losses. It is better to set aside some money so that we are prepared for when thishappens. 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 ofprovisioning 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 Loan Loss Reserve (Percent)

Regular Portfolio Rescheduled Portfolio

Current loans 1% 25%Loans past due 31-90 days 25% 25%Loans past due 91-180 days 50% 50%Loans past due >180 days 100% 100%Loans in legal recovery 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. Itincreases the Loan Loss Reserve

Loan Loss Reserve: a balance sheet account that represents the amount of outstandingprincipal that is not expected to be recovered by an MFI. It is a credit balance on the asset sideof the balance sheet (a negative asset), and reduces the outstanding portfolio. Microfinanceorganizations typically establish a loan loss reserve equal to 2-5% of the value of their activeportfolios.

Loan write-off: when an MFI decides that it is unlikely to receive a repayment, it removes theoutstanding value of the loan from its overall loan portfolio. It uses the loan loss reserve to payfor this. Loan write-offs occur only as an accounting entry. They do not mean that recoveryshould 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 treatdelinquency within their own institutions.

5.2 Explain that MFIs need to instigate an institutional culture of zero tolerance fordelinquency. This can be achieved by ensuring that portfolio quality is constantlymonitored.

5.3 Discuss the main causes of delinquency with the group gage their thoughts beforecovering the following:

Zero delinquency i s:

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 beplanned)

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; personalcrises.

It is important for the management of an MFI to consider the internal factors of delinquencyand to put in place measures that respond to any issues that may arise. All staff should beconscious of delinquency and its causes and the MFI should manage its delinquency in astructured manner with loan officers reporting delinquency and management reviewing itscauses 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 thisshould 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 theobjectives that were set. Fold down the lower half ofposter 5: Step 5 Objectives& Checklis t 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 businessplan. In the next session we will start looking at how the organisation can prepare itself for theimplementation 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 planning2. 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


Poster with course objectivities and contentsHandouts 6.1, 6.2, 6.3, 6.4


Process


1.1 Briefly summarise the progress they made against the objectives.1.2Show 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 importantpart of the business plan: mention that in addition to having a supportive externalenvironment the institutional capacity is central to the ability of the microfinanceinstitution to achieve its goals.

Remember: An MFIs most important asset is its staff. So it is important to consider staffingand management when we are preparing a business plan. In order to be effective, staff must becompetent, trained, and motivated. It is also important to make sure you have the rightnumber and type of staff. Too many staff leads to inefficiencies while too few staff leads toinadequate attention to procedures and detail. All of this must be planned to ensure that you aremanaging 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 achart (organigram) is a fast, simple way of assessing the human resources available toyour business. The organigram allows you to assess the following considerations:

When considering human resources, the first place to start is with anorganisational chart. This enables you to see at a glance your overall staffingsituation, including:o The major groupings such as branches and sectionso The total number of staff, as well as the numbers in each section / brancho The number of managers compared to the number of other staffo The relationships between personnel (lines of authority and communication), and

whether you have a very hierarchical or flat organisational structure.


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o Gaps in staffing that need to be filled

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

3.2 The business plan should show how the MFI is structured or may be structured in thefuture. Explain that participants should include details on the existing and plannednumber of branches, their location , and their size.

3.3 Remind trainees that they should relate this back to the market analysis, which will helpthem 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 variousways of drawing the organigram and no hard and fast rules. Most importantly, drawyour 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: OrganisationalChart.

4. Staffing (45 mins)

4.1Job Descriptions: Explain that in this section of the business plan, they will describe theexisting and planned staff positions, which may be broken down by branch and headoffice (if there is more than one office). Explain that job descriptions, clearly definingroles and responsibilities, can be used to summarise the main roles and responsibilitiesof 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 performo Who they report too How they will be assessedo Incentives for good performance

4.3 Ask trainees how many of them have job descriptions? And if everyone they work withhas a job description?

If they do not have written job descriptions for all of their staff then start now!

4.4Productivity: Explain to the group that when planning staffing it is important theproductivity of staff. This can be measured in a variety of ways. Some simple measuresof staff productivity are:

o Field officer caseload =no. of clients per field officero Field officer portfolio =loan (or savings) portfolio per field officero 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 isan appropriate target?

4.6Performance reviews. Ask the group if their organisations conduct these.

Performance Reviews should take place at least once per year (or more often). It provides anopportunity for staff to hear from what their manager thinks of their performance what they aredoing well and what they need to improve. It also provides an opportunity for the manager tohear 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 theyare not aware of. The performance review is a good time to review job descriptions, as well aswage levels and training needs.

4.7 Incentive Schemes: ask participants whether they implement staff incentive schemes intheir own organisations and whether they view these as a useful strategy.

Remind trainees that incentives are not an entitlement they should only rewardgood performance.

4.8 Explain why incentive schemes can be a useful strategy for ensuring high productivityand efficiency of MFI operations.

4.9 Discuss the different types and the advantages and disadvantages of staff incentiveschemes

Types of Incentive SchemesStaff incentive schemes take different forms and each has its own advantages anddisadvantages:

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 IndicatorsRemember that your incentive scheme should match your organizational goals. Forexample, 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 periodo The value of new loans disbursed this periodo Portfolio quality (PAR or other measure)o MFI or branch-level profit this period

ConsiderationsThe following are some considerations you should keep in mind when designing aperformance based Staff Incentive Scheme:

Timing: typically staff should become eligible for participation in bonus schemesapproximately six months after joining the organization

Frequency of Incentive Payout: ideally these incentive payouts should be monthly orfrequently enough to relate the reward to particular efforts.

Weight of Bonus in Total Remuneration: In practice, for effective incentive schemesthe weight of the bonuses for credit officers typically ranges from 20% up to 50% oftotal 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 theyneed? You will also need to consider the costs involved when you are preparing yourfinancial 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 stafftraining and development and that an outline of these plans should be provided in thebusiness plan.

5.2Training Plan: Ask group if their organisations plan for staff training and development.

Discuss how in practice their organisations conduct their staff training and consider theirstaffs 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 theorganisation.

in service training which aims to upgrade the skills and knowledge of employees inspecific areas such as products and services; internal controls; systems andprocedures; reporting; savings and loan account administration; branch accountingand Management Information System; Delinquency management etc.

5.4 Explain that it is important that the MFI can identify who is responsible for managingtraining activities and who the training activiti es 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. Act ion Plan (10 mins)

6.1 Tell the group that in this section of the business plan they will be expected to completean action plan that clearly defines the specific activities that their organisation mustundertake to achieve its human resource management plans.

Indicate that the action plan may cover such activities as:o Plans for recruitment of new staffo Changes to organisational structure


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o Employee performance review / job description reviewo Reviews of incentive schemeso A staff retreat or other activity

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

Exercise (15 mins)

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

Plan.

Step 6 Review


7.1 Explain that we will now check to make sure that we have achieved theobjectives that were set. Point to poster 6: Step 6 Objectives & Checklist with theobjectives 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 anymisunderstanding then clarify the concepts. Ask the group if there are any furtherquestions.

7.3 Congratulate participants on having completed Step 6. Explain that we have nowconsidered the main aspects of human resource management and that in the nextsession 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 activities2. to outline the main course of action that will allow you to achieve your marketing and

promotion objectives

Time: 120 minutesMaterials: Blank poster paperPoster with course objectivities and session contentsHandouts 7.1 and 7.2


Process


1.1. Show participants poster 7: Step 7 Objectives & Checklist with this sessionobjectives. Briefly summarise the progress they made against the objectives


2. What is marketing? (10 mins)

2.1. Discuss with group what they understand by the term marketing andwhat their experience of marketing is within their organisations.

A broad definition: Marketing is the way an institution engages with the variousmarkets it serves or would like to serve.

Marketing focuses on what the market values, rather than what the institution wants toprovide:

Theproduction concept: Make it and it will sellTheproduct concept: Make it well and it will sell.Theselling concept: Promote it well and it will sell.Themarketing concept: Make something the market values and it will sell.

Marketing brings together information from internal and external sources to determine thebest answers to the following questions:

Which produc ts and services are needed and will be bought? What price is acceptable to clients? How can products and services be sold in the most effic ient 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 inSession 4, so this session will focus on how an MFI effectively reaches clients withinformation about its products and services.

Remember that marketing is more than selling and promotion of products. It is the customerfocus of the whole organization.


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2.2. Explain to the group that marketing includes all aspects of the institution and itsapproach to offering products to its current and potential clientele. Remind group thatmarketing should not be seen only a means of selling more products more effectively or ofdeveloping new and more customer-oriented financial products, rather it should involve theentire institution, from the accounting department to the training department, fromheadquarters 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 beenconsidered a niche market. It remains niche in some countries, but as an increasing numberof microfinance institutions are coming on the market it will be necessary for each to seekways 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 refinementof 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 theirmarketing to be effective? What improvements can be made?

4.2 Briefly explain that marketing comprises a mix of 8 different features. Read about eachof these below. For each product or service you offer, you should specify each of thefollowing, and compare this with your competitors.

Feature Details

Product(design)

Includes specific product features, opening/minimum savings balances,withdrawal terms, loan terms, loan disbursement times, collateral orguarantees, repayment structures

Price Includes the interest rate, withdrawal costs, loan fees, pre-paymentpenalties, prompt payment incentives, transaction costs and other fees and

discounts.Promotion Includes advertising, public relations, direct marketing, publicity, and all

aspects of sales communication.Place 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 oragents, branches, working with informal sector financial service providers,etc.

Positioning Is the effort by the MFI to occupy a distinct competitive position in the mind


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Feature Details

of the target customer. This could be in terms of low price, security ofsavings, quick turnaround time, professional service, etc. It is a perception.

PhysicalEvidence

This is what makes the MFI and its invisible, intangible services visible. Itincludes the presentation of the product, how the branch physically looks,whether it is tidy or dirty, newly painted or decaying, the appearance of thebrochures, postersand passbooks, etc.

People Includes how the clients are treated by the people involved with deliveringthe product in other words the staff of the MFI.

Process Includes the way or system through which products and services aredelivered: 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 evaluatingperformance. MFI marketing involves studying clients and developing products to meet theirneeds. It takes into consideration the competitive market, determines the position of theinstitution in that market, and promotes products to potential clients. Carrying out these activitieseffectively often requires a specific marketing plan.

Market & Client AnalysisMarketing begins with the clients, by identifying potential markets and then surveying clients todetermine their specific needs and desires. These steps were covered in Session 3.

Competitive AnalysisBy studying the competition, an MFI can beinformed about the types of financial servicesthat are offered by its competitors.The leveland type of competition will affect how theMFI decides to position itself strategically inthe market.

Strategic Planning and PositioningAssemble all of the market information you haveand determine how best to place to yourorganization within that market. i.e. what imagewould you like to convey?

Promotion and Outreach CommunicationsFinancial services are intangible: you cant smell them, touch them or taste them. You areselling based on perception and trust, so you must build the right perception and deliver on theclients 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 focuson the benefits that a product can provide.

ACLEDA in Cambodia conducts regularquestionnaires with 100 micro and small

enterprises and 100 small and medium sizedenterprise clients at each of its

branches every year.

SEWA Bank in India and FundacinMario Santo Domingo in Colombia offercorresponding social services along with

their credit product to create acompetitive edge.

Karibu Bank Savings Account benefit statementThe Accumulator Savings Account is easy to open, carries no hidden costs and pays highinterest to accelerate your progress towards the lump sum of money you need to realise yourdreamsWith the Accumulator Savings Account your dreams can come true!


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Once you have the core message, develop abranding strategy to support it. This may be a logo,a colour scheme, a tag line or something else thatwill help to carry the message.

When your message and branding is in place, you needeffective promotional tools to reach the potential clients.

Many MFIs use traditional media such as brochures,leaflets, posters, radio/TV advertising, as well as non-traditional media such as songs, theater, and film.

Marketing PlanTo make your marketing effective you must have clear objectives for how the marketingfunction 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 considerthe 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 marketingactivities that your imaginary MFI will conduct.

Complete Handout 7.2 Marketing and Promotion Action Plan

FINCA Uganda and K-REP havepositioned themselves as being the

oldest and largest MFI in the countrythat is the market leader.

Mibanco MFI has a home loanwith the following brand and

logo (casa means house):


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

Step 7 Review


6.1 Explain that we will now check to make sure that we have achieved theobjectives that were set. Point to the poster with the objectives written on and askparticipants 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 furtherquestions.

6.4 Congratulate participants on having completed Step 7. Explain that participants shouldbe able to develop a basic marketing plan for their organisation. Explain that in the nextsession 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 management2. t

1 Business Planning Training Guidelines & Handouts

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Transcript of 1 Business Planning Training Guidelines & Handouts