Welcome to the Nuts and Bolts of Microfinance

Objectives Course Objectives - Participant will be able to: Identify risks that senior and branch management face in the day to day operations of an MFI. Recognize planning needs and develop appropriate plans for a given technical area and/or risk

Objectives Course Objectives - Participant will be able to: Understand key decisions points for a given technical area and/or risk and use management tools to mitigate risk and/or increase efficiency/effectiveness of operations Implement monitoring activities / tools and identify key results, lessons learned or improvement areas

Overall Expectations It is impossible to teach you all agenda items in short course We will touch on areas for you to understand the area, know risks/ issues involved, ways to begin to manage/ monitor it and where to go for more information

Expectations Experience Sharing – everyone shares their thoughts Group work is the norm as it allows the best way for people to understand issues

Agenda Day One –Vision, Mission, Objectives and Culture (Strategic Planning) Day Two –Governance Day Three –Management

Agenda Day Four –Planning Day Five –Risk Management

Vision, Mission, Objectives and Culture (Strategic Planning)

What is Strategic Planning? Working through a process to choose what is most important to achieve organizational success

What is Strategic Planning? The determination of the most effective way by which an organization can achieve its ends given the resources it can muster and conditions it must operate in.

Key Elements of Strategic Planning Articulating the vision, mission and objectives Defining markets and clients Analyzing the environment Performing an institutional assessment Developing a strategy Stakeholder Assessment

Key Management Decision Points –Who are my strategic clients? –Where to serve my strategic clients? –What product to deliver to satisfy my strategic clients? –Who are my competitors?

Key Management Decision Points –How to respond to competition? –What are the strengths of my organization? –Which strengths are unique and hard to copy? –What are the growth targets? –Where does financing come from?

is a core statement that expresses what an organization sets out to do, for whom, and why” or “It is a long-term view or ideal that drives the organization” “Vision

Articulating the Mission Mission  Your mission establishes the organization’s guiding principles and overall direction.  Your mission statement is expression or a declaration of organizational purpose.

Generally, the statement of mission addresses the following:  What issues are you attempting to address (ex. The lack of access by the poor to financial services)?  How do you respond to these issues (by providing financial services to low-income entrepreneurs)?  Who are your intended clients (farmers, vendors)?  What are your institution’s core values (serving as an ongoing financial resource for members, or achieving significant outreach and financial self- sufficiency)?

Objectives Establish a measure for evaluating the success of the business Set priorities for its management and staff, who should be held accountable for the accomplishment of the objectives

Core Values Effective organizations identify and develop a clear, concise and shared meaning of values/beliefs, priorities, and direction so that everyone understands and can contribute.

Institutional Culture Every business has a distinct culture. It reflects the values of the firm and its attitude about change, technology and risk among other things. You can not see corporate culture, it is not in the budget, it does not have a monetary value but it is critical to growth of the organization.

Institutional Culture It is made of core values. Core values are essential and enduring beliefs that are not to be compromised for financial gain or short term expediency. They are the purpose of why the company is in existence The culture affects management attitudes toward customers, employees, shareholders, and competitors. It affects what decisions are made, how they are made and how well they are implemented.

Group Work Review articles about MFIs and MF Industry Discuss how this affects Strategic Planning – VMOC Develop recommendations

Review Assessments for Strategic Planning Process Discuss Handouts and assessment process Discuss who completes and how to analysis results Discuss how to incorporate in Strategic and Business Plans

Key Elements of Strategic Planning Articulating the vision, mission and objectives Defining markets and clients Analyzing the environment Performing an institutional assessment Developing a strategy Stakeholder Assessment

Strategy development for objectives Short Term – now to one year Mid Term – 2-3 years Long term – 4-5 years Idea is to get out big picture items that will need to be accomplished to ensure the objective is achieved

Choosing a Strategy The process of identifying a strategy has three parts:  choosing what products to offer in what markets;  deciding which areas of the institution need to be strengthened to ensure that it can provide the chosen products in the selected markets; and  determining clear objectives and activities for implementing the product, market and institutional development goals. BP1.2-OH2.24

Monitoring the Strategic Plan Ratings Social Performance Measurements External Audits Board of Director Reports

Review of VMOC Quality MFIs have strong strategic planning –Quality answers to key decisions points –Vision and Mission clear / staff know and implement –Objectives are detailed and used to measure success

Review of VMOC Quality MFIs have strong strategic planning –Core values identified, nurtured and led by example –Strong monitoring and evaluation – ratings, EA, SPM and Board Reports (on objectives) –Reviewing and Updating of Strategic Plan based on growth of MFI and/or industry evolution

Governance

What is Governance? Vision and Mission Protects assets and resources Sets directions Protects interest of stakeholders

Why is Governance Important? MFI Performance and quality Deposits Transparency Accountability

Board Size and Composition Why is size important? Who should be members? What type of key skills should BOD members have?

Selection and Orientation Recruitment – ongoing process Selection based on criteria Orientation important to success of member

Roles and Responsibilities of Board and Management The Board and management should have a relationship defined by partnership, particularly between Board Chair and the Chief Executive Officer (CEO).

Roles and Responsibilities of Board and Management Partnership refers to the mutual support, trust, and respect forged between two entities.

Real Risks & Case Studies Review distributed documents Determine issues Review questions and debate answers if any Make recommendations as if you were a BOD member

Area of Responsi bility Board of DirectorsMFI Management Preservati on of Mission Overall Responsibility to preserve mission of organization, or if absolutely necessary, to amend mission as circumstances change Responsible for preserving mission in all aspects of executing organizational responsibilities

Social Perform ance Responsible for establishing social objectives in strategic plan and for evaluating CEO according to those objectives. Responsible for MFI achieving social objectives agreed to in strategic plan. Responsible for preparing reports on progress to meet social objectives.

Group Work Divide into three groups Identify all roles and responsibilities of Board and Management List all the types on a piece of flipchart paper (in the example of table from previous slides) and notebook paper as you discuss Pick people to record the findings and make the presentation You have 30 minutes.

How does the BOD Manage the CEO? The Board as a whole manages the CEO. Letting your CEO know ahead of time exactly how the Board will evaluate him/her is good practice.

How does the BOD Manage the CEO? Consider evaluating the CEO based on achieving the results agreed to in the approved strategic plan and adherence to written restrictive policy. This makes the performance review simple and fair.

Area of CEO Limitation: Developing personnel policies The Board of MFI agrees that the CEO may set MFI’s personnel policies, except in the following situations: The CEO sets his/her own salary and benefits. (Salary and benefits will always be established and approved by the board).

Area of CEO Limitation:Financial management and oversight The Board of MFI agrees that the CEO may manage MFI’s financial decisions according to the approved strategic plan or the routine requirements of managing the MFI, except in the following situations: Investments in assets or general expenditures greater than $5,000

Area of CEO Limitation: Establishing rates of interest The Board of MFI agrees that the CEO may set interest rates on loans to customers of MFI, except in the following situations: If the interest rate at any time is to exceed 5% per month. A ceiling higher than 5% requires board approval.