GROUP LENDING ENHANCEMENT WORKSHOP Developing your transition/enhanced product

What to consider? Signs of product decay- rising PAR and massive drop outs. Listening to your staff and clients ( Market Research, FGDs) Readiness both of the clients and the bank - are your clients ready for enhancement/transitioning - is your banks ready to address the change. Is it in conform with the best practices

Some noted Best Practices of Group Lending done by the Banks Account officers performing their jobs well because they are motivated. Sources of motivation: - higher salary package than their peers - incentive schemes - fair imposition of discipline - management’s full support to the microfinance unit.

Some noted Best Practices of Group Lending done by Banks Adoption of CIBI to determine credit worthiness; Use of Cash Flow analysis to determine debt capacity and loan amount; Multi-level approval: members, officers, AO and the bank; and, Rewarding a kind of behavior the bank wants to set for its clients through awards, prizes, tokens.

Some noted Best Practices of Group Lending done by the Banks Continuous intervention that cultivates the interest of clients: session topics, games, trainings, assemblies and field trips subsidized by the bank; Implementation of the “Tapal” System not equally but equitably among members; and, Introduction of flexibility in the product to respond to clients’ demands.

Enhancement 1: options to Improve Product Features of Group Loan Products Offer additional loan products as incentive for good performance to qualified group loan clients (example: micro agri, housing microfinance, providential loans). Increase maximum loan amount. Reduce interest and service charges to loyal groups that have good performance record. Shorten meetings with well thought out substantive inputs to members. Improve management of group activities.

Enhancement 2: Designing a New Loan (or Transition) Product Retaining the group loan scheme but with variations from the original product design:  from group liability to individual liability;  from lengthy center meeting to center meeting as collection point or reducing frequency of meetings;  from big groups (usually more than 25) to smaller group of trusted peers (can be as little as 5 members), with pressure to recruit new members taken off  From low to higher maximum loan amounts as cash flows allow; and,  From fixed uniform loan term to more term.

Enhancement 3: Direct move from group membership/liability to individual liability ( Graduation)  Groups members who passed the qualifications and criteria are offered the existing microfinance individual loan product of the bank.  Group members may also be offered the bank’s microfinance individual loan product which has been enhanced based on results of the market research.

Example: Typical Group Loan Features FactorProduct Features 1. No. of MembersMinimum of 25 members per center 2. Center MeetingWeekly center meetings 3. Group LiabilityWith group liability 5. Amount of Loan to be availedP3,000 to P30, Term of the loanUsually 6 months

Enhanced/Transitioned Products FactorGroup ( Enhanced)TransitionIndividual 1. No. of Members Minimum of 25 per center membersIndividual 2. Center Meetings Weekly center meeting Weekly center meeting for collection purposes only; option - center officers bring payment to bank, with reduction in interest rate or service fee None; collection may be done by the PO or the client pays direct to the bank 3. Group LiabilityWith group liability None but with co- makers in the group None but with co- makers 5. Amount of Loan to be availed Below P25,000 (30K??) P15,000 to P30,000 ??P20,000- P150,000?? 6. Term of the loan Usually 6 months for the first 2 loans and then 3-6 months term thereafter 3-6 months3-12 months

Detailed Guide: For Developing an enhanced/transitioned product

CriteriaGroupTransitionIndividual 1. AgeBelow 2 years2 years and above 2. # of cycleBelow 4 cycles4 cycles and above 3. Amount of last loan Below P15,000 P15, 000P20, Repayment Rate 100% 6. Internal Arrears (refers to arrearages hidden by the “abono” or “tapal” system) May have internal arrear/s No internal arrears 7. Attendance rate80% and above80 and above Suggested: Detailed criteria for classifying centers (good performing groups/members)

FactorGroupTransitionIndividual 1. no. of membersMinimum of 25 per center 5 members and above individual 2. Center MeetingWeekly center meeting Weekly center meeting for collection purposes only None; collection may be done by the PO or the client directly to the bank 3. Group liabilityWith group liability None but with co- makers in the group None but with co- makers 5. Amount of Loan to be availed Below P10,000P10,000 to P20,000P10,000- P150, Term of the loanUsually 6 months for first 2 loans 3-6 months succeeding loans 3-6 months3-12 months Suggested: Characteristics by group category

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