Microfinance in Practice Workshop

Microfinance in Practice Workshop

Welcome =)

Microfinance in Practice Workshop – UTSC, 27/03/08 -- μf μf μf --

Facilitated by Emanuele Lapierre-Fortin, [email protected]

Workshop Outline

1. Introduction2. Microfinance process : interview to analysis3. Support to small entreprise4. Intro to hard skills:

1. Finance2. Accounting3. Monitoring and evaluation (M&E)

5. Toolkit6. Lessons learnt7. Tips8. Resources



My backgroundIDS Coop Placement : -Support to Income Generating Activities (IGA) for members with HIV/AIDS in Burkina Faso, through WUSC-Uniterra. 10 months

-Different partners-Different types of work-Different types of IGA

- Mandate- A typical day on placement - What made coworkers and other volunteers special and inspirational



My background

Access Riverdale-Roles-Microfinance in Canada

- AR, Calmeadow/Alterna, Momentum, Developpement International Desjardins

- The need is definitely here- Not only business loans



Introduction - Microfinance in Practice: 4 principles 1. Appropriate services

Often: short term loans, repetitive, small amounts, friendly approach

2. Simplify operationsLiteracy constraints + printing expensive + computer challenges

3. Motivate people to reimburseYou have to be a presence, call them, see them, visit themIncentives

4. Charge interests that cover all fees



Introduction

Why microfinance? Is it for me?

Framework : Community Economic Development

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Microfinance Process, from interview to analysis

Goals of process:

Get to know the entrepreneur and the business

– Understand on what levels you can help –Assess integrity, character, reputation, etc. – Evaluate the risk of the business– Importance of having local staff on board



5 Steps of Process

1. Receive microcredit application

2. Gather and validate information

3. Detailed analysis of application

4. Make decision

5. Monitoring and Reimbursement



1. Receive microcredit application

needs, match with product, eligibility

can be during an interview most of the time, try to minimize paperwork

interview preparation: get familiar with sector of activity (research!!) and come up with a series of questions : hand-out info to gather

hand-out: documents to ask for



2. Gather and validate information

Canada = Beacon scores, call references

Visits to residence and business of critical importance

Goal : understand the financial need and see what you can do.

Financing needs come can be of different natures : hand-out



3. Detailed analysis of application

Huge diversity in institutional cultures and how people think about this

Think in terms of risk; is it increased or decreased by what you find, and how can you help?



Intro to Risk Assessment

When making decisions, always evaluate if it raises or lowers the risk to the MFI/NGO and what are the ways to mitigate that risk.

Refer to financing needs hand-out.



4. Make Decision

Explain clearly, always give feed-backSometimes credit is not what is needed and you can be able to provide other types of support (see next section)



5. Monitoring and Reimbursement

Different arrangements

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Support to Small Business

Most common things I did :- Develop or adapt management and M&E tools- Training: broad/specific- Financial analysis of IGA project- IGA project development & Proposal/business plan writing



Exploitation of IGA, starting & working capital



Management 101

What is management?1. Entrepreneurship2. Organization and strategy3. Marketing4. Accounting and controls5. Human resources mgt6. Production mgt7. Information systems8. Quantitative methods



Management 101

-Innovation

- How to choose an IGA?-Supply/demand-Value added-Vertical integration-Product diversification



Management 101

Market study

- really important research

- Know the clients and what they want

- Implement like any other type of reseach



Management 101-Promotion and publicity-Tips:

-Professionalization-Compare with other products- use testimonies-Have a prepared sales pitch-Ensure you preserve a good reputation-Do not get discouraged!

- Networking



Financial Analysis – what to remember from 1st year econ



-Simple: income and expenditure

- Capital and depreciation

- Cost versus sales price (margin/benefit/profit)

- Cash flow and income projections


Things to keep in mind: - Very culture-specific so talk to friends about their conceptions of economics, competition, etc. -Integrate planning everywhere- Field research and talking to people involved in these IGA crucial-Work in teams, try to get people from different sectors on board- Network right away!




Often the credit is not the major need of the client:-CRUCIAL role of training-My major role = advising, like a consultant – how ironic!!-Always be constructive, help the clients improve

Technical Assistance – typology of IGA

3 sectors: agriculture, industry and services

Match people with resource people

Q & A -- μf μf μf -- . BREAK



Intro to hard skills

Finance-Not the stock market!- How much you need to know really depend on the kind of work you’ll do- We’ll cover :

-Principles of credit- Break-Even Analysis-Basic Financial Ratios



Principles of credit

-Loan term and repayment frequency possibly most significant variables-Cash patterns : regular vs irregular cash flow-Loan term : match with business cycle-Loan Utilization: consumption vs production, or use for other IGA (risk)-Loan purpose: fixed assets vs working capital-Interest rate : declining balance vs flat method-Fees and charges: have a proportionally higher impact than interest rate because not calculate on declining balance



Break-even analysis

-Fixed costs (FC) : rent, depreciation, salaries, etc.- Variable costs (VC): supplies, raw materials, stationary. Calculate on average (AVC)-Contribution Margin (CM) = average revenue – AVC-Break-even point (BEP)= FC / CM (in intems/time)-Break-even revenue = BEP X AVC + FC



.

Basic Financial Ratios

Forthcoming online. Sorry =(



.

Accounting

-Essential:Tool of analysis, control and M&E- Your to-do list :

- learn to use the accounting equations : assets = liabilities + equity- learn to read and UNDERSTAND the 3 main financial statements: balance sheet, income statement and statement of cash flow- learn double-entry, ledgers, credit-debits

-In practice : simpler (books, records)



Accounting in Practice

Tips to microentrepreneurs (based on my experience in Burkina Faso) :- Write down EVERY single transaction- Keep and file every transaction record- Get organized - supplies-Do not mix IGA money with familial/personal /NGO money (separate bank accounts)- Be lucid and conservative in management of gifts to friends/family and in the customer credit policies



Accounting in Practice

Tips to small entrepreneurs (based on my experience in Burkina Faso) :

- set the salary for the boss

- have written procedures for cash flow

- get familiar with computer software like Excel or Ciel Associations



Monitoring and Evaluation

- Impact of microfinance – hand-outs- 5 principles to strive for :

1. Offer financial services in the long run : permanence2. Reach a high number of clients : size3. Reach the poorest (or specific population): outreach4. Cover operational and financial costs : sustainability5. Reach high productivity and lower costs : efficiency



M & E Keep in mind : •Need to constantly re-evaluate the project•Microfinance is a tool for an end, not a goal in and of itself Integrate PLANNING everywhere•Be creative in making the work happen! Hard to understand for many people – what is the impact you want? Through which kind of activities?•Donors want to see “sustainability”, e.g. self-financingQ & A - -- μf μf μf --



Tool-kit

ABC of tools

•Make sure they’re adapted to literacy/numeracy levels

• Always develop them participatorily

•Complicated not necessarily always better



Printed tools

-Microcredit application-SWOT analysis- microcredit contract- microcredit file- monitoring file- impact assessment questionnaire



Unprinted tools

-IGA and market study guides and powerpoints- general ledger- typology of IGA- other M&E tools in Excel- management proceedures

Q &A -- μf μf μf --



Lessons Learnt

Importance of group work, but also challengese.g. people don’t speak when the leader is not there, etc. Need to ensure people understand their role (very CLEAR) and how the group is

supposed to function

Group projects versus individual projects



Lessons Learnt

Credit TEAM – need to do capacity buildingListening and Empathy the most important skills everRethink your role as the “expert” – so much to learn from othersTry to have people familiar with the different trades on the IGA committee



Lessons Learnt

Group projects versus individual projects

Technical assistance – typology of IGA

3 sectors : agriculture, industry and services

Match people with resource people



Lessons Learnt

People have diverse agendas and they may mistake you for someone who has funding (some people are just opportunist)

Be really open minded and realistic as to people’s levels and needs

Synergize



Where I screwed up :

Worked too independentlyMore impact if take more time to develop tools together rather than doing them all and

Time management – Spreading myself too thin

Not action-oriented enough (did lots on paper but not that much in reality. REVS+ example)

Denied the imperative of learning accounting




My own attitude towards “placement as learning”Attitude towards expectations

Taking lots of time reading audit reports and trying to make a sleek manual

Too much time trying to understand things

May have overemphasized savings They have an opportunity cost

But good Local Economic Development strategy because mobilizes the funds locally




Tried to make things too complicated

Classism/Positionality made it hard to relate to people

Talked more to middle-class, professional people

Compare with Ella, Kate and Denise

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Tips

Get the people high up in the hierarchy on your sideShow commitment and instigate meeting habits with resource person Try to mobilize resources to do on-site follow up and inspectionsNetwork right away! Business development centre, other agencies

They have training materials, tools and research instruments already designed



Tips

Build partnerships! (sustainability)

Do not reinvent the wheel

Always test your trainings before hands, especially the examples

Follow up on trainings whenever you can – try to get participants to organize local trainings

Don’t get too caught up in academic ways



Tips

Match product to need (big investment – longer loan)

Know the institutional culture of your NGO

Research tips: SPSS, Delicious

Don’t freak out – lots of time for self-briefing on placement!

Keep a work diary and to-do list, write a lot about life and work



Tips

Be patient! Learn communication styles (who calls who? Setting up meetings?)

Remember you’re leaving after 8-12 months

Think of what your baseline is and ensure you’ll get all the data – START WITH THAT if there’s no baseline, ensure you create it



TipsUse slow times to:

Do Community Economic Analysis Enjoy learning about the informal/formal economy and the financial sectorCreate information briefs on major IGAs (with investment, exploitation cycles, equipment costs, financial flux) Help identify the gaps, opportunities (market research) and see where the microfinance services are neededLearning about informal economy and cultural economics a REALLY good use of your time!



Resources

Skills/Training

Calmeadow documents : Accounting and Finance

QuickMBA: Accounting and Business: www.quickmba.com

Accounting Coach: www.accountingcoach.com

UNCDF: Accounting applied to microfinance COURSE: www.uncdf.org/mfdl/index.php?_mode=students.home



http://www.quickmba.com/

http://www.accountingcoach.com/

Resources

General

Mohammed Yunus, Banker of the Poor

Consultative Group to Assist the Poorest (CGAP): www.cgap.com

Check me out on delicious.com (username: onomatopee)

Q &A -- μf μf μf --



http://www.cgap.com/

Conclusion

Microfinance rocks! It’s okay to be a keener!

Hard/Soft Skills – a process

All experiences are diverse – no one size fits all solution.

Be humble and realistic : You’ll screw up too, don’t worry!

Go out and learn about something microfinance/CED-related

Contact info: [email protected], 416 595 0761

What’s next? Workshop Evaluation

Thanks =)



mailto:[email protected]

Workshop Evaluation

Thanks =)



Microfinance in Practice Workshop

Education

Transcript of Microfinance in Practice Workshop