Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Saturday, January 29, 2011

A Day In The Life of An MFI Loan Officer: Some Insights From The Adapted Grameen Replicators in India…

Ramesh S Arunachalam
Rural Finance Practitioner

The loan officer, by a large margin, has always been a “he” (it is a ‘her”, rarely), at least in the adapted grameen replicators in India - a commonly used metaphor for some of India’s largest MFIs.

The loan officer may simply be called as a loan officer or project assistant or field coordinator etc. The loan officer, typically, as I have seen him over the years, starts his day at around 5.30 AM in the morning, getting up and readying himself to go to the field and meet micro-finance clients. Among other things, the collection sheet and disbursement schedule are critical documents and the loan officer goes through these before setting off on the day’s journey.

In a typical adapted grameen replicator, the branch is located at a central place and the loan officers cover a radius of 25 kms around the branch. They, by and large, stay in the branch in a back room – 3 or 4 or sometimes even 5 of them huddled together. Often, the living conditions are woefully inadequate by any standards. They cook their own food in this small room and also use it to house their things as well as sleep.

The loan officer starts from the branch at around 6 AM and reaches the venue of the centre (a commonplace in a village) typically by 6.30 AM in the morning for the centre meeting. The traditional model, which was by and large followed by many of the adapted grameen replicators in India - starts with a roll call (group attendance) followed by various activities such as loan repayment, loan disbursement, pledge/oath taking and the like. Generally speaking, given that loan officer has various records (including receipts) to update (both for the client/MFI) and also given that discussions may be held amongst the members with regard to which of them will get the loans in subsequent weeks, it should be safe to assume that a center meeting will last at least an hour, if not more.

Box 1: Some Time Consuming Tasks at The Centre Meeting

There is good reason to believe that a center meeting, conducted as per the traditional model, would last more than an hour…The grameen model and the Indian replicators have always prided themselves about the fact that the repayments would be collected first and kept separately and then, any loans would be disbursed, often using the 2:2:1 formula, where the JLG leader receives the loan the last and other 4 members receive the loan in batches of two each, in an interval space of few weeks. The same happens for the remaining 7 JLGs and that is the way the center generates peer pressure, as at any time, there are always some members at the center who require a loan and it is believed that they would exert sufficient pressure on the rest of the members (who have taken a loan) to make prompt and regular repayments. Therefore, the task of choosing members who will receive loans in the subsequent weeks is one that could take significant time - as I have seen members within a JLG and center, argue out competing demands.

Therefore, while nascent field workers (loan officers) may be able to only take care of 1 centre meeting in a day, experienced loan officers can perhaps handle 2 centre meetings daily. Such experienced loan officers, after the 1st meeting, would typically go to a 2nd centre meeting at a nearby village/hamlet/slum and get back to branch by 10.30 to 11 AM. Here, they hand over the cash and reconcile the balances. After eating their breakfast, they sit down and complete all the accounting and portfolio entries (either manually or in the computer) in the branch records, pertaining to the centers they visited.

This usually takes up to 1.30 PM or latest, 2PM or so after which they take lunch and rest until 4/4.30 PM. Then, at 5 PM, they leave for the villages to have contact meetings, to form new JLGs/centers and they come back to their room by 9/9.30 PM and eat/sleep so that they can start the next day afresh. This routine is normally followed for the five-week days and on Saturday, the loan officers do work at the branch, either updating records or planning activities with the branch manager. As an aside, actually, the life of a micro-finance loan officer is rather tough and I must confess that, if some one like the ILO would look into it, they would find the living and working conditions very stressful and inadequate…In fact, I came across a complaint (by a loan officer perhaps and I am not sure) on the web and I attach the link[i] of the same here: http://www.complaints-india.com/complaints/3570/EMPLOYEE-TORTURE.html

Okay, back to the topic at hand, there are two points that deserve mention here:
·    Given the efficiency that may have been built into the process and the learning curve experience, at best, experienced loan officers, may be able to handle, not more than 2 center meetings or 16 JLGs in a day – this is equivalent to a maximum 400 clients per week (assuming a five day work week and leaving the weekends for office work) and this is perhaps an outer limit and a very optimistic estimate….of loan officer caseload…
·    Likewise, a nascent loan officer can perhaps manage 1 center meeting per day and this translates to 8 JLGs per day, which makes their caseload in clients/week as 200.

Thus, the above are caseloads that are theoretically possible for nascent and experienced loan officers as I have seen it and I am sure there could be some (marginal) variations to these depending on the context, model and other aspects. In reality, given the adjustments for the terrain/context and other unexpected work, the most optimistic caseload, in my opinion, seems to be 250 - 300 clients for experienced loan officers and 150 – 180 clients for nascent loan officers…

That said, let us now look at some of the case loads based on real time data for 6 MFIs that were the equity leaders in Indian Micro-Finance (because they were the favourites of equity investors) and this data is calculated[ii] from the published data sources like MFI Annual Reports and Mix Market data…

The above table provides some very interesting trends

There was only one MFI (MFI 4) that had a caseload of over 650 in 2006 – around the time of the Krishna crisis and they were, in my opinion, using an agent type methodology, as far as back then.

The other MFIs, barring one (MFI 5), learnt from this MFI 4 on the advantage of using an agent type methodology and that is why, for the rest, we see the caseload increasing over the years – and especially in the years ending 2007 and 2008 the case load is rather heavy. In 2009, the caseloads increased for 4 of the 6 MFIs and the argument here being that the higher case loads were perhaps being managed by using the invisible (hand of) agents.

Specifically, for MFI 3, that had had a very high caseload the earlier year (720 clients per loan officer), there was some corrective (503) in 2009 because, in my opinion that MFI had already started experiencing delinquency in its portfolio due to this and trouble from its agents – as it perhaps went overboard in increasing its field officer caseload from 376 to 760, which is more than double the caseload…again, the flow of equity at a premium to other MFIs and the carrot of (potential) huge equity investments in the future perhaps attracted many of these MFIs to wealth hitherto unseen by them thus far…

These specific numbers aside, the larger point is that whatever be the context, when you have case loads of over 400, I think you must ask questions on how the staff are managing these (unrealistic and heavy) caseloads, especially when using a similar Grameen type methodology…that is the critical aspect…

It is also interesting to note that all of these 6 MFIs grew at a frantic pace between April 2007 and March 2009 when the case loads went up dramatically. Let us look at growth in terms of active clients first and then, by gross loan portfolio:

Growth by Number of Active Borrowers For 6 Equity Leader MFIs:

·    The 6 Equity Leader MFIs grew at a CAGR (over a 4 year period) of 61.19%, adding 12.91 million active borrowers during the period April 2005 to March 2009.
·    Of this, nearly 10.46 million active borrowers (or 81.03% of the total additional active borrowers covered from April 2005 – March 2009) were added during the period of April 2007 – March 2009.
·    This is equivalent to the 6 MFIs adding 0.44 million active borrowers (or 4, 35,971 active borrowers) every month, during the 24 month period.
·    And this is equivalent to each MFI adding 0.072 million clients (or 72661 active borrowers) every month, which is certainly a lot of active borrowers!
·    The above number translates to about 2389 new clients (or about 479 new JLGs or 69 new centres) to be added every day by EVERY MFI (on the average) and that is a huge ask, under any circumstances…

Ask some one who has worked at the grass-roots level and you will surely understand that sourcing clients and developing JLGs (Joint Liability Groups) and Associated Centres’ does take a lot of time…and that is why I would rate the above as very, very rapid growth...by any standards…

Growth by Gross Loan Portfolio For 6 Equity Leader MFIs:

·    The 6 Equity Leader MFIs grew at a CAGR (over a 4 year period) of 88.92%, adding US $ 2.68 billion as gross loan portfolio during the period April 2005 to March 2009
·    Of this, a whopping US $ 2.18 billion (or 81.21% of the total portfolio increase from April 2005 – March 2009) was added during the period of April 2007 – March 2009. That is significant by any standards and is the equivalent to the 6 MFIs adding portfolio worth US $ Million 90.81 (or Rs Million 4177) every month, during the 24 month period. Again, this is a staggering growth statistic, at least for me...

Further, it is interesting to note that the 6 equity leaders also received significant equity infusions during the same periods or a little later as shown in graph below

And of course, as noted above, these Equity Leader MFIs received significant equity infusion during the period April 2007 – March 2009 (US $ 228.87 million) and also thereafter during the period, April 2009 – July 2010 (US $ 287.88 million). The comparative data and specific data on number of active borrowers and gross loan portfolio for the 6 equity leader MFIs along with equity investments is given at the end of this post.

And also, the financials of the 5 of these 6 MFIs are given below, as calculated by Intellecap in the 2010 inverting the pyramid report…

As you can see, the connection between flow of equity[iii], growth of MFI in terms of number of active clients and gross loan portfolio and increased caseloads is no simple coincidence.

That said, several key questions arise here and I leave you with these…
·   How did the staff of these MFIs manage such higher caseloads? What (or who) helped[iv] them in managing such unusually high caseloads?
·   Especially, given that they were adding many new loan officers who could not function at peak performance (capacity), how did these MFIs manage to increase client caseload as significantly as shown in table earlier?
·   What (tangible) changes were made to the operating model to enable this? Were the changes as per the law? Specifically, were agents formally or informally appointed and did their invisible hand share the caseload of the loan officers? That needs to be better understood…
·    What other changes/shortcuts were employed in client acquisition, loan disbursement and loan repayment collection to facilitate management of such high caseloads?
·    What was the impact of all these changes on clients and their well being? That is very critical and again needs to be clarified
·    Overall, given that the KYC norms and RBI outsourcing guidelines came into force during the above periods, how did these MFIs manage the higher caseloads in wake of new staff, burgeoning growth, enhanced regulatory requirements and the like?

Ladies and Gentlemen, I leave you with these questions to ponder and reflect and all that I can say is that I have a very uncomfortable feeling about the Indian micro-finance business model…and its vision, growth strategies, operational methodology and the like...I leave it to you to judge for yourselves...


Have a great weekend!

PS: Please note that I have refrained from identifying individual MFIs because the intention is not to malign them. Rather, the objective is to learn from this crisis so that we can take appropriate corrective action going forward...Thanks for your understanding on this...

[i] Sometimes, the moment you refer to a link, it gets taken off and apologies, if that has happened. Also, the objective here is not to identfy or pinpoint any one MFI but the above example is merely provided as an illustration of MFIs that perhaps take the most out of their employees...
[ii] To the best of my knowledge, the data is correct but apologies if found otherwise, but I think not likely as I have tried to use some internal consistency tests and they worked well for the set of data given above. Thanks for your understanding and even if changes would be there, in my opinion, they should be marginal and not make a material difference to the caseloads
[iii] Data subject to caveats mentioned in specific posts on equity, done in November and December 2010
[iv] And especially, given the fact that technology has, at best, been piloted and not taken to scale in many places in Indian micro-finance. In fact, if you go back and see the organizations that won the CGAP award for technology, many of these technologies have not been operational for a rather long time now…not because they are obsolete technologies but because they lacked the sound business case in the first place and could not be taken to scale


  1. hi Ramesh, this is vasu from Equitas. as usual your post has interesting analysis and discussions. however when you try to talk of a bunch of companies, naturally u tend to average out the various findings and issues and take the middle path applicable on an average to the companies concerned. even though u have not mentioned the names of the MFIs, i suspect the 6th MFI which is said to have commenced operationos in 2008 is probably equitas.

    our model is completely different from the one described above. also you mention about low use of technology etc. we probably have the best of technology deploymnet in the MFI sector around the world and backed by very innovative processes. a simple philosophy for example, that we use, is, at the branches, the branch staff would do only those processes which have a member at the other end of it. every process which has no member involved in it, would be either outsourced or centralised. this frees up the time of branch staff to focus only on client facing activities relieving them from other mundane actions like data entry, filing, bank recon etc.

    also our controls are probably the best in the sector. this has ensured that the number of staff related issues are extremely small in the MFI sector. also our client friendly recovery practices are again very likely to be the industry best.

    it would be good if you could visit our operations and spend atleast a day with us and it would also help if you could highlight good practices adopted by us as well as other MFIs so that the rest of us can learn from the same for improvement in our companies

  2. Dear Vasu

    Sure and thanks for this perspective

    As always, appreciate your comments and look forward to meeting you all and spending a day with you


    Warm Regards


  3. Quite interesting analysis!

    This leads to an important question, when the PE investors were carrying out due diligence and looked at the projections (I presume that projection, apart from other valuation tools/methods used, is an important source to decide the value of an MFI and the stake to be taken up by the investor), why didn't they raise the issues on the case load?

    The case load is an important issue in the periodic reporting to the institutional lenders, but then, perhaps, PE investors were quite content with their return on investment!

    As part of the equity stake holders in these MFIs, is anyone questioning their role?

  4. Dear Ramesh,

    Your post clearly bringout the truth of over work load to loan officer based on mfi outreach goal.

    so, naturally used second hand is broker and agent mode, which is inevitable.
    finally mfis must learn when they use public money for public cause,

  5. Dear Ramesh
    I agree with your analysis in taking the cause of the so called loan officers of MFIs and about their pathetic working conditions. This added to the poor audit system in place with the MFIs are some of the reasons for most of the wrong doings of these officers over time. As child labour is banned, a number of countries when they import products from countries like India get an undertaking from the exporters to the effect that the latter conformed to international best practices. Similarly, the funders of MFIs should demand such best practices from the MFIs in India and aborad. But, unfortunately, there is no common code for working conditions for labour in the MF sector.