The microfinance sector has witnessed situations where there has been a rapid decline in portfolio quality, catching the MFI management unaware. M2i has been emphasizing upon the need to improve credit risk measurement in MFIs, particularly by measuring hidden delinquency.
What is Hidden Delinquency?
Under the group guarantee mechanism, in case an individual is unable to pay her loan installment, other members of the group pool monies and pay up on the individual’s behalf. As a result the individual’s installment is paid and her loan shows up as being regular, hiding delinquency. This constitutes a risk event for the MFI as a borrower had not been able to pay her installment and guarantee mechanisms had to be enforced in order to make up for the shortfall. However, the MIS of most MFIs today do not catch data pertaining to such events. This results in Hidden Delinquency. Significantly, Hidden Delinquency is also not reflected in credit bureau reports.
M2i has helped several MFIs in designing and implementing sound Management Information Systems. This has allowed MFIs to go beyond generation of traditional reports and track several early warning indicators such as attendance in group meetings and enforcement of joint liability within groups.
M2i’s was the first voice that cautioned against the ill effects of informal agents in the microfinance value chain. It highlighted the problems caused by informal agents in microfinance operations during its Loan Portfolio Audits and Code of Conduct Compliance Assessments.
M2i has been cautioning against geographical concentration of loan portfolios of MFIs since 2007. It has continuously emphasized that MFIs need to diversify their loan portfolio geographically.
M2i has helped the International Finance Corporation (IFC), private sector development arm of the World Bank group to adapt its risk assessment framework to the Indian context. With IFC’s help, it has implemented risk management projects in five MFIs in India.
Holistic HR Development
M2i has performed extensive research on the training needs as well as motivational aspects of staff members of MFIs, which has involved asking questions such as:
- What is it that operational employees of MFIs like about their jobs?
- What are the perceptions of the operational employees of MFIs regarding their primary job-objectives?
- What are the sources of anxiety for operational employees of MFIs?
M2i has utilized this research to create specialized modules for operational employees of MFIs on topics such as Motivation, Communication and Conflict Resolution.
M2i has also trained professionals from international funds, domestic financial institutions, banks and MFIs on various topics in microfinance including Microfinance Operations, Risk Management, Accounting, Financial Analysis, Business Planning, Equity Valuation.
“Drive to Perform” of Operational Employees of MFIs
The operational employees of MFIs have challenging work life which includes extensive work in the field as well as back-office work. At the same time, these employees are responsible for the growth and quality of MFI loan portfolios, as well as MFI’s relationship with its clients. The fact that MFIs have been able to achieve sound growth suggests that the operational employees have been able to operate with a degree of competence despite physically and mentally demanding job profiles. M2i has performed an empirical study on what drives operational employees of MFIs to perform. This study reveals that in addition to employment benefits that the operational employees of MFIs get, the factor that working in an MFI enables them to become “better human” is also important.
M2IDEA: Measurement, Modelling and Interpretation of Data for Effective Actions
M2i has developed a model of performing primary research which ensures accurate data collection, rigorous analysis and clear reporting. We call this model M2iDEA.
ADDO assessment framework
M2i has developed the ADDO – Approval, Documentation, Dissemination, Observance – assessment framework that provides a comprehensive methodology to assess the congruence an organization displays between its strategic intent and its operational performance. The framework is illustrated below:
Code of Conduct Compliance Assessment (COCA)
M2i pioneered the development of the code of conduct compliance assessment, performing the first of these assessments in the microfinance sector across the globe. Since the time the first COCA was performed by M2i in December 2010, these assessments have been used widely by banks and MFIs to assess adherence to ethical operational practices.