Guidelines for microfinance viability

Viability in a nutshell: What it takes to attain MFI viability comprises positive real interest rates on loans; positive real interest rates on savings deposits; high timely repayment rates; a high degree of self-financing from internal resources; appropriate microfinance products and services; and vigorous striving for a profit-margin.


Be a service-oriented commercial institution
Strategic planning for viability

Commit yourself to viability: Set clear goals and objectives; Set medium-term plans and monitor; Develop an industry standard of performance
Proper pricing

Cover your costs from the margin by setting appropriate interest rates (at all levels of institutions involved); Cover the cost of funds, administrative costs, and loan losses, and allow for a profit margin; Take inflation into account; Offer attractive real returns on savings
Savings mobilization

Mobilize your own resources: Provide safety and attractive returns; Promote voluntary withdrawable savings; Provide doorstep collection services; Offer suitable products (passbook savings, contract savings, fixed deposits, savings certificates)
Credit products

Offer attractive credit products: Provide for accessibility, simplicity, and timely delivery; Accept suitable collateral and substitutes; Offer proper loan periods; Minimize grace periods if any; Allow for small regular instalments; Offer proper loan sizes; Provide collection services, possibly in conjunction with savings collection
Efficient operations

Reduce costs of operations: Standardize and computerize; Establish MFI as a separate entity; Decentralize and localize operations; Increase the number of customers; Expand into new areas; Assure accountability; Work towards simplicity and transparency; Provide incentives to branches and staff
Risk management

Maximize recovery: Insist on timely repayment; Offer repeat loans of increasing size; Install a Management Information System, monitor loans and take action; Select borrowers carefully; Use appropriate collateral and substitutes; Provide incentives for timely repayment; Build credit discipline, use peer pressure
Well-trained human resources

Recruit and train good staff: Provide skill and motivation training; Provide orientation, promotional & refresher training; Organize exposure training for management
Client-support services

Cooperate with other agencies to provide add-on services! Cooperate with GOs, NGOs, SHGs; Establish service centers as subsidiaries.
Hans Dieter Seibel, MICROFINANCE FOR THE POOR: Outreach vs. Institutional Viability - Some observations Working Paper No. 1998-9, University of Cologne, Development Research Center.

Hari Srinivas -
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