DESIGNING EFFICIENT ORGANIZATIONS FOR

MICROFINANCE OPERATIONS:

The Experience of Green Bank of Caraga

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

OBJECTIVES

Share with other participating bank’s the following:

GBC’s experiences in Organizing & Managing its microfinance operations

The Approach used by the bank in expanding its MF operations

The Organization & Management before and after the expansion of its MF operations

AGENDA

Organization & Management Structure at the start-up phase of its MF Operations

When & How GBC expanded its MF Operations

Changes in the Organization & Management Lessons Learned

BEFORE GBC STARTED ITS MF OPERATIONS

There was no proper accountability of loan accounts

Good MIS was not in place Collection was very lax Restructuring of past due loans was

rampant

BEFORE GBC STARTED ITS MF OPERATIONS

Regular loans were mostly collateralized Loan amount was based on value of collateral Cash flow was not analyzed Credit & Background Investigation was very

insufficient Some branches had very high past due ratio

BOD

President

VP - Operation

Branch Manager

Cashier Bookkeeper Loan Officer

Teller Loan Staff Loan Clerk

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Audit

MIS

Organizational Structure Before MF Operations StartedOrganizational Structure Before MF Operations Started

START OF GBC’s MF OPERATIONS

Signed up with MABS in February 2000 TREES product pilot-tested in Bayugan branch Initially hired 5 MF Account Officers and one full-

time MF Supervisor In the pilot branch, the MFU reported directly to

the Branch Manager Proper accountability of loan accounts was

implemented

BOD

President

VP - Operation

AreaManager

BM

Audit

MIS Treasury HRDMarketingAccounting

CashierLoan

OfficerBookkeeper

MF Supervisor

Account Officers

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Organizational Structure At Start-up PhaseOrganizational Structure At Start-up Phase

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Scaling – up of TREES OperationsScaling – up of TREES Operations

Product review &Revisions ( after 3 mos)

Roll-out to 4 branches

Scaling – upMerger w/ Alegria Bank

- Green bank branchesGreen bank branches (Butuan,Nasipit, San Franz, Magallanes)(Butuan,Nasipit, San Franz, Magallanes)

Product Review andStrategic Planning

- 5 Branches Alegria bank- 5 Branches Alegria bank

- MF Department created at Head OfficeMF Department created at Head Office- Product Manager hiredProduct Manager hired- Performance-based incentive scheme introduced- Performance-based incentive scheme introduced

- Fine tuning policies and procedures- Fine tuning policies and procedures

Geographic Expansion

Jul ‘00Jul ‘00

Jul-Sep’ ooJul-Sep’ oo

Jan’ 01Jan’ 01

Jan‘01Jan‘01

Feb’ 01Feb’ 01

- Expansion to new areas (sub-offices)Expansion to new areas (sub-offices)

BOD

President

VP - Operation

AreaManager

BM

Audit

MIS Treasury HRDMarketingAccounting

CashierLoan

OfficerBookkeeper

MF Supervisor

Account Officers

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Organizational Structure Initial Phase of Organizational Structure Initial Phase of Program ExpansionProgram Expansion

Product Mgr

Critical Changes in the O & M Structure At Initial Phase of Program Expansion • MF Department was created at the Head Office to oversee the expansion of TREES operation bank-wide

• A TREES Product Manager was hired

• The three existing TREES Supervisors were required to report directly to the TREES Product Manager

•The TREES Product Manager was also made directly responsible for implementation of all TREES activities and attainment of targets

•The Branch Managers’ role became secondary

Why Was It Necessary to Create A Special O & M Structure for MF During the Initial Phase of Expansion?

• Many of the officers and staff of the bank were not familiar with the methodology and “culture” of microfinance

• Some members of top and middle management were not yet fully convinced that microfinance is not risky, even if it is non-collateralized

CHALLENGES MET AT EXPANSION PHASE

Expansion was too fast Inadequate training of AOs Negative Attitude of Branch Managers Supervision of AOs at the branches Internal Controls MIS problems Deterioration of portfolio quality

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Scaling – up TREES OperationsScaling – up TREES Operations

Additional Staff & Training

Update MIS

Strategic Planning

- Update MIS deficiencies.Update MIS deficiencies.- Roll out new MIS bank wideRoll out new MIS bank wide

Review Org. Structure

- Consolidation of existing operationConsolidation of existing operation- Expand in new areasExpand in new areas

- Conflict in making decisions between the PM & BM- Conflict in making decisions between the PM & BM

- Develop in-house training capability- Develop in-house training capability

Implementation of newO & M Structure

Mar ‘01Mar ‘01

Jul-Sep’ 01Jul-Sep’ 01

Oct’ 01Oct’ 01

Nov-Dec‘01Nov-Dec‘01

Dec’ 01Dec’ 01- Head office as support functionHead office as support function- Branch as line functionBranch as line function

Feb 02Feb 02Hiring & training of Area

Supervisors

- Area Supervisors based at Head OfficeArea Supervisors based at Head Office- Supervisors at branch office replaces by Lead AOsSupervisors at branch office replaces by Lead AOs

ACCOUNT ASSISTANT

PRESIDENT

MFU PRODUCT MANAGER

AREA MANAGER

BRANCH MANAGER

ACCOUNT OFFICER

AREA SUPERVISOR

VP - OPERATIONS

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Expanded Structure of the MFU Expanded Structure of the MFU

LEAD AO

PRESENT STRUCTURE OF MFU Direct supervision of TREES operation in the branches were

given to the Branch Managers Functions of MF Department at the Head Office now limited

to planning, monitoring, training, audit, trouble-shooting, product development, and review of TREES field operations

Area Supervisors were hired to assist the Product Manager in training, on-the job coaching, audit, and trouble-shooting

Role of branch-level TREES Supervisors before, now is given to Lead AOs

LEVELS OF SUPERVISION

Product Manager directly reports to the President Area Supervisors report to the Product Manager Lead AOs are under the Branch Managers, but are

also supervised by the Area Supervisors on matters related to the TREES implementation

Implementation of TREES product at the branches is directly supervised by the Branch Managers

WHY WERE THESE CHANGES NECESSARY?

Because of rapid expansion, the MF Department at Head Office had difficulty supervising field operations on day-to-day basis

Branch Managers are the best persons to supervise the AOs on a day-to-day basis

When Branch Managers are made responsible for the TREES targets in their own branch, they become more committed in supervising field operations

Branch Managers, however, cannot devote full-time to supervising TREES operations, so that Lead AOs are necessary

Area Supervisors are needed to help the Lead AOs deal with their more difficult tasks (PAR), and to ensure no short-cut in procedures

Effects of Changing the Banks’ O & M StructureEffects of Changing the Banks’ O & M Structure• Decentralization of authority

• More focused supervision

• Better implementation of policies & procedures

• More committed middle management

• Improved loan portfolio quality

• Cost effective

• Standardization of Policies and Procedures

• Clearer flow of communication

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

GREEN BANK OF CARAGA, INC.GREEN BANK OF CARAGA, INC. TREESTREES Loan Program Loan Program

Lessons LearnedLessons Learned Some resistance within the organization can be Some resistance within the organization can be expected when introducing a new product and cultureexpected when introducing a new product and culture At the start, it may be necessary to create a special At the start, it may be necessary to create a special unit to implement these new product and cultureunit to implement these new product and culture However, there will be problems within the However, there will be problems within the organization if the new product and culture are not organization if the new product and culture are not integrated in the mainstream operationintegrated in the mainstream operation Changing the attitude of the organization towards Changing the attitude of the organization towards the new product and culture can take time. The best the new product and culture can take time. The best way is to show them that it works.way is to show them that it works.

People are more committed and supportive to People are more committed and supportive to implement the new product and culture if they are given implement the new product and culture if they are given direct responsibility for the product’s successdirect responsibility for the product’s success

Decentralization of authority can improve efficiency in Decentralization of authority can improve efficiency in service delivery service delivery

Staff should be rewarded well to sustain their Staff should be rewarded well to sustain their motivation and productivitymotivation and productivityProper training and close supervision of Account Proper training and close supervision of Account Officers are critical in sustaining good portfolio qualityOfficers are critical in sustaining good portfolio qualityAll employees of the bank should be made aware of the All employees of the bank should be made aware of the benefits ofbenefits of the the new product to get their full the the new product to get their full commitment and supportcommitment and support

Lessons LearnedLessons Learned