There are many factors that affect housing microfinance performance. A match between the product and the realities of the market is a critical factor. Even if the product is strong, there need to be strong systems and processes to deliver it. A key component in these delivery systems is the human factor. Strong leadership is needed to introduce and design a new product, but once it is introduced the staff dealing with clients day in and day out can make or break performance.
Very basic indicators of performance for any financial product are disbursements (number and value) and portfolio health. It is not sufficient to simply disburse loans, but they must be good loans that clients repay as agreed. This is largely the work of the credit officers in the field, making client appraisals and interacting with clients throughout their repayment period. A credit officer who generates bad loans quickly puts the institution at risk.
We have noted, sometimes painfully, the human factor in loan performance in our MAKAZI BORA housing microfinance program. We have some outstanding credit officers who have maintained 0% portfolio at risk (30 days) for months. We have had other credit officers whose portfolio climbed to as high as 22% PAR. The credit officers had the same training, same case load and portfolio size, worked in the same operating area, had the same supervisor, the same incentive scheme and delivered the same product. The difference could only be explained by the fact that some people make better credit officers than others. Unfortunately, it is sometimes hard to tell which is which during the hiring process.
The challenge in maintaining performance is to be able to note when a credit officer’s portfolio is going bad (it usually doesn’t take long) and take action. A first action is to stop the credit officer from disbursing new housing microfinance loans. This obviously hurts on the portfolio growth side of the performance equation, but may be necessary to mitigate further damage to the portfolio health component. If the credit officer cannot improve his or her portfolio health, there need to be systems in place to part ways with the employee and to get a replacement in the field as soon as possible. Whereas we expect a learning curve, our experience in MAKAZI BORA has been that credit officers who are still making bad loans into their second month rarely improve.
The MAKAZI BORA program has changed its criteria for credit officer selection over time. Initially, we recruited only university graduates who were fluent in both English and Kiswahili. We gave an extensive two-week training program on housing, microfinance, housing microfinance and the MAKAZI BORA product and followed this up with staff refresher sessions. Since then, we have started recruiting credit officers with diploma or secondary school education and only require fluency in Kiswahili. Credit officers have been brought in to fill urgent vacancies and have received on-the-job training rather than a comprehensive orientation program. Perhaps counter-intuitively, performance in the same key indicators has improved significantly through these changes.
Performance by individual credit officers does not seem to have been related to educational background, training received or other institutional systems. A change in hiring criteria and emphasis has definitely helped, but a sill somewhat illusive human factor seems to be at play. The best we can do for the moment is to be ready to keep sifting through credit officers until we find good ones, minimizing as much as possible damage from those who aren’t the right people for the job.
The fact that some credit officers consistently deliver 0% portfolio at risk seemed to indicate that any portfolio performance problems were not product related. As new housing microfinance products are piloted, management must closely examine any performance shortfalls and try to isolate the potential source. Is it the suitability of the product for the market? Are delivery systems weak or inefficient? Or is there a human factor at play. Knowing the difference and taking the appropriate actions requires a lot of institutional candour and is the foundation of improving housing microfinance performance through a pilot stage.
Very basic indicators of performance for any financial product are disbursements (number and value) and portfolio health. It is not sufficient to simply disburse loans, but they must be good loans that clients repay as agreed. This is largely the work of the credit officers in the field, making client appraisals and interacting with clients throughout their repayment period. A credit officer who generates bad loans quickly puts the institution at risk.
We have noted, sometimes painfully, the human factor in loan performance in our MAKAZI BORA housing microfinance program. We have some outstanding credit officers who have maintained 0% portfolio at risk (30 days) for months. We have had other credit officers whose portfolio climbed to as high as 22% PAR. The credit officers had the same training, same case load and portfolio size, worked in the same operating area, had the same supervisor, the same incentive scheme and delivered the same product. The difference could only be explained by the fact that some people make better credit officers than others. Unfortunately, it is sometimes hard to tell which is which during the hiring process.
The challenge in maintaining performance is to be able to note when a credit officer’s portfolio is going bad (it usually doesn’t take long) and take action. A first action is to stop the credit officer from disbursing new housing microfinance loans. This obviously hurts on the portfolio growth side of the performance equation, but may be necessary to mitigate further damage to the portfolio health component. If the credit officer cannot improve his or her portfolio health, there need to be systems in place to part ways with the employee and to get a replacement in the field as soon as possible. Whereas we expect a learning curve, our experience in MAKAZI BORA has been that credit officers who are still making bad loans into their second month rarely improve.
The MAKAZI BORA program has changed its criteria for credit officer selection over time. Initially, we recruited only university graduates who were fluent in both English and Kiswahili. We gave an extensive two-week training program on housing, microfinance, housing microfinance and the MAKAZI BORA product and followed this up with staff refresher sessions. Since then, we have started recruiting credit officers with diploma or secondary school education and only require fluency in Kiswahili. Credit officers have been brought in to fill urgent vacancies and have received on-the-job training rather than a comprehensive orientation program. Perhaps counter-intuitively, performance in the same key indicators has improved significantly through these changes.
Performance by individual credit officers does not seem to have been related to educational background, training received or other institutional systems. A change in hiring criteria and emphasis has definitely helped, but a sill somewhat illusive human factor seems to be at play. The best we can do for the moment is to be ready to keep sifting through credit officers until we find good ones, minimizing as much as possible damage from those who aren’t the right people for the job.
The fact that some credit officers consistently deliver 0% portfolio at risk seemed to indicate that any portfolio performance problems were not product related. As new housing microfinance products are piloted, management must closely examine any performance shortfalls and try to isolate the potential source. Is it the suitability of the product for the market? Are delivery systems weak or inefficient? Or is there a human factor at play. Knowing the difference and taking the appropriate actions requires a lot of institutional candour and is the foundation of improving housing microfinance performance through a pilot stage.
