4.7 General Characteristics of the Four Study MFOs
4.8.4 Management Information Systems (MISs)
A well-developed MIS can improve lender administrative procedures, loan tracking, and reduce borrower loan application times, improving service quality and lowering administrative costs oflenders (Yaron et al., 1997). However, a MIS can only add as much value as its design and functionality permits. A complete evaluation of the MIS of each of the study MFOs was not the emphasis of this study but some key aspects are noted from their experiences, particularly those of MFO 1. The availability of concise appropriate information at all levels of management to allow good business decision-making is the crux of any good MIS. Reference to an MIS implies the entire software package used for transactional and reporting purposes. These need not necessarily be one and the same, but most banking software packages have both components. Large amounts of data are generated on a regular basis by MFOs, and these data need to be stored, manipulated and presented coherently to system users. Ultimately this is what MISs are designed to do - good MIS should act as a conduit through which raw data becomes useful and useable information (Mainhart, 1999).
From a technical perspective, the flexibility or inflexibility of information and transaction management systems can allow an MFO to adapt its products to changing markets, allow for rapid expansion of the business and give the necessary capability to offer not only credit but also savings. Mainhart (1999) covers a broad range of technical aspects that need to be considered when designing or purchasing an information system. For instance, does the information system provide accounting facilities, portfolio-tracking capabilities, deposit
monitoring and customer information? Is the system client centric or account centric? Does the system allow for different lending methodologies, payment types, savings products, and interest calculation types?
Lender MFOl has designed its MIS with considerable operational functionality. However, very little regard is given to storing essential data for client trend monitoring over time, and analysis (such as credit scorecard development) - key aspects when making informed management decisions. The system provides all of the necessary reports for the day to day running of MFOl, and this presented some major problems to management, particularly if historical trend analysis was needed. There is a trade-off between operational efficiency and sufficient data storage for improved management information. Fortunately, data warehouses can overcome this problem by separating the storage of information from the transactional system. Data warehouses very costly to develop, and so important starting point is to ensure that any MIS can store data in a reasonable format for future use. The immediate cost may be high, but the long-term benefits may outweigh this and operating costs.
Secondly, making changes to the system such as allowing for additional products was a slow and difficult process. Ittook almost a year to incorporate savings capabilities into the MFO 1 information system, bearing in mind that the MIS was custom-built by MFO 1. Even more critical to any data management system is that the rules that store data are clearly defined and understood by all users. The ability of the information system to give branches the facility to manage cash is also important. Note again that MF04 had an elementary accounting system of sorts that did not allow any cash management at branch level, and this raised borrower transaction costs. The information system ofMFOl did have this flexibility. The capabilities of the information systems at MF02 and MF03 were not explored in any detail in this study,
d_ ; ;Et ,-kgJ £ liiAd
but it is evident from interacting with MF02 staff that the data required for this study were not readily accessible, despite being stored on the system.
The lack of readily accessible data for the study was also a problem for MFO 1. Only a few users who understood MFO l' s rules and processes could access the data on the database to create any meaningful information. Hence, although all four MFOs had an MIS, the flexibility and power of the MIS to enable these MFOs to generate useful information, to respond to changes in markets with different products, or to expand the scope of outreach and offer savings facilities, varied. Most important of all, these limitations can severely constrain the development and expansion of fmancial technologies and services by these MFOs.
4.8.5 Loan Monitoring, Arrears Tracking and Loan Write-off Policies
Arrears definitions and the tracking of arrears are important for effective credit management.
The point at which a payment is defined as late, how quickly management and staff are informed of arrears and what action is taken can profoundly impact on a fmancial institution's success at recovering outstanding money (Yaron, 1994; Yaronet al., 1997). This in turn will impact on self-sustainability if arrears can be recovered cost effectively. Arrears definitions are normally linked to the repayment frequency of a particular loan. The loans granted by MFO 1, MF02 and MF04 are repayable on a monthly basis, with clearly defined due-date for instalments that sets the starting point from which arrears can be measured. This also gives borrowers a clearly defmed point by which instalments are due. Lender MF03, however, has no clearly defmed due date for loans, and rather deducts 25% of the value of the crop delivered to the mill.
Information on the tonnages delivered by the small-scale growers is sent to MF03 for processing and then calculating what should be deducted, based on the quantity of the crop delivered. The mill then processes these payments. The terms and conditions of the loan contract drawn up by MF03 also stipulate that the loan is only due and payable at the end of the 2- or 8-year loan term. This has created additional complications for effective follow-up on arrears, since as per contract the loan is only deemed in arrears at the end of the loan term.
This has created disincentives for borrowers to exert the necessary effort to produce a crop, the proceeds of which are used to redeem the loan. To obtain some estimate of arrears, MF03 performs a calculation on what should have been delivered each growing season by the borrowers. From this apro forma instalment is computed. If the amount deducted by the mill is less than 20% of what should have been deducted, an arrears investigation is done by extension and loan officers. However, not all of the borrowers in arrears may be visited, thus creating further incentives not to pay amongst borrowers.
Lender MFO1 raises instalments on the first day of every month. If instalments due are not paid by the first day of the month, the instalment is regarded as being in arrears. The MIS system tracks this on a daily basis and accounts are queued for a follow-up telephone call by a credit controller within two to three days of the instalment being flagged as being in arrears.
In addition to an immediate telephonic follow-up strategy, MFO 1 also sends a series of letters to borrowers in arrears. MF04 follows a similar 'account' ageing methodology, with instalments being regarded as in arrears one day after the instalment was due. Instalment tracking by MF04 was still done on a manual basis, which may result in slower reaction to the arrears.