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Guidelines for Establishing and Operating Grameen-Style GUIDELINES FOR ESTABLISHING AND OPERATING GRAMEEN-STYLE MICROCREDIT PROGRAMS Based on the practices of Grameen Bank and the experiences of Grameen Trust and Grameen Foundation Partners M. Nurul Alam and Dr. Mike Getubig www.grameenfoundation.org © Grameen Foundation uSa, 2010 Guidelines for Establishing and opErating grameen-stylE microcrEdit programs basEd on thE practicEs of grameen bank and thE ExpEriEncEs of grameen trust and grameen foundation partnErs Mohammad Nurul Alam and Mike Getubig, with contributions from Andrea Findley, H.A. Shah Newaz, Joseph Mwangi-Kioi, and other colleagues at Grameen Bank, Grameen Trust and Grameen Foundation Design by Lloyd Greenberg Design, LLC www.grameenfoundation.org Contents www.grameenfoundation.org Contents list of tables and figures viii list of annexes xi list of acronyms x foreword xi preface and acknowledgement xiii sEction 1: introduction 1 i. introduction 1 ii. about the grameen bank 3 a. how grameen began 3 b. grameen’s achievements 4 iii. the grameen bank approach 5 a. philosophy and objectives 5 b. an overview of the grameen system 6 c. the Evolution of grameen: from the classic to the generalized system 7 iV. Worldwide replication Experience 8 a. What do grameen-style programs have in common? 8 V. conclusion 9 i Guidelines for sEction 2: basic concEpts and procEssEs of thE gramEEn mEthodology 11 e i. introduction 11 stablishing and ii. targeting 11 a. basic principles 11 o b. Examples of cost-effective targeting 14 perating Grameen-style 1. grameen bank’s “means test” 14 2. the cashpor housing index and asset test 15 3. sEf’s participatory Wealth ranking 16 4. grameen foundation’s progress out of poverty indextm 16 m iii. group formation 17 icrocredit Programs a. concept of group and its importance 17 b. criteria for group formation 17 c. process of group formation 17 d. a special note on the issue of group Joint liability 18 www.grameenfoundation.org E. a Word of caution in group formation 19 f. techniques for motivating poor Women 20 iV. continuous group training 21 a. objective 21 b. duration and place 21 c. special considerations 21 1. punctuality and attendance record 21 2. compulsory savings 22 3. selection of leadership 22 4. Verification of poverty status 22 d. core contents of group training 22 V. group recognition 25 a. What is the group recognition test 25 b. objectives 25 c. results 25 d. limits to the number of groups 26 Vi. Establishing and managing a center 26 a. the center and its importance 26 b. duties of the center 27 c. factors to consider 27 d. fixing the time and location 27 E. place 28 f. frequency 29 g. procedure and agenda 30 1. timely attendance 30 2. sitting arrangements at a center meeting 30 3. formal start of the meeting and attendance 30 ii 4. loan, interest and savings collection 31 5. loan proposal process 31 6. discussion on development issues 31 7. formal meeting conclusion 31 h. Election of members to leadership positions 32 icrocredit Programs i. duties and responsibilities 32 m J. role of the center manager 34 k. role of the branch manager 34 Vii. creating and maintaining credit discipline 35 a. What is credit discipline 35 b. creating strong credit discipline 36 perating Grameen-style o 1. proper targeting 36 2. good group formation 36 3. continuous group training 36 4. the Verbal contract—attendance, repayment and collective responsibility 36 stablishing and e 5. thorough group recognition test 37 6. admission of new groups to the center 37 7. center discipline 37 Guidelines for 8. strict adherence to loan proposal procedures 38 www.grameenfoundation.org 9. cost-effective loan utilization check 38 10. group support/pressure and collective responsibility 38 11. the sixteen decisions 38 c. supporting strict credit discipline 39 1. transparency in all transactions 39 2. management should provide close supervision, Especially of fieldwork 39 3. appropriate personnel policies 40 4. monitoring and Evaluation with follow-up action 40 5. some form of security net or insurance fund for members in difficulty 40 d. maintaining credit discipline 40 Viii. loan proposal, disbursement and monitoring process 42 a. loan proposal process 42 b. loan approval process 42 c. loan disbursement process 43 d. loan utilization monitoring 44 1. the importance of proper loan utilization 44 2. the first phase in loan utilization Verification—the role of center and group leaders 45 3. the second phase in loan utilization Verification—the role of grameen managers 45 4. a note on the cost-effectiveness of loan utilization checks 45 ix. loan utilization Verification policy 46 x. supervision of field operations 47 a. introduction 47 b. supervision forms 48 c. Essential areas of field-level supervision 48 d. branch manager’s supervisory functions 53 E. area/ Zonal office supervisory functions 54 xi. delinquency management 57 iii a. introduction 57 Guidelines for b. the concept of solidarity 57 c. common cases of delinquency 58 d. how to deal with delinquency 58 e E. delinquency management 59 stablishing and sEction 3: gramEEn bank’s financial products and sErVicEs 61 o perating Grameen-style i. introduction to grameen’s classic and generalized systems 61 ii. grameen bank’s loan and savings products 61 a. loan products in the grameen classic system vs. the generalized system 61 b. the basic loan—terms and conditions 61 m c. the basic loan and the flexi-loan 65 icrocredit Programs d. housing loan 66 1. requirements for a housing loan 67 2. housing design 67 3. types of housing loans 67 www.grameenfoundation.org E. higher Education loan 68 f. mircoenterprise loans 69 iii. grameen savings and pension funds 69 a. personal savings account 70 b. grameen pension savings (gps) 71 c. loan insurance savings fund (lisf) 71 d. fixed deposits 73 E. other Voluntary savings 73 iV. life insurance 75 sEction 4: gramEEn bank’s social dEVElopmEnt sErVicEs 77 i. introduction to grameen’s social development agenda 77 ii. grameen’s sixteen decisions 77 iii. programs for promoting development 78 a. special Workshops for members 78 b. Education programs 80 c. health services 82 d. program for destitute members 82 E. disaster management program 83 f. rehabilitation fund 85 iV. measuring poverty alleviation 86 a. introduction 86 b. grameen bank’s “poverty-free indicators” 86 c. grameen foundation’s progress out of poverty indextm 87 iv sEction 5: human rEsourcEs 91 i. introduction 91 icrocredit Programs m ii. organizational and staffing structure 91 a. grameen bank’s structure 91 b. initial staffing structure in a start-up program 92 iii. staff recruitment 94 perating Grameen-style iV. field staff training 95 o a. gb field staff training 96 b. grameen bank training design 96 V. staff and branch Evaluation process 98 stablishing and e a. introduction 98 b. preparing staff annual and action plans 98 c. monthly staff review meetings 99 Guidelines for d. Quarterly review meetings 99 www.grameenfoundation.org E. semi-annual and year-End staff performance Evaluation 100 f. branch progress report 103 Vi. staff motivation 105 a. staff motivation at grameen 105 b. developing incentive programs 106 Vii. the star system: creating productive competition between branches and staff 107 sEction 6: thE gramEEn bank branch accounting systEm 111 i. introduction 111 a. the general ledger 111 b. the loan tracking system 111 ii. accounting structure 112 a. general ledger 112 b. chart of accounts 112 iii. Types of transactions handled by a grameen bank branch 113 a. at the center level 113 b. at the branch level 113 iV. Recording and accounting for the Various transactions 114 a. types of Vouchers 114 b. debits and credits (double-Entry accounting) 114 c. Vouchers and the classification of Vouchers 115 d. Voucher preparation and reconciliation 115 E. deposit and Withdrawal Entries 116 f. sundry account 116 v g. suspense account 116 Guidelines for h. grameen bank general account 117 i. depreciation 117 J. Voucher and Entry book system 118 e k. Weekly and monthly balancing 118 stablishing and Vi. forms and formats 119 Vii. branch reporting to the head office 121 o perating Grameen-style Viii. sequential activities in the grameen bank branch accounting process 122 ix. conclusion 123 m sEction 7: monitoring, rEPORTING and managEmEnt INFORMATION systEms 125 icrocredit Programs i. introduction 125 ii. types of monitoring 125 a. Verbal staff reports 125 b. surprise and scheduled field Visits 125 www.grameenfoundation.org c. internal audits 126 d. periodic Written reports 126 iii. branch-level operational and financial reports 127 iV. consolidated operational and financial reports 128 a. area, Zone and head office monitoring and reporting 128 b. report analyses: Variance, trend, ratio analyses and sEEp frame tool 128 V. management information system—an introduction 132 a. What is mis? 132 b. Why is mis important? 132 c. prevailing information systems in microfinance 133 d case for adopting an automated mis 134 E. guidelines for automation 135 f. What programs do grameen bank and other grameen-style microcredit institutions use? 138 sEction 8: intErnal control and intErnal audit 141 i. introduction 141 a. internal control 141 b. internal audit 141 ii. internal controls 142 a. administrative controls 142 b. accounting controls 143 iii. internal audit 144 a. Effectiveness of internal audit 145 b. duty of internal audit 147 vi c. role of internal audit 148 d. necessity of internal audit in mfi operations 148 E. collaboration of internal and External auditors 149 f. objectives of internal audit 149 g. other processes of internal audit 149 icrocredit Programs m h. internal audit techniques in microfinance 150 i. internal audit scheduling and process 151 J. areas of internal audit Verification 153 k.
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