Microfinance Customer Management Strategy for the Fast Growing MFI

A. Background 
Microfinance has been well known in our country since late 19 century. It started in 1895 as the first bank who focused on lending cash money to micro consumer. Our country stretched over 1,992,550 km2 with more than 13,000 islands stretched over it. By GDP, Indonesia has been ranked the 122 of 182 country with GDP US$4.380 .There are more than 232 Million inhabitants and 31.02 Million are still in poverty level with 64.23% people in rural area. This has turned the country for years to be a suitable habitat for microfinance. 

B.Current challenge
Over the last 8 years microfinance has grown so rapidly in our country. Previously there was only one major bank that become a single main player in the country. Bank BRI has become the legendary bank that served the micro segment over will be followed by another major player bank, so called Bank Danamon, which started the business in year 2004 Bank Danamon gain significant profit from the initiative with 20%-30% of its bank profit came from this segment.

This dynamic had endorsed some other major players to tap in to the market and followed by the biggest bank in Indonesia, Bank Mandiri, and other major banks like Bank CIMB Niaga, Bank Mega, Bank BTPN and Bank Pundi. 

C.Current trend
despite the promising micro growth and penetration to the society, some issues has grown to become major concerns. Like any other developing countries, the microfinance growth was only from the quantity side not the quality perspective.

The indicators from the statement above come from condition where the non performing loan in those major banks was at risk and has a stable performance. Bank Danamon, The Bank BRI followers even touched the alerting performance where the non performing loan is currently reached 6%, while Bank Mega hit 5%, and BTPN hit 4.5%.

D.Worst case scenario
Fortunately, the Bank Danamon case currently happens to only few cases. But major bank will represent the symptoms of other awakening issues in any other banks or financial institution. The issues have become important to address. Another banks or MFI will suffer the same case if the issues have not been explored for some immediate solutions.

As what happened in India, we have learned the pain of not only making the microfinance went slower in term of growth but also in term of quality. Another big issue was that practice of maintaining the relationship with micro debtors was so awful that some compliance cases had come up and gave negative perception on microfinance in the country. Instead of making poverty go low, the microfinance only makes the poor people go poorer and stressful.

Indonesia may have become another victim of from microfinance euphoria if some studies and proposed actionshave not been raised for the purpose of ensuring the microfinance sustained and the noble purposes will still nourishin this country.

E. Paper goal
the study that will be brought into the picture from this paper and learned later through program will certainly give meaningful knowledge depth and best practice experience to address some short, medium and long term solutions to be applied directly after going back home.

Bank Mandiri, as the biggest bank in Indonesia that has entered the market extensively since 5 years ago, will be a perfect place to start the implementation of those solutions. This bank microfinance segment will grow almost 60% in 2012 and in 2013, and the business portfolio will be tripled from the 2011 portfolio. Currently the bank has become the third major player in microfinance after BRI and Bank Donavon. By projection, it will surpass the Bank Danamon in the year end 2013 and planned to head up with the legendary Bank BRI.

The Credit Portfolio Department has become the major support of microfinance strategy and policies in the bank and become also the perfect place to start implementing some solutions from the study. The bank microfinance basic growth and quality strategy that has been initiated from this department, played important role in achieving not only  40% growth last year and but also best quality portfolio since 2008.

The well executed solutions brought later after the study will be an example to the other banks, formal or informalfinancial instructions, of growing the microfinance in a structured and qualified way, within only a few years since its making. On the other hand, by the year of 2014, as the bank become the 2nd major player in microfinance, it will also become indicator of the microfinance health in the country.

F. Measure the problem depth.
Sustaining the business growth is a major concern for a microfinance institution and the Bank Danamon case will be a perfect match to start and learn. Since its opening in 204, the bank has grown its size with the average growth ofmore than 100% each year and by its third year.

But, after the fifth year, it had shown the symptoms of worsening non performing loan. The Non performing loan hasmade the business growth grow only 7.8% only a year. This number is far beyond its competitor such as Bank BRI who has grown by 35% and Bank Mandiri by 100%. In 2012, The business will focus on fixing the portfolio and recovering write off portfolio.

On the other hand the issue of compliancship had also aroused from the debtors maintenance activity by its fieldcollector and has made negative perceptions for the microfinance debtor acquired by the bank. Even the case had gone into the some complain in the top leading national newspaper. The perceptions were then spread out due the other microfinance society by the informal quick mouth-To-mouth communication in the society.

G.Analysis
There is few reasons why the portfolio in some case has worsen in an intolerable trigger. Reasons such asinappropriate debt to service ratio, loan to value ration, loan disbursement and over finance has been frequently mentioned and explored in many events and incidents. But there is one that related to the non performing loan and related to the case that has been mentioned above, the Danamon case and even will determine the business model for the microfinance itself.

The way the MFI chooses to serve its debtors will determine how it will manage or maintain  its debtors, since first time he become a customer up to he become more prosperous or even defaulted. The appropriate maintenance strategy will not only keep the debtors pay the Installment but also will increase the chance being refinanced with the higher limit.  

In the country experience, there are 2 types of maintenance strategy applied by MFI: 
1. the segregation duty type
in this scenario, the sales team and the collection team is separated into 2 different team. Each organization has a solid organization from branch up to the head office team.

2. The integrated organization type
the sales acts also as the collector who collect the money from the customer therefore there is no need for specialized unit that focus on Collection. 

Each of the type has its own advantage and disadvantage and choosing the right type of maintenance strategy will determine the microfinance business model. Some MFI prefer to choose the first type of maintenance strategy as it will speed up the business growth while they can use their existing collection team in the other bank segment to do some collection activities if some defaulted customers exist in the portfolio.

The Bank Danamon case has emphasize the facts few things :
- Microfinance is different with consumer finance  that can be indicated from end to end in its product or credit cycle starting from the segment, sales, acquisition and maintenance

- Mixing the Micro and non microfinance strategy and even forcing the strategy to be applied in microfinance will cause on the risk incremental and decrease business sustainability.

H.Solution option
Choosing the right maintenance strategy will not be as easy as choosing the type of maintenance strategy that will later impact the business model. For the growing microfinance institutions, this type of concerns should not only bethought later on after booking stage period finds its form, but should be taught since the birth and even willingness to grow the MFI.

The advantage will be used not only if there are some defaulted customers exist but in the booking process each branch can choose whether to loosen some customer criteria or tighten them. The strong maintenance strategy will also increase the confident level of the MFI grow the business.

Therefore, considering the above advantages, few maintenance strategies can be drawn below, not to be exactly followed but only to give generic type of them because the flexibility in the field will make the maintenance strategy type limitless and varied.

Some of the generic maintenance type can be divided as follows :
1. Combo type, where some field collectors will be put to handle the defaulted customer especially after it pass 90 days past due. The sales people will play important part from account acquisition up to 90 days past due. The separate analyst is provided in each branch to ensure business acquisition process in a correct order.

2. Duty segregation of handling the customer assets if it is defaulted to specialized unit that focus on managing, and recovering the write off account where the rest process from sales, acquisition up to collection is handled in each branch.

3. Provide separate people that acts as business mentor and have a skilled experience in handling difficult business problem owned by customer. He acts as separate people that will monitor the business progress and acts as a doctor to cure the patient. The consultant will act the father and the customer will act as the child in this process.

I. Solution
Each type of maintenance strategy will be different with pros and cons at hand, but knowing the type of its customer,behavior, culture and society plays an important role in conception the right maintenance strategy for microfinance customer.

On the other hand, there is several generic detail solutions that should applied in regards to ensure that the maintenance strategy executed well and reach its optimal benefit.

Few detail generic solutions can be mentioned below with 3 major concerns:
1. Embrace technology
With current changes in technology that has gone into each side of our life, it is very possible that technology can be used to any goals that possible to achieve, including using it for microfinance customer maintenance strategy. The current data exposed in the country media shows that the more people now enjoy the benefit of technology and the people mobile penetration number increase from 22% to 53% and yet to grow further as the penetration is still below the average southeast Asia nations. The mobile number penetration has increased by 3 times since 2005. The interesting part is that the mobile penetration number in low segment is proven to the highest compared to other segment.

Technology as a mean to support business is frequently used and it will act as a tool to help supporting our main activity. This kind of approach can also be applied to the technology that will help microfinance society from the consumer, branch sales up to head office.

Microfinance branch demographical coverage is more likely to be spread out compared to the regular bank infrastructure. This happens due to the need of microfinance customers that most likely unable to come to bank officetherefore the bank it should get closer to customer site. However, the connection between branches and between microfinance people should still be existed.

In a fast growing microfinance company, it is rarely to find the experience staff in handling the microfinance customertherefore. The maintenance strategy should enable technology in ensuring that the maintenance or visit to customer has been done by the staff. It is crucial that they do exactly what the strategy tells them to do as there will not be enough time to train those newly inexperienced staff. Each staff should report their daily maintenance activity through any possible technology means therefore we know exactly that the strategy has been executed properly.

2. Portfolio management
with the more advanced risk portfolio knowledge nowadays, the more variety of fields is using the risk skills for many purposes. Microfinance nowadays is not the old fashioned microfinance that used only standard Microsoft office and windows program to run their business. The current MFI should look at embracing risk for the purpose of tapping the right segment, credit scoring and flexible collection strategy.

The fast growing multifinance doesn't have much time to make mistake and time fix it therefore each step should be taken in a precautious manner and properly. The use of fine and meaningful portfolio management will tell the business people whether they take appropriate step in any possible time. The portfolio actual condition compared to its trigger in the portfolio will tell whether current and future business portfolio ahead has problem to be concerned of by the entire stakeholder.

On daily basis, all the staff should also be awarded of portfolio analysis in a very basic and simple way that they understand. By knowing this, all the risk awareness will increase and the maintenance strategy will not only to be used on paper, but to do it by heart. 

3. Network opening
With the type of business that proven to be a social business instead of purely profitable business, it is proven that network and everything related to it become very crucial therefore opening a branch, outlet, or even kiosk either physically or socially is critical to the business, not only in term of growth but also in term of maintenance.

The term of network builder for an MFI would reflect not only the physical term of infrastructure but also in term ofemotional network. It has become criteria that soft skills like interpersonal skills play an important role inmainstreaming microfinance debtors. In a simple way, it can be said that a MFI consultant to consumer are the one the microfinance people trust and feel comfort with. 





J. Conclution
Microfinance customer management plays an important role in ensuring proper business growth and sustainability. On the other hand, future challenges drag the current market more felled up with more players to come.

The more players to come and grow their business can cause the microfinance itself go to the edge critical points where microfinance noble purpose will diminish across the time. Best practice, and formal knowledge depth will certainly give more values in measuring and analyzing the current situation, finding the proper solutions options,implementing the prospers solutions and ensuring the solution sustainability.