Since the start of microfinance in 1960s and 70s a number of experiments have been undertaken in microfinance. With experience many of these experiments have been known to promote professionalism and sustainability in the MFIs. These have now been widely accepted as best practices in the microfinance sector and the new MFIs look up to these practices for achieving professionalism and sustainability much quickly.

M2i Consulting can help the new MFIs as well as the established ones in adopting these best practices to suit their requirements. Some of the best practices of the MFIs have been outlined below

1. Mission and visions: The most successful MFIs have the mission to provide financial services to the under-privileged sections of the society on a sustainable basis. The hallmark of this vision is the focus on providing the financial services and not indulge in all kinds of services. Also, these MFIs aim to cover all their costs out of their operating incomes and try not to depend of grants and donations.

2. Scale of operations: The successful MFIs have realized that achieving significant scale of operations is very important not only for increasing their outreach but also for reducing average operating expenses which enables them to achieve sustainability and reduce costs to the borrowers. This also helps them in adopting coordinated growth as well as funds mobilization activities.

3. Governance: Good MFIs have representations of all their stakeholders in their Board of Directors – the lenders, the investors, the clients and the management. The Board of these MFI also have reputed professionals having experience in microfinance banking and development. The Board guides the organization in its growth plans and makes sure that the organization follows ethical practices.

4. Human resource: Human resource is the most important assets of an MFI. Good MFIs try to recruit, train and develop professional manpower at different levels. They design their incentive system in such a manner that it promotes efficiency and ensures motivation for the employees. Well-defined career path for the employees ensures that they share the vision of the organization and stays with the organization for a long time.

5. Accounting system and MIS: The accounting system is designed to record and report the required financial information timely and accurately. Good MFIs prepare their financial statements on a monthly basis which enables them to track their performance regularly. The MIS of an MFI should be able to provide the required information – related to outreach, portfolio quality and other operational issues – for the purpose of decision making on a timely basis. While it may be beneficial to computerize the MIS from the point of view of efficiency, some of the good performing MFIs are managing well with manual systems.

6. Internal control systems: : Internal controls refer to the systems of checks and balances at every level of the MFI. At one level a very active board of directors can prove to be an effective control on the decision making of the management while at the other level the interrelationship between the accounting system and MIS can act as an effective check against fraud and misappropriation. The monitoring system and the internal audit systems are essential components of the internal control systems in successful MFIs.

7. Business planning: The best performing MFIs have dynamic and comprehensive business plans both for the long-term and short terms. These business plans are used as the guideposts to measure the performance on the regular basis. Relevant components of the business plans are shared with the concerned people who benchmark their performances with these plans.

8. Portfolio quality: The better MFIs strive to maintain a perfect portfolio quality. The PAR60 in these MFIs is less than 2%. A combination of good MIS and tracking system, suitable products as well as a system of accountability and responsibility are key to maintaining good portfolio quality.