Serve effectively and live within your means

ECLOF International board Chair challenges national managers

Rev. Prof. Christoph Stückelberger has told an ECLOF gathering that efficiency and cost effective practices are the only way to deal with current problems facing a number of National ECLOF Committees (NECs).

The ECLOF International Chairperson was addressing the second International Managers Workshop, which gathered 17 delegates from NECs around the world. The previous workshop took place in Bolivia four years ago.

Others present at this year’s meeting included board members from Switzerland, the Philippines and the Dominican Republic, plus resource persons from Bolivia, the Dominican Republic, and the USA. Five staff members from the Geneva Secretariat also attended.

The meeting began with two days of field visits to meet ECLOF clients in their communities and learn from their experiences. Delegates then spent the remaining five days listening to expert presentations, and taking part in discussion and working groups.

Theme
Under the theme, “Serve effectively and live within your means”, the international managers workshop enabled participants to update themselves on current issues and developments within NECs, and to discuss practical proposals related to the management and organizational development of their agencies.

Worship
Each day the workshop began with worship conducted by participants from each of the regions where NECs are located. The host Dominican Republic NEC led worship on the first day: the Africa, Asia and Latin America/Caribbean regions followed on subsequent days. The managers said they found the bible readings, reflections, prayers and songs an inspiration for the work that followed.

Field visits
Field visits gave participants a first-hand insight into some of the activities ECLOF Dominica has funded, and the opportunity to talk to their clients. Members visited the Guerra Project, Las Mercedes Cooperative, the Rosa de Sarón Church, “I am the Good Shepherd” Pentecostal Church, the New Hope Women’s Association and the Sabana Perdida Chamber of Commerce.

Fair and credible
The Chairperson of ECLOF International, Rev. Prof. Christoph Stückelberger, formally opened the workshop with a presentation on, “Fair credit with credible stewardship”.
Prof. Stückelberger, who is General Secretary of Bread for All and Professor of Ethics at the Theological Faculty of the University of Basel in Switzerland, outlined four main topics that he said must be taken into consideration when defining fair credit and credible stewardship. They are the need for:

Ethical criteria
Drawing on the 16th century reformer John Calvin’s seven criteria for charging interest rates, Prof. Stückelberger highlighted Calvin’s strictures that, “Whoever borrows should profit as much or even more from the borrowed money than the creditor”, and that, “One should not overstep the limits set by local and regional laws.” This latter restriction, said the ECLOF Chairperson, could mean the acceptance of a limit on profit imposed by government authorities, for instance by means of a capital gains tax.

Effective management
Prof. Stückelberger said that properly planned and implemented credit is an effective way of enabling urban and rural communities to use assets and talents they already have. It enables people to be active participants in their own development and that of their communities. The challenge is to manage microfinance programs in an efficient, cost effective, customer friendly, sustainable and credible manner.

Responsible stewardship
Stewardship, Prof. Stückelberger added, is one of the values that guides ECLOF’s work. “ECLOF strives to be a responsible steward of its resources, acceptable and transparent in its work, systematic in evaluating its progress and results, professional in managing its funds, and with personal integrity so that it may grow and serve many.”

Transparent leadership
Transparent and democratic leadership leads to the credibility of ECLOF, explained Prof. Stückelberger. This includes the process of Board nomination that must be followed to the letter in order to safeguard the whole ECLOF family.

A second area of transparency concerns workshops and training. ECLOF continues to invest in these areas through its technical assistance fund. It is very important, Prof. Stückelberger said, that lessons learned in workshops and on training courses are taken up and institutionalised within the NECs.

Referring to the International Board and Secretariat, Prof. Stückelberger said it was important to remember that out of 22 Board members, excluding the Chairperson and Treasurer, eight people are active members of National ECLOF Committees, which is ECLOF’s largest constituency. ECLOF is probably the only institution of its kind that puts a premium on this type of representation.

Knowing our clients
In a further workshop session, Mercedes Canalda, the Executive Director of the Dominican Association for the Economic Promotion of Women (ADOPEM), and member of the ECLOF International board, spoke on “Knowing our clients”. Ms Canalda explained how market research could support a NEC’s strategy for growth and sustainability. She believed that research was “a powerful platform from which to make the leap to marketing decisions”, from which led the path to a successful credit program.

Future planning
A series of presentations, panel discussions and group work sessions covered a range of topics that explored ways and means to ensure the success of a microfinance organization like ECLOF.

The international managers divided into groups to prepare a three-year plan for an imaginary ‘reach-out’ NEC, and to answer the question, ‘What makes clients want to stay with an NEC?’

The groups concluded that the expansion of ECLOF programs should not be ‘resource driven’ but ‘mission driven’ to alleviate poverty, and ‘market driven’ to seek those in need.

Expansion
A group of three expert panellists presented their respective NEC’s experience of expansion strategies. Larry Millan of the Philippines reflected on the purpose, criteria and procedures for expansion. José Luis Pereira of Bolivia spoke about ECLOF Bolivia’s positive experience in the growth of both the number of agencies and staff. He explained that these increases were needed to support a carefully planned institutional expansion strategy. Finally, Ramón Alvarez of the Dominican Republic outlined what his NEC had learnt about the need to expand programs and products.

CGAP
John Banda, Executive Director of ECLOF Zimbabwe, discussed the importance of defining sustainable interest rates, guidelines for calculating interest rates, and how to set interest rates in an inflationary environment. In his presentation, Mr Banda considered the CGAP (Consultative Group to Assist the Poorest, set up by the World Bank) guidelines for interest rate setting.

Payment policy
One workshop session heard a report from the working group set up to review the ECLOF policy whereby NECs have to pay to ECLOF Geneva one third of the interest they receive on the loans they make.

After a thorough debate, the international managers unanimously agreed to accept the working group’s recommendation to reaffirm the current one-third policy for the whole ECLOF family.

Sustainability
In a plenary session, Martín Villafuerte, Executive Director of ECLOF Peru, considered “Sustainability: Challenges and Possibilities”. Mr Villafuerte covered the background of and approach to sustainability, sustainability in institutions and ECLOF, financial planning, and the dimensions and management of sustainability.

Roles
A panel made up of Mercedes Canalda, Joy Lumbag (Philippines), Byron Tweeten (USA) and Edgar Guardia (Bolivia) discussed “Roles of the board and management”.

Byron Tweeten, who is a well-known international consultant on organizational issues and Chairperson and Chief Executive Officer of the Growth Design Corporation, took the workshop managers through ways to engage their boards and manage their NECs for growth and success. He based his presentation on his book, Transformational Boards and Management.

Mr Tweeten said the “drivers of change” in our world are consolidation, technology, needs (innovation and change), and globalisation. He also defined three types of board models:

Today’s leaders, Byron Tweeten asserted, need to be able to think strategically in groups, understand market trends and their implications for organizational change, play various roles in the group process, bring expertise to process and decision making, and make decisions for the good of the institution and the greater constituent community.

A 21st century leader, he said, is likely to have to take on the following equally important roles: regulator, information giver, nurturer, questioner, and facilitator.

Resource mobilization
Later Byron Tweeten joined Rosa Guerrero, Financial Director of ECLOF Ecuador, and José Luis Pereira, Executive Director of ECLOF Bolivia, to consider resource mobilization, and how to link strategic planning with resource development.

The panel reminded ECLOF’s international managers of words from the Gospel of Matthew:

“Ask, and you will receive; seek, and you find; knock, and the door will be opened to you. For everyone who asks will receive and he who seeks will find, and the door will be open to him who knocks.” (Mt 7:7–8)

Byron Tweeten emphasised four essential elements for resource development: planning, volunteer leadership, the case for support and potential funding partners. He said, “Resource mobilization is all about building relationships and nurturing.”

Panellists told the workshop that a board must demonstrate it is:

Risk management
An American economist and banker, Kay Dixon and Mary Kuria of ECLOF Kenya spoke about the difficulties of risk management.

Ms Kuria took the workshop through a detailed consideration of the rules and regulations of ECLOF Kenya’s Risk Management Fund.

Ms Dixon defined risk as “the possibility of a negative outcome”, and went on to consider different types of risk. She believed that credit and foreign exchange risks could be addressed independently, although it is possible that the solution to one may complement the solution to the other.

Kay Dixon said risks could exist in the following areas of a credit operation:

Ms Dixon then made recommendations for:

Collection and arrears
Larry Millan, Director of ECLOF Philippines, reviewed concerns about effective loan collection and the control of arrears.

He stressed that before a NEC made a loan it should determine the difference between a client’s need and what a client wants. It was also important to evaluate a client’s capacity to pay back a loan, and the experience a client had to use the loan effectively. Guarantees for the loan also had to be considered.

Credit discipline
There must be a willingness and ability by the client to pay a debt when due, plus an understanding of the need for clear priorities, and a determination to work hard and honestly. Borrowers also had to recognise the need to live within their means.

Collection system
Mr Millan said procedures for collecting repayments must be clear and simple, with responsibilities defined. It was necessary to establish who should do what, and when, and how discretion could be applied if circumstances necessitated.

Deterrents
Larry Millan said some people could be put off microcredit if they were unable to provide adequate securities, or if they risked punitive sanctions and legal actions. The fear of harm to one’s reputation in the case of defaulting on one’s repayments could also be a deterrent.

Arrears
Common causes of arrears, said Mr Millan, are market forces, mistaken projections and assumptions, calamities, accidents and death, diversion of a loan, poor credit discipline, an incomplete credit evaluation, and apathy.

Two kinds of delinquent clients exist: those who cannot repay their loans, and those who refuse to do so.

Finally, Mr Millan detailed eight principles for arrears management by a NEC:
i) learn and understand clients’ problems;
ii) conduct background check, verify data;
iii) prepare for legal action;
iv) remain objective, do not give in to emotion or temper;
v) maintain a cordial relation as much as possible;
vi) be creative in finding solutions;
vii) make clients commit;
viii) be morally convinced you are doing the right thing.

Sustainability
Mr Martin Villafuerte, Executive Director of ECLOF Peru, examined “Sustainability: Challenges and Possibilities”.

Mr Villafuerte said that sustainability in ECLOF was related to the organization’s stewardship of its resources, and its vision, mission, Global Policy Guidelines and Minimum Standards of Performance, as well as its efficiency.

He added that financial planning was crucial, and that sustainability required living within one’s means and not having to rely forever on donations. In a telling metaphor, the Peruvian economist said sustainability for a NEC required living off the fruits and not the seeds, since the latter is needed to produce even more fruit.

In order to manage a sustainability process efficiently, Martin Villafuerte said it is necessary to have:

Relationships
Edgar Guardia, a Bolivian economist and long-serving member of ECLOF Bolivia’s board, spoke about how to ensure a good relationship between a NEC board and its management.

Drawing on his experience as a board member of a number of non-profit organizations and his current role as Executive Director of the Foundation for the Development of Agricultural Technology in the Valleys Region of Bolivia, Mr Guardia said it was necessary to define a clear structure of roles and competencies. Boards had a strategic policy making role, while management had an operational and executive role, although both are part of the same vision.

Mr Guardia believed it was necessary to have a system of checks and balances in which neither side dominates the other. Lines of command, information and reporting should be defined in order to avoid conflicts and misunderstandings. NECs must avoid the ‘Founder’s syndrome’ as well as the ‘Executive Director’s syndrome’. To avoid the ‘Executive President’s syndrome’, the same person should never serve in both roles. It was necessary for the officers of a NEC to develop a working relationship based on trust, transparency, credibility and, most importantly, respect for each other’s roles. Training should be provided where necessary.

Other points to note were: