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1. BACKGROUND This project in the organizational traineeship segment was floated by the ICICI prudential life insurance company limited for two of its channel partners for its Hyderabad branch. The project title read as- the study of the organizational structure of the two channel partners of the Hyderabad branch office of the company. This linkage between the ICICI prudential life insurance company limited and its two channel partners in Andhra Pradesh in the organizational context could be seen by the organizational structure. Thus, the organizational structure diagram shows the linkage between the ICICI Prudential Life Insurance Company Limited and its channel partners, namely- Grama Siri and Star Microfin Service Society. These organisations are microfinance institutions in the state of Andhra Pradesh. The rural business of the company is basically conducted under the stipulations of the insurance regulatory development authority, acronymed as IRDA. The IRDA stipulations has made rural and social mandate statutory on the insurance companies. The insurance companies which do not comply with the stipulations are fined for non-compliance. Therefore, the company has been fulfilling its rural and social mandate through the rural business. ICICI Prudential has a robust rural distribution model, involving tied agents, brokers as well as referral arrangements with NGOs, micro-finance institutions and corporates for conducting its rural business. To quote Shikha Sharma, CEO & MD, ICICI Prudential Life Insurance (4th July, Hindu): "We work closely with our partners like Uttranchal Co-operative Marketing Federation, Grama Siri (an MFI), Cargill, Anarde Foundation, ICICI Bank and ITC's e-Choupal, to educate people about how life insurance can be used as a protection and savinGS instrument," says Shikha Sharma, CEO & MD, ICICI Prudential Life Insurance. Through these relationships ICICI Prudential is present in more than 15 States, including Andhra Pradesh, Madhya Pradesh, Tamil Nadu, Rajasthan and Uttar Pradesh.

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"We have long been convinced of the need for and long-term potential of life insurance in rural India. Certainly, covering the lives of those in rural areas presents several unique challenges. We have remained true to our customer first philosophy by developing specific products and introducing simplified underwriting and claims guidelines, to help the rural customer secure his or her financial future," says Ms. Sharma. Thus the organisations that we studied under the organizational understanding component of the organizational traineeship segment of the Programme in Rural Management course were the two channel partners of the Hyderabad branch of the company – Grama Siri & star Microfin service society (SMSS).

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2. THE ORGANISATION: GRAMA SIRI 2.1 Basic details about the organisation and brief history Name of the Organisation and

GRAMA SIRI, J.P. Nagar,

Complete Address

Nandirajuthota PO: 522 120, Bapatla Mandal, Guntur Dist., A.P. Phone (08643) 224132 Fax

(08643) 222129

E-mail: [email protected] [email protected] Location

It is in South Central Railway between Howrah – Chennai Route 75 Kms. distance from Vijayawada towards Chennai.

Legal Status

Registered under Societies Registration Act XXI of 1860 vide Registration No. 146/1981.

F.C.R.A. No.

Registered under F.C.R.A. No.010190022. Income Tax 12A Exemption.

Chief Functionary

Sri A.L. NARASIMHA MURTHY, Secretary

Area of Operation

Throughout A.P. At present confined to Guntur District.

GRAMA SIRI is a secular, non-political and rural based voluntary Organisation established in the year 1981 with the parental constructive organizers of SDRSI, Tirupati after completion of Relief, Rehabilitation and Reconstruction programmes of 1977 devastated cyclone with its Office at Jayaprakash Nagar, Nandirajuthota Post of Bapatla Mandal, Guntur District to improve the living conditions of the poor who lost every thing in the cyclone and the conditions of the vulnerable communities to improve the socio-economic conditions. The area is situated in coastal sandy region and is at sea mouth of Bay of Bengal and the river Krishna and other large canals join in the sea and there is perennial water. The total number of Villages in the targeted area of Bapatla and Karlapalem Mandals of Guntur District is 106

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including hamlets, having a total number of families 43211. The average family size is 4 to 5 members (other than children). Most of the people are poor and landless labourers and raise the nurseries in leased lands. There are Small and Marginal farmers, Artisans, STs, SCs, BCs and Minority Communities. GS has a 9-member Board, comprising experienced development practitioners. Some of the Board members are Chief Executives of Grama Siri’s partner organizations and are involved with the microfinance programme. The Board meets once every month. A meeting of all staff with the Board members takes place every month. Apart from this a Loan Committee (comprising some of the members of the Board) meets whenever decisions on loan disbursements have to be made. GS started its thrift saving programme in 1985 with formation of Mahila Mandals. GS in order to increase its outreach of credit programme started several self-reliant organisations, which are known as its partner organisations. Entire Microfinance programme of Grama Siri till June 2003 was through these partner organisations. Since June 2003, Gram Siri has also started direct lending to SHGS. Presently, GS is lending to 382 SHGS having a total membership of 3,964. In addition to microfinance, GS has taken up various developmental activities on health, education and natural resource management. GS’ microfinance programme started in 1985 in terms of SHG formation. At that time, Mahila Mandals were formed in villages and these were further sub-divided into SHGS on the basis of economic homogeneity. The loans received by Grama Siri from RMK were channelled to clusters or the partner organisations and from there to groups for on-lending. Lending through Grama Siri to the partner organizations began in 1994 with the receipt of the first loan from RMK. This process continues, even after the registration of clusters as separate organizations. In June 2003, GS started direct lending to the SHGS in addition to lending to partner organisations. By March 2004 GS was working with 12 partner organisations and 382 groups. Mr A N Murthy, CEO of Grama Siri is the overall head of the organisation. He is supported by a microfinance program coordinator for Microfinance operations. The total number of staff members of GS is 40, which includes its field level staff (called animators). The partner organisations have their own staff managing microfinance program. Occasionally some staff members of GS are deputed to the partner organisations to manage the operations. For its microfinance programme, GS has been accessing loan funds from three agencies viz. Rashtriya Mahila Kosh (RMK), National Minorities Development and Finance Corporation (NMDFC) and Indian Overseas Bank (IOB). The details of these funds are given in the table below. ICICI Prudential- Grama Siri

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Table 1: Source of funds Source of funds RMK

Outstanding on 31 March 2004 (Rs laks) 48.56

Rate of interest 8%

NMDFC 19.69 IOB 80.75 Total 149 Source: Annual Report of Grama Siri (2004-05)

4.5% 133%

After April 2004 GS has decided not to lend the RMK and NMDFC (i.e. subsidized funds) to the partner organisations and only IOB funds would be lent.

3. UNDERSTANDING THE ORGANISATION We have analysed the organisations using the “A Framework for Organizational Development: The Why, What & How of OD Work”, developed by Mary Reynolds Babcock Foundations’ Organizational Development Programme, 1995-99. At the heart of an organization is a vision and core set of values. That vision and those values help shape the organization’s mission, which, in turn, informs its program strategies and other components. In effective organizations, the vision, values and mission derive from the convictions of people in the organization and inform all other components of organizational development. When one or more of the core components listed below is out of alignment with the vision, values and mission of the organization, the organization is unable to function effectively for the long term. Conversely, when the core components are in alignment with the vision, values and mission, they are more likely to be in alignment with one another and lead to effective work and a sustainable organization. The core components of effective organizations include the following: Vision, Values and Mission Governance Strategic Planning Human Resource Management Organizational Culture Management Systems and Structures Legal Compliance, Fiscal Management and Public Accountability Resource Development

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3.1 Values, Vision and Mission The values of Grama Siri are equity, service orientation and transparency. Equity is aimed at poverty eradication through the economic programmes of the organisation. Thus the programmes of the organisation have a service orientation. The organisation has transparency as one of its core values. The organisation has propagated the concepts of gram sabhas, gram nidhi and shramdaan for sustaining its values. The Grama sabha is formed of 21 members. The Grama sabha, in turn, would form village development committees from among its members like purchase committee, selection of beneficiaries committee, watering committee etc. These committees also create Grama nidhi, that is village fund by collecting rupee one from villagers every month. Thus, the Grama sabha identifies the intervention programme as per the local need, identifies the beneficiary and use the Grama nidhi by involving them in shramdaan. Thus, the Grama sabha propagate people’s participation and serve the resource poor, in terms of access using the Grama nidhi. The shramdaan also brings out transparency and sense of involvement in the people. The vision statement of the organisation is transforming Grama Siri to Loka Siri through decentralized governance. Grama Siri in literal sense means “the village wealth”. This transformation meant that the organisation move to newer areas to serve more people. The mission statement of the Grama Siri read as “to help the poor people below poverty line to improve their living condition through cultural, moral, social, economical and educational upliftment”. Grama Siri aimed to achieve this mission through decentralized governance. It was with this aim that the organisation decentralized itself into twelve network organisations.

3.2 Governance The relationships among board and staff members decide an organization’s effectiveness. The most effective organizations build and nurture trusting relationships among their board, staff and constituents as the foundation for making and acting upon good decisions. Responsible governance by the board and effective day-to-day management by the staff are equally important to organizational effectiveness. The structures and policies for decision making should reflect the values of the organization. An organization’s governance sets the tone for the organizational culture and expresses the organization’s understanding of power relationships. At Grama Siri, the board is constituted of the chairman, who is one of the chief functionaries of the partner organisations, secretary

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who is also the chief functionary of Grama Siri, the staff of the organisation and other members who are chief functionaries and staff of other partner organisation. These members do not receive any financial or non-financial incentive for their services in the board. They have been appointed the board members based on their association with the organisation rather than their expertise. These members have been chosen by the chief functionary of the Grama Siri and enjoy proximity to him. Their term as board members is undefined and some members like Y. Khalander have been member of the board for years. Thus, the board members are insufficiently informed of the issues facing the organisation. At Grama Siri, therefore lack of clarity exists in terms of giving strategic level, tactical and operational level decision making. Thus, the difference in governance and management hardly does exist at Grama Siri. The strategic, tactical and operational level decisions are taken by the chief functionary himself and the board is apprised of the matter for post-facto sanction. The foremost element in the study of the governance of the organisation is the organizational structure. This organizational structure is given on the next page. The structural components of the organisation can be studied in terms of complexity, formalization and the centralization. The complexity is basically referred as the degree of differentiation within the organisation.

Complexity comprises three parts- horizontal

differentiation,

and

vertical

differentiation

spatial

differentiation.

The

horizontal

differentiation at Grama Siri is low. Grama Siri is a vertically from low to medium. Grama Siri is low in terms of spatial differentiation. The formalization is basically a measure of standardization. At Grama Siri, the formalization is low. The job is not standardized. The rules and regulations are not formalized. There is no formal operations manual with clear job descriptions. Thus, the Grama Siri is low on formalization as well. The Grama Siri is highly centralized. The decision making power and authority rests with the chief functionary of Grama Siri.

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The board of the Grama Siri has members of the Grama Siri as well as its twelve network organisations. The board also has some of the staff members of the organisations on the board. The board has experienced members on the board. However, the board does not have members from diverse background with diverse skill sets. The board of GS, though not constituted of a large number of professionals, is rich in direct experience of the GS microfinance programme as it comprises senior people in the ICICI Prudential- Grama Siri

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organization who have been involved directly in the evolution of the programme over the past few years and now occupy key decision making positions in the partner organizations. The board at Grama Siri plays a very limited role. Therefore in terms of effectiveness, the board has not been fairly successful. The effective functioning of the board can be analysed in terms of the mechanism, board development and its performance assessment. The board meets every quarter. However, board members are not regular in the meetings. The board of the Grama Siri is not able to push for management accountability. The management does not regularly educate the members of the board of the organisation about the programs and its implementation. The members of the board are not regularly updated about the developments in the organisations. The board does not provide leadership to the organisation. Thus, board does not provide strategic direction to the organisation. Another issue is the lack of second line of leadership in the organisation. At present the leadership rests mainly with the CEO and the organisation lacks a decision-making mechanism in his absence. Overall GS has performed quite reasonably in the governance aspect. However, it should be noted that GS still has very limited outreach. It is only working with 382 groups directly and 13 partner organisations, which all taken together cover around 30% of the total households in their work area.

3.3 Strategic Planning A strategic plan is a road map for an organization’s work. Too many nonprofit organizations operate without a map, thereby compromising their impact. Strategic planning is integral to the way the organization works. The strategic planning at Grama Siri has undergone change in the year 2003. Grama Siri started with a strategy of developing small organisations and empowering them to carry out micro-credit activities. The strategy of developing small organisations was good as it aimed at local area capacity building. This is aligned with the mission and vision of GS. This has not been very successful since the partners have not become self-reliant even after ten years of continuous support. These partner organisation, though, receive funds independently from funding agencies like RMK, they depend on Grama Siri for grant money like MEDI and LEEP funds. Some of the partner organisations like GARD, GRASP, and SNEHA also depend on GS for internal auditing. There is no repayment discipline in the partners. The repayments are erratic and overdues are very high (PAR60 is 43.08%).

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GS showed a change in operating strategy by directly lending to SHGS in addition to working with the partner organisations. It intends to phase out the lending operations to partners over the long run. GS started direct lending in June 2003. GS has managed these groups well with stringent rules. Its overall performance in direct lending has been very good so far. It has started insurance scheme for all its borrowers. Under this insurance scheme, the outstanding amount of the loan is recovered from the claim amount in case of death of the client and the remaining amount is given to the spouse or the nominee of the client. This has mainly been done to maintain portfolio quality in case of death of any of its client. The Grama Siri, however, lacks in a clear and well defined long term direction and scope in alignment of its vision of transforming Grama Siri to Loka Siri. The purpose of its decentralization was to serve more people in need by moving to newer areas. The partner organisation was formed with achieving this vision of the GS through decentralization. However, the partner organisations were cluttered around Baptala. Six of the partner organisation

exists

in

Baptala

and

neighbouring

Karlepalam

and

Ganvaparam. Thus, the Grama Siri has been slow in increasing its outreach. The other limiting factor of GS operations has been lack of any competition management strategy presently and no plans of having one in near future. Managing competition is of particular importance to the organisation as it already has a number of other MFIs working in the area such as Share Microfin, Spandana, Viveka Service Society and government run Velugu project. The presence of such competitive organisations in the vicinity can have an impact on the operations of GS in the times to come, as with expansion of other MFIs the areas of operations could overlap in future.

3.4 Resource Development Organizations that have all the other core components in place cannot be successful without resources to do the work. Effective organizations have clear plans for resource development and the human capacity to implement those plans. Too many organizations depend on a few foundation grants or the fundraising skills of a single staff person or board member to support their work from year to year. However, GS have diversified its fundraising. Sustainable resource development requires clear program and financial objectives, a long-range plan and

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an annual plan for fundraising, active and trained board members, skilled staff, and effective systems for record-keeping, communication, evaluation and reporting. Therefore to sum up, the requirements for sustainable resource development are avoiding dependence on few sources and staff or board members for fund mobilisation, clear programmes and financial objectives, long term and annual plan for fund raising, and effective system for record keeping , communication, evaluation and reporting. Grama Siri and two of its daughter organisations in the network, GRAND and ARCHIES at Tenali have annual plans for fund raising. The GS and its network have developed effective system for record keeping and reporting. However, the network does not have proper evaluation and communication systems in place.

3.5 Human Resource Management People are often the most valuable resource a nonprofit organization has. How they are developed and managed is critical to their productivity and to the organization’s success. Each employee, board member or volunteer brings skills, experiences and core values to their work. Organizations often place people in positions that require skills they do not have, and provide little opportunity for them to get the training and mentoring they need to develop the required skills. GS has fairly experienced staff. The field staff is motivated and committed. They have clarity about systems and policies. In order to decentralize operations and provide more autonomy to partner organisation, some of GS’ staff have been transferred to partner organisations. The managerial staff although experienced, is not very well qualified and lacks exposure to working of other MFIs and the best practices. Considering the expansion plans of Grama Siri, the existing managerial staff in future may not be sufficient to handle the operations. We have analysed the human resource at GS in the following manner. 3.5.1 Selection and recruitment The recruitment of the staff at GS and the network organisations is informal. The staff is recruited by the chief functionaries of the network organisations depending on the organizational requirement. There are no formal procedures for recruitment. The staff is recruited on vacancy for the posts.

3.5.2 Job analysis

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The job analysis has been done with respect to educational requirements and experience. Educational requirement: the educational requirement for the staff at GS is flexible. The animators and supervisors in the micro credit programme are graduates as well matriculates. The educational qualification is not stringent. The animators have been selected from the teachers in the Balwadi system under the CCF programme apart from fresh recruitment. However, for the higher posts of microcredit managers and/or assistant programme coordinator of the HLLFPT, the minimum educational qualification has been specified as graduation. Experience: the job analysis at GS shows that the organisation has not specified a minimum level of experience for any post or job. The staff has recruited without any experience for the post of animators, supervisors, accountant in the micro-credit programme as well as assistant programme coordinators in the HLLFPT. For the posts of general accountant, micro-credit manager and treasurer, the experience is the basic criteria. However, GS do not recruit people for this post and people form among the founders and senior staff has been internally appointed to these higher echelons of GS. 3.5.3 Compensation The salary of the staff members are decided in an informal manner by the chief functionaries of GS and the network organisation respectively. The salary is determined on humane grounds and is not linked to performance or experience. There are no incentive to the staff at GS and the network organisations for performance. The salary structure is very flexible at GS. For the same post of animators, some of the staff receives 1500 rupees and some of the animators receive 4000 rupees. The salary is decided by the chief functionary of GS based on his understanding of the requirement of the concerned staff. There are cases where some of the supervisors who oversee the animators get lesser salary than some of the animators. However, the new recruits for the post of animators get a sum of rupees thousand for one year. The increment policy in general is 10-15% of the salary annually. However, this increment policy is not always adhered to strictly. Thus, there is no formal procedure of salary and incentive at GS.

3.5.4 Training

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The training of the new recruit in the organisation is also done under the experienced staff at GS and the network organisations. There are no skill development programmes at GS and the network organisations. 3.5.5 Promotion GS does not have a promotion policy. The lower rung in the hierarchy of the organisation, namely animators and supervisors are either fresh recruits or taken from other programmes of GS. Some of the animators in the micro-credit programme have been taken form the Balwadis of the CCF programme where they were teachers. However, they receive a hike in the pay from 500 rupees to 1200 or 1500 rupees. Notwithstanding the hike in salary, there is no formal promotion policy outlined by GS for its staff.

3.6 Organizational Culture Organizational culture has been defined as the “the dominant values espoused by an organisation” or “the basic philosophy that guides the organization’s policy toward employees and customers”. Organizational culture includes written and unwritten rules that shape and reflect the way an organization operates. In short, it is how people do the work of the organization. It is the environment in which decisions are made and conflicts are resolved. Because organizational culture is so ingrained in every facet of an organization, it is often hard to recognize it and understand its impact. Therefore, we have analysed the culture at GS along the key elements along which the organizational culture differ. These elements are risk tolerance direction, control, identity, conflict tolerance, and communication pattern. The risk tolerance at GS is low. This is because of the fact that the employees have to perform tasks that are standardized and the employees have no scope for any innovation. The employees have to abide by the directions of the chief functionary. GS and its network organisation lack in direction. There are no clear objectives and performance expectations. The scope of operations at GS is reactive. It responds to the opportunities it gets. In other words, it does not envision any specific objectives, though it may have broad objectives. An example is the collaboration of GS with the HLLFPT-BMGS programme on sexually transmitted infections. The CCF programme which the GS had been carrying for twenty –one years is scheduled to be phased out this year itself. Hence, GS collaborated with the HLLFPT-BMGS to fill the void. The control at GS is also low at GS. There are no operations

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manual as such. The employees are under supervision of the chief functionary. Thus, the amount of supervision is also low. Identity is the other key characteristics of organizational culture along which the GS have been analysed. At GS, we interviewed the staff and found that the staff identify with the organisation, i.e. with GS rather than the work teams. Conflict tolerance, as defined by Stephen Robbins is the degree to which the employees are encouraged to air conflicts and criticism openly. The GS follow the interactionists’ view of conflict tolerance. The chief functionary is easily accessible to the staff of GS and he encourages the staff to air their grievances, if any to him. He is responsive to the employees on that account. The communication pattern at GS is formal as well as informal. At GS, the communication is formal in the sense that the matters are reported to the chief functionary. However, the communication pattern is also informal in some cases.

3.7 Compliance and Accountability Effective organizations are accountable to ethical standards that may not be legally enforceable, but are consistent with the organization’s values. They operate within policies for conflicts of interest, report to funders with openness and honesty, are good stewards of resources, and take seriously their accountability to the public. Most states have nonprofit support organizations that have information about legal, fiscal and ethical standards for nonprofits. Effective organizations must ensure that boards and staffs develop and use such standards. The compliance and accountability at GS could be studied in terms of legal compliance, fiscal compliance and public accountability. The GS and network organisations comply with the legal requirements of the federal and state governments. These organisations follow the legal aspects stringently. It ahs been registered under the Societies Registration Act –XXI of 1860. GS has also made amendments in its Memorandum of Association (MoA). Subsequently it has notified these changes by filing affidavit with the local judicial authorities. In terms of fiscal compliance, the parent organisation, i.e. GS have registered itself with Income Tax Department and FCRA regulations. GS has got exemption from the income tax department under section 12a of the IT act. It also complies with the RBI stipulations, and the funders’ stipulation like NMDFC, RMK on the interest rate to be charged to the beneficiaries. It also has regular internal auditing as well as external auditing.

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The network organisations also have external auditing. However, some of the organisation in the network like GARD, GRASP, and SNEHA get their internal auditing done at GS. The GS and the network organisations in terms of public accountability are open in public at large. It publishes its annual reports annually with the financial statements and these annual reports are accessible to the interested people. However, it does not publish its annual reports in the local or national dailies. The GS and the network organisation maintain separate financial statements for the different programmes and these financial statements are easily shared with the funders and the interested public. This speaks about the public accountability of the organisation.

3.8 Management Systems and Structures The GS and its network organisation have developed systems and structures for its programme needs like accounting systems and management information systems, tracking overdues for its micro credit programme, financial planning and control systems. 3.8.1 Accounting and MIS The accounting system at GS is completely manual. Even though GS has computers, they are used for data presentation and documentation. GS intends to have an integrated, computerized accounting and MIS in near future. Presently, GS maintains project wise accounts depending on the source of funds. Separate financial statements for microfinance are not prepared. The accounting system is elaborate at GS. At the organizational level, Cash Book, Ledger, Bank Pass Book and Voucher File are maintained. In addition to this Monthly Progress Report pertaining to Receipts & Payments and balances are prepared. The animators also maintain Membership Register of the SHGs as well Demand and Collection records of the groups. Also the Audited Balance Sheets are prepared by the auditors of the GS. Thus, GS have an integrated accounting system. The MIS at GS exists at the SHG level and the office level. The information flows from the field level staff (animators) upwards to the CEO.

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3.8.2 Information flow At the SHG level the animator maintains SHG meetings minutes register, collects cash, maintains passbook and fills in a cash collection sheet. The supervisor collects the cash from animator deposits it in the bank, maintains general ledger and cashbook. At the head office level the micro credit in charge helps the accounts to maintain cashbook and posts entries in the general ledger. The delinquent loans are reported to the supervisors who makes immediate visit to the delinquent client either the same day or the next day and tracks the case. The information from supervisor flows to micro credit in-charge at head office who looks after the overall micro credit programme. At the partner organization level, the MIS is fairly limited. The partner organisations maintain loan disbursement and repayment registers, which also has the details of the group savings. The consolidation of partner organization’s data is done at Grama Siri office. 3.8.3 Tracking system for overdues For the SHGS supported directly by GS an overdue register is maintained at the head office level, which is directly monitored by the Secretary. The delinquent clients are visited and repayments collected from the group members. The field officers and animators collect the repayments based on a DCB. This ensures timely detection of delinquency. In case of partner organisations there is no formal system for tracking overdues. There are many cases of irregular repayments and overdues from partner organisations. GS has also refinanced some of the partner organisations despite irregularities. It is informally agreed that the entire loan will be repaid in approximately 15 monthly installments (though lately GS has, on a case-tocase basis, allowed repayments to be revolved by the partner organisation over a specified period of time) and organizations remit whatever amounts they collect from members during the month to Grama Siri. Thus, there is no estimation of overdues till the end of the loan period. Also since more than one loan to the same organization can run concurrently, tracking overdues become a relatively complicated task in the absence of a formal system. 3.8.4 Financial planning and control systems There is no formal financial planning system in existence at GS. The loan requirement assessment at GS is intuitive. At the SHG level the loan requirement is estimated based on the field officer’s idea of increase in volume, both in terms of amount of outstanding and number

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of clients. Cash flows are prepared sometimes, but not for the entire microfinance programme. These are prepared as a part of proposals to various funding agencies. A very rough estimation of expenses for the year is undertaken at the beginning of each financial year for presentation to and approval by the Board. In terms of financial control, GS has three internal auditors who are responsible for audits of the Grama Siri’s direct lending to SHGS programme and that of the lending to partner organizations. However, only financial information is looked into and the auditors orally inform the management of its findings and do not prepare any reports after the audit. However, the GS and its network organisations do not have formal systems for governance, human resources, communications, finance, training and development, planning and evaluation.

3.9 Conclusions on Grama Siri The GS and its network organisation have long years of experience in microfinance, good diversification in borrowing sources, well-experienced Board of Directors, Experienced and stable staff, Good tracking system for overdues for direct lending to SHGS, Manual but effective MIS for direct lending programme, Excellent repayment rate and portfolio quality of direct lending program so far and low operating costs. However, the GS and its network organisations also have low depth of coverage in existing villages, moderately developed second line of leadership, lack of competition management strategy, less number of managerial and professional staff, lack of planning and budgeting, weak internal auditing process, Poor repayment rate from partner organisations, low return on average total assets, Low cash in hand (may lead to liquidity problems). GS has an average credit performance. Its cumulative repayment rate is 87.5% and the PAR60 is 20.5% as on 31st March 2004. Although it has good repayment rate at 98% from its direct lending program so far, its repayments with partner organisation has been poor resulting in decline in the overall repayment rates. GS has started direct lending only in June 2003 and its performance in the long run is yet to be seen. In terms of diversification, GS portfolio is reasonably well diversified with almost equal allocation to animal husbandry, agriculture and petty businesses. It was found that no loans had been given for consumption purposes and the groups were fairly clear in this regard for not allowing any consumption loans.

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GS has succeeded in mobilizing funds from diversified sources. It has been borrowing money from RMK, IOB and NMDFC. The organisation is now trying for the SIDBI loan. GS has been able to mobilize grants for capacity building and purchase of fixed assets from time to time. At present it has a grant support from SIDBI, which it has been utilizing for computerization, training of staff and mentoring support. GS has moderate performance on asset composition with 78% of total assets deployed in loans. The organisation is maintaining low cash balance at 0.7%. This might lead to liquidity problems. On the liability side, the organisation has relied mainly on external debt for loan funds. Therefore, to sum up, the key risk factors for the GS and its network organisation are lack of new programmes, limited outreach, inadequate internal control systems, and lack of competition strategy. The organisation has started the direct lending to SHGS only in June 2003. Its performance so far has been excellent with very high repayment rate. However, this could largely be attributed to the fact that GS is still working with small number of SHGS with limited outreach. It is yet to be seen whether it would be able to continue such performance in future with the increased number of groups. The organisation does not have stringent internal auditing norms. It has, till now, been dependent on the internal checks in the accounting system as well as the MIS and the monitoring by the Program Coordinator (Microfinance) for detection of frauds and misappropriations. As lending to SHGS increases, the lack of an independent internal audit system may lead to frauds and misappropriation as well as operational instability. GS does not have any strategy to combat competition from other MFIs like Spandana, share Microfin, Viveka Service Society and government run Velugu program.

4. THE ORGANISATION: STAR MICROFIN SERVICE SOCIETY 4.1 Basic details of the organisation: Legal Status SMSS was registered under the Societies Registration Act (35) of 2001 and its registration number is 676 of 2002. Area of Operation State:

Andhra Pradesh

District:

Kurnool

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Blocks/Mandals:

1. Atmakur (K) 2. Sirvel 3. Velgode

Registered Office: # 17-178-17/1, Beside Telephone Exchange, VELGODE (K) – 518 533, Kurnool District, Andhra Pradesh, India. Phones: 08517 – 235072, 235172, 235272, 235372. Fax: 235455 E-mail: [email protected] Branch Offices: [1] SMSS Branch Office, # 7-380, Main Road, SIRVEL – 518 563, Kurnool District, AP Phone: 08519 - 236488 [2] SMSS Branch Office, # 17-75/3, Kisansingh Street, KG Road, ATMAKUR (K) – 518 422, Kurnool District, AP Phone: 08517 - 283967

4.2 Brief History Star Microfin Service Society (SMSS) is a derivative of Star Youth Association (SYA) - an NGO working with the development of poor and deprived people particularly women, children and youth. Its mission to promote & work with self-managed people’s based institutions for sustainable development. The main thrust areas includes institutional development, community mobilization, gender, dalit empowerment, micro finance, micro insurance, agriculture, ground water management,

community forest management,

watersheds development, child labour, sexual & reproductive health of youth and so on. Earlier the Micro Credit Programme of SYA, SMSS came into its own as an independent, non-profit NGO-MFI on November 14, 2002. “Star Microfin Service Society” (SMSS) was registered for exclusively mf operations to segregate our grants and loan funds. The SMSS follows the methodology given below for its for its micro- credit operations. a) Star Loan Groups (SLGS) b) SLG Centres c) Loan Proposals d) Saving Product e) Loan Products f) Micro Insurance Products

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a) Star Loan Groups (SLGS): SMSS is very selective in providing mF services to poor women, who are considered unbankable and lack collateral, business experience, and regular income. The target women clients are identified through either PRA Wealth Ranking or Cashpor Housing Index. After selection, all the selected women must undergo minimum continuous 5 days- Compulsory Group Training to build a cadre of active membership of time value, credit discipline. The CGT will ensure that the women have a minimum understanding of the mF systems & procedures and also the rights/duties of SLG members need to be understood and accepted. The process of CGT as follows: •

Minimum hours of training.

•

Maintaining attendance register.

•

Strict punctuality.

•

If members arrive late or absent, postpone it to the next day.

•

Conduct the training within the village.

•

Select the time, which is suitable to all the members.

Prior to SLG formation, all the trainee women must pass Group Recognition Test (GRT) to become recognized SLG members. It is conducted to test the eligibility and readiness of women members to join in SLG and have a good understanding of objectives and procedures of the mF and agree to carry out their obligations. Branch Manager or Area Manager or Central Team Member personally visits the house to check the eligibility. The objective of GRT is to ensure that all the SLG members have internalized principles, systems and procedures of the SMSS, that the officers and members know their duties and responsibilities to the Centre and the program. Once recognized the member’s names are listed in the Master Register, formed a SLG and given SLG Code Number. SMSS issues a Member’s pass book and a separate Centre pass book to the Centre. SLG must consist of 5 self chosen members from the same village/habitation. A SLG shall be formed with persons who are like-minded, are in parallel socio-economic conditions and enjoy mutual trust & respect. There shall not be more than one member from the same household in a SLG. It is also not desirable for close relatives to be in the same group. SLG members must have freedom of choice to elect their own group leaders and must be rotated annually. As each SLG is formed, it elects its own leader among the members. Four to eight SLGS federate to form a CENTRE, headed by Centre Leader.

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b) SLG Centres: One Centre consists of 4 to 8 SLGS with 20-40 members. Centre Leader will be elected from the Centre. Centre meets every a weekday and plays a decisive role in the growth and development of the Centre and creating credit discipline among members. Centre meetings are conducted weekly not only for the purpose of collecting the loan amount, savings but equally important to provide an opportunity for the members to discuss future plans and solve problems. Centre meeting also keeps track of member’s performance. One important indicator is attendance. When a member incurs four to five consecutive absences, the Centre takes a disciplinary action, includes loan suspension or may some times suspension from Centre. The Centre meeting schedule follows opening song, attendance entry, recitation pledge, savings collection (SLG wise), loan collection (SLG wise), preparation of denomination slip with the Centre leader’s signature, loan proposal making, loan utilization checking in the Centre meeting (Orally), educate the members about health, education and social awareness, closing of Centre meeting, random loan utilization checking (physical), conducting the CGT (Continuous Group Training), writing the minutes of the meeting. c) Loan Proposals: The SLG decides who among them get the first loan by determining the two neediest members. These two members of the SLG submit their proposal for confirmation by their SLG members and endorsed by the group leader. During Centre meeting, the group leader will to submit the loan proposal. Loan Officer assess the details regarding previous savings & loan track record, family income and expenditure, attendance performance, enterprise viability analysis and purpose of the loan. The Branch Manager verifies the details given by Loan Officers. d) Savings Product: Once a SLG is formed and the training is completed, they become SLG members. Each SLG member is then required to open a savings account and deposit Rs. 10/- every week. The main purpose of this compulsory savings is to facilitate members to develop a regular savings habit and create assets of their own. In addition savings balance helps to repay the loans in case of default. The amount of loan is determined based on the savings. This amount is refundable or can be withdrawn only at the time of withdrawal of SLG membership. The amount of compulsory savings increases by Rs. 10 every subsequent loan e.g. Rs. 30 for the third loan and so on.

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e) Loan Products: The SMSS is offering the following client-friendly loan products are modeled on the Grameen Methodology.

Table 2: Loan Products of SMSS Loan

Eligibility

Product IGA Loan

 Regular Attendance (Minimum 90%)& Savings at Centre after 4 weekly meetings and disbursement at 5th Weekly meeting  Payment of Rs.50/- Member Admission Fee and Rs.60/-Annual Membership fee  Payment of 4% (LPF, LLP, FPS) and 4% MCPS before 30 days to date of disbursements in 4 weekly

Consumption Loan

meetings by 4 installments  Regular Attendance (Minimum 90%) & Savings at Centre  Active Borrower and renew her annual membership  Payment of 6% (LPF,LLP, FPS) before 30 days to date of disbursements in 4 weekly meetings by 4

Loan on Phone Agriculture Loan

installments  Regular Attendance (Minimum 90%) & Savings at Centre  Active Borrower and renew her annual membership  Regular Attendance (Minimum 90%)& Savings at Centre  Active Borrower and renew her annual membership  Payment of 8% (LPF, LLP, FPS) before 30 days to date of disbursements in 4 weekly meetings by 4 installments

Housing & Sanitation Loan

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 Mortgage original pattadar pass books  Regular Attendance (Minimum 90%) & Savings at Centre  Active Borrower and renew her annual membership

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 Payment of 8% (LPF, LLP, FPS) before 30 days to date of disbursements in 4 weekly meetings by 4 installments  Mortgage original land holding house patta Source: Annual Report of SMSS 2004-05 Table 3: Details of Loan Products Loan Product IGA Loan

Term

Loan

Service

50

Amount Maximum

Charge p.a. 15% Flat

Weeks

:

Repayment Schedule Principal SC Weekly

Weekly

15% Flat

Monthly

Weekly

12% Flat

Client’s

Weekly

Rs.15,000/ Consumption

100

Maximum

Loan

weeks

: Rs.15,000/

Loan Phone

on 50

Maximum

weeks

:

Agriculture

100

Rs.5,000/Maximum

Loan

weeks

:

Option 12% Flat

Monthly/

Weekly

Quarterly

Rs.12,000/ Housing &

150

Maximum

Sanitation

weeks

:

Loan

12% Flat

Monthly

Weekly

Rs.15,000/

Source: Annual Report of SMSS 2004-05. f) Micro Insurance Products: SMSS has introduced 2 micro insurance products namely (1) Family Protection Scheme (FPS) and (2) Micro Credit Protection Scheme (MCPS) since January 2002.

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Family Protection Scheme (FPS): The poor women who are enrolled in SHGS/SLGS of Velgode, Atmakur, and Sirvel are eligible to be covered under this scheme. The details regarding this scheme have been given as below. Eligibility:

Ages (wife/husband) should not be more than 55 years.

Term:

One year

Premium:

1% of the loan amount per annum Table 4: Risk & Corresponding Risk Coverage

Risk Natural

of

client

or

Risk Coverage client’s Rs.5,000/- + Rs.500/- for funeral

husband Accidental Death of Spouse

expenses Rs.10,000/- + Rs.500/- for funeral

Any type of Death to client

expenses Rs.5,000/- + Rs.500/- for funeral expenses as well as Write-off the loan outstanding of the client

This FPS product has been i)

Linked with the ICICI PRU Suraksha (RP): The scheme is specially designed for SHG members and clients of micro credit Programmes. As Nodal agency, SMSS pays the premium to ICICI @Rs.50/- per client and client’s spouse per annum towards sum assured is Rs.5,000/-.

5. Understanding the Organisation: Star Microfin Service Society (SMSS) The SMSS has also been analysed on the framework used to analyze Grama Siri.

5.1 Values, Vision and Mission The values of the SMSS are efficiency, professionalism and accountability. The organisation has made an effort to preserve these values for all this long. Its emphasis on efficiency has been aimed at standardizing its operations. The stress on professionalism and accountability is primarily to make it competitive and business oriented with social obligations. The mission statement reads: SMSS will organise the poor people ---particularly land less agriculture labour, small farmers, bamboo workers, self-employed persons, venders, petty business persons, home-based workers, small hotel owners, service providers, artisans, ICICI Prudential- Grama Siri

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migrate family members—into self-help or solidarity groups and facilitate micro credit, social security and business development services to wipeout socio-economic inequalities in communities. The vision statement: “Provide livelihood & social security services at doorsteps of every household of poor people to acquire the RIGHT of venerable life”. The SMSS has aligned its strategies with the mission and vision of the organisation.

5.2 Governance The governance of the organisation can be studied on the structural components of the organisation as well as the board of directors of the organisation. Therefore, the organisation structure needs to be studied. The organizational structure is given on the next page. The structural characteristics of the SMSS that are used to analyses SMSS are complexity, formalization and centralization. The SMSS has a high degree of complexity. It is horizontally differentiated. There are distinct units and departments in the organisation. The organisation has a three tier. Thus the vertical differentiation is moderate. The organisation is also spatially differentiated. It has three branches within a radius of 50 kilometers. The organisation has concrete plans to open newer branches by the year end in Ananthapur district around two hundred kilometers from the head office. The centralization is high in SMSS. The decision making authority and control rests with CEO of the organisation. The board at SMSS in terms of composition is rich. It has members from diverse backgrounds with different skills. Though the authority for decision making rests with the CEO of SMSS, the board has pushed for management accountability. It has questioned certain decisions regarding funding and staffing and suggested measures for increased efficiency and professionalism. The management has been constantly updating the board about the developments in the organisation. Thus, the board has been giving strategic direction to the organisation in a moderate fashion.

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5.3 Strategic Planning The SMSS has drawn along term strategy which is growth oriented. SMSS aims to cover the whole of Kurnool district in next five years. Thus, SMSS has drawn a penetration and expansion strategy. It is in the final stages of opening new branch in Gotty-Guntikal in Ananthapur district.

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The SMSS has changed it strategy from SHG model to gramin model. This implied changing from fortnightly and monthly repayment schedules to weekly repayment schedules. This shift in strategy has resulted in increased repayment rate to nearly 98.5%. The SMSS does not have a competitive edge over other MFIs in the region in terms of price or products. However it competes on its local orientation. SMSS has also been successful in mobilizing funds from diverse sources like RMK, BASIX, FWWB (I), NMDFC, and TBF. The SMSS has further plans for diversification in fund mobilisation from 2 crores to 5 crores by the year end. In this pursuit SMSS has tapped newer sources like ICICI Bank, SIDBI. Thus the SMSS has devised growth strategies in line with its vision.

5.4 Resource Development The SMSS has met the requirements for sustainable resource development. It has diversified it funding sources thereby reducing its dependency on fewer sources. Further the SMSS has clear programme and financial objectives. The organisation has drawn its objectives from its vision. The SMSS has drawn long term plans for raising fund. Also the organisation has well defined annual plans for the same purpose. In this respect the SMSS approached various funders. It was successful in mobilizing additional from two of the funders for which the talks are in advance stages. The SMMS has developed an effective system for record keeping and communication. The evaluation and reporting structures have also been defined. However there is an element of redundancy in the reporting structure which has been dealt in the organizational action component of the organizational traineeship segment.

5.5 Human Resource Management: The human resource at SMSS is a mix of professionals as well as field staff. The SMSS has recruited field staff like loan officers, office managers and professionals for the post of area managers. The recruitment at SMSS is done through formal interview. Prior to it , the posts are advertised in the local newspaper in the vernacular language as well as in English language. The suitable candidate is taken on the basis of performance of the candidates in the formal interview. The training of the recruit is under the apprenticeship of the experienced staff. There are no skill development programmes at SMSS. However, the staff at SMSS is sent to professional organisations like Spandana, Gramin Koota at Bangalore and donor agencies like FWWB. The salary structure at SMSS is according to standards in the region. The salary is also matched with the roles and responsibilities. There are performance based

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incentives as well. However, these salary and incentive structure has been redesigned to propel the organisation to growth as desired by the CEO and board members. This also formed the part of organizational action component of the organizational traineeship segment. The promotion policy is also being formalized in SMSS.

5.6 Organizational Culture SMSS has a low risk tolerance. The employees are discouraged to undertake risk and /or innovative. The direction of smss is well defined. It has clear objectives and performance expectations. The control at smss is high. There is higher degree of regulation and direct supervision at various levels. The employees of the SMSS identify with their work groups rather than the organisation. The conflict tolerance at SMSS is also low. The organisation takes traditional view of the conflict. This could be sensed from the semi-structured interviews of the employees and the CEO. The organisation has formal hierarchy of communication pattern. The communication flows from both ways, i.e. top to bottom from CEO to the central team manager and further downwards in formal hierarichal patterns. This pattern is also followed from upward communication from the loan office officers to branch managers and upwards.

5.7 Compliance and Accountability The compliance and accountability has been studied in terms of legal and financial compliance and public accountability. The SMSS has a clear and understanding of the legal requirements of the business. It has complied with the legal requirements. In terms of fiscal compliance as well, SMSS has an internal and external auditing systems. However, its internal auditing has been suffering due to absence of a full time accountant or finance and accounting manager.

5.8 Management Systems SMSS has effective management systems in place for governance, human resource, managing information, finance, planning and development. The accounting system at smss is manual as well as computerized. Currently, the computerized MIS is being installed at central

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and branch offices of SMSS. The management systems have been aligned with that of the values of the organisation which are efficiency, professionalism and accountability.

5.9 Conclusions on SMSS SMSS has made shift from the SHG model to the Gramin model. The key characteristics of the gramin model group lending, homogeneity, responsibility sharing (in case of default) by the group, weekly meeting at the specified time, strict credit and organizational discipline. The Gramin model has a weekly repayment system and the concept of homogenous groups which combine to form loan collection centres. Previously the SMSS followed the SHG model under which it had monthly and fortnightly repayment system. SMSS had high default rates under the SHG model. Hence the MFI decided to make a paradigm shift from SHG model to Gramin model. However, before it initiated the change, it sent its staff and central team manager to Grameen Koota, Bangalore, an MFI for training in the Gramin model. This strategic relocation has stood the organisation in good stead. Its repayment has increased and consolidated on account of this strategy. The organisation is in between the collectivity stage and formalization and control stage of the life cycle concept of organisations. This can be said on account of the fact that the mission and vision of the organisation has been clarified, the communication and structure is no more informal. These have become formalized. The decision making has also become conservative and efficiency and stability are emphasized. Also the innovation is no encouraged. The organisation has some key concerns regarding its organizational structure, staffing, training and salary and incentive structure with regards to the growth stage. These issues have been addressed in the Organizational Action Component of the Organizational Traineeship Segment of the PRM course. SMMS has developed certain degree of redundancy in its structure and staffing patterns. This is primarily in case of the area managers. The role of the area managers have been formalized and documented. Yet, on the field, these area managers are supplementing the job of the branch managers. The practice in leading MFIs of the region, like Spandana, SKS and others, is the posting of area managers in the respective districts to oversee the operations of the MFI. However at SMSS, the area managers have been appointed for each branch, namely Sirvel, Atmakur and Velgode. This results in duplication of the job of the branch manager of the respective branches by the area managers. Hence the post of area mangers in the present form shows redundancy. Also, at the top level

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of the management there is absence of key functionaries in the organisation like finance and accounts manager and operations and HR manager. The SMSS has extensive plans for expansion. It is moving to newer areas like Ananthapur district by the year end. It has already conducted market survey for its foray into Ananthapur district. This survey has yielded positive results for it. Hence, the scale of operations is expected to grow. In the given situation of flux the organisation has decided to initiate some structural changes to cope up with these changes.

References:

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1. Robbins, Stephen (3rd Ed) organisation theory: structure, design and applications, prentice hall of India private limited, New Delhi. 2. “A Framework for Organizational Development: The Why, What & How of OD Work”, developed by Mary Reynolds Babcock Foundations’ Organizational Development Programme, 1995-99. 3. Product innovation to suit local conditions is a key requirement for success, Community approach for viable rural insurance, 4th July 2005 , Hindu 4. www. iciciprudential .com 5. Annual report of Star Microfin Service Society, 2004-05 6. Annual report of Grama Siri 2004-05.

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