Importance of monitoring
Monitoring of partner MFI means the routine collection and analysis of various information of their operations. Generally monitoring can be divided into two parts, off-site and on-site. Off-site monitoring refers to the monitoring of an MFI's performance without actually visiting the location of the operations, while on-site monitoring requires direct visits to a branch or clients of an MFI. The purpose of monitoring and follow-up is to review whether the actions have taken place in conformity with the stated plan and programs. It enables the management to assess the progress of both quantitative and qualitative aspects of the program. Regular monitoring and follow-up provide timely feedback to the management and the concerned for making appropriate decisions. POs (Partner Organisations) of RMDC provide collateral free loans to the poor families. Thus, monitoring and follow-up plays a crucial role to reduce and minimize different operational risks. It also reduces the cost of lending and misuse of loans that leads to delinquency. Effective monitoring system helps MFIs to improve its performance. It detects areas such as timely implementation plan, checking shortfalls and irregularities, minimizing mistakes, building staff capacity, raising staff consciousness, maintaining performance standards, good governance and self regulation. Monitoring and follow-up of POs is considered as a high priority activity of the Centre.
Monitoring Approach of RMDC
Supervision Department of the Centre is responsible for carrying out the monitoring of POs activities. It has developed its own system for monitoring its POs on the basis of outcome of various workshops and trainings, consultation with different department. Supervision Department annually prepares monitoring plan for each partner MFIs, which linked to the areas of high risks identified through the risk assessment process and the deficiencies noted in the previous checks. Moreover, POs are segregated on the basis of their size, existing internal control system, complexity and risk profile. RMDC's monitoring involves examining different operational activities followed by the indicators logically analyzed on the basis of their status. The last stage of monitoring function is follow-up of findings and recommendations made by the supervisors.
Generally, the Centre's monitoring starts with the visit to the branch office or group of an MFI and concludes with sharing and discussion with field staff and members of management and Board of Directors of the concerned PO. RMDC's supervisors give priority to visit centre or group meeting and the clients and their enterprises at first. At operational level main areas of monitoring are selection of the group member, quality of pre-group training and group meeting, savings collections, loan proposal and approval procedures, disbursement of loan, loan utilization, impact on client, errors, fraud, bank reconciliation, passbook and collection sheet, interest calculation etc. The supervising officer monitors the activities of field worker and group level activities and note down the status. At the branch level the supervisor examine accounting transactions and analyse various financial ratios, like portfolio quality and self-sufficiency, operational efficiency, profitability, PAR, YOP etc.
During the POs visit the supervisor assesses the governance and strategy of POs, which depends on the quality and appropriateness of the board composition, its role and overall organizational strategy. Management system is rated on the basis of quality of human resources and the strength of accounting and management information. The performance of the POs on staff productivity and ensuring compliance is also assessed. Under financial performance evaluation, aspects like repayment performance, asset quality, liquidity and profitability are thoroughly assessed. He also identifies weaknesses and training needs and makes recommendations accordingly.
Risk based monitoring and supervision framework
The risk based monitoring and supervision methodology reflects a continuous and dynamic process. RMDC has adopted risk based monitoring framework and it has own methodology for this purpose. The main objective of the framework is to evaluate the POs risk levels and trends associated with current and planned activities, assessing the management processes to identify, measure, monitor and control risks. RMDC's monitoring procedure assesses the POs financial conditions, compliance with applicable laws and regulations. In post monitoring phase RMDC communicate findings, directives, and recommendations in a clear and timely manner, and obtain commitments by the Board of directors and management to correct the deficiencies. It is vital to make follow-up on implementation of corrective actions to ensure that all the deficiencies are rectified on time and in a right manner.
During the follow-up the implementation of the recommendations made to the POs thoroughly reviewed and analyzed. The concerned officer at supervision department stay in touch with officials of the concerned partner MFIs and ask them for timely submission of response letter to the Centre. On-going critical issues of partner MFIs are regularly reported to the CEO of the Centre.
Impact of RMDC's Monitoring, Supervision and Follow-up system
The impact of the RMDC's monitoring and supervision system is immense and multi-dimensional. It has contributed a lot to maintaining the near hundred percent recovery rate by the partner MFIs. It has contributed in professional assessment of the risk involved in lending to the clients, which is helpful in lowering the appraisal and transaction costs. It has helped to increase the creditworthiness of the MFIs and sensitizes the staff on the best practices of microfinance operations. Monitoring system of the Centre facilitates about how the partner MFIs can balance between its social mission and commercial mission. Due to effective monitoring and follow-up from the Centre institutional governance, office management, portfolio quality, accounting system of the POs have improved considerably. Their own monitoring the internal control mechanism is being strengthened and corporate governance and management quality, client supervision in many POs have improved. The member of the Board of Director, senior managers and field staff and even clients of the POs are now more aware and accountable to their roles and responsibilities. As the industry strives to retain its relevance in the face of big challenges, the unique aspect of RMDC's monitoring and follow-up system is to enlighten the microfinance community on ethics and moral values for enhancing the image and reputation of overall microfinance industry in the country.