Proposal for Research Study

By Hariram
The process of Micro-credit model building through learning by doing:
Changes in process and directions from 1!" to #$$#%



&ut line of the Research study
'ntroduction of &PP-&CT



&ut (ine &f the Research Study


Introduction

&PP ) &CT *as registered in 1!" to support people+s e,ort in their economic de-elopment and
peasant proprietors by pro-iding credit% The ob.ecti-e of the program is to ma/e the credit
accessible to e0isting micro enterprise units and farmers at ban/ rate of interest to increase
production and generate employment%

When the model became viable it has been replicated through NGOs/CBOs in diferent towns/cities/villages.

Sep%1!" to Sep%#$$#1 &CT pro-ided loan to 11" units amounting to Rs% 1!2%3" million in urban
and rural areas% &ut of *hich Rs%143%3# reco-ered *ith ser-ice charges of Rs% #%52% The rate of
reco-ery is around 46% 'n &rangi1 loan pro-ided to 412$ units amounting to Rs% "%13 million%
Micro-credit program has been replicated by 5! CB&s789&s in ## cities7-illages of Pa/istan and
pro-ided loan to #13$ units amounting to Rs% 3%34 million :Brief description of the program is
attached;%

Research Topic

The process o !icro"credit model building through learning b# doing$ Changes in process and directions rom
%&'( to )**). (Research Content attached with research proposal).

8eed for research

+ince %&'(, micro credit program went through diferent stages -Brie description o the program is attached.. On
the basis o /learning b# doing0 method this program incrementall# improved in term o management, process,
implementation and replication aspects to develop as a micro credit model b# successul implementation in
Orangi and then replication to other areas. 1 research is needed to document this process with the identi2cation
and anal#ses o d#namics o change at diferent stages in various actors o program.

3urpose o +tud#

The purpose o the +tud# will be to document the micro credit model building evolutionar# process o O33"OCT
and to identi# the causes and changes in directions and processes in this /learning b# doing0 method o
improvement. This stud# will tr# to e4plain the circumstances through which this program aced diferent issues
and problems related to the management process, loan appraisal, recover# s#stem, write of policies, accounting
procedure and replication and what 5inds o improvements brought incrementall# in the program or the
development o a micro credit model. This research will tr# to capture and e4plain the ollowing main eatures o
the program in terms o incremental improvement6

7 Criteria or selection o clientele.
7 3rocess or loan approval.
7 !echanism or loan recover#.
7 Write of policies.
7 8nternal !anagement.
7 9ield management.
7 1ccounting process.
7 Replication o model
7 !onitoring s#stem o program

This +tud# will also include the lessons learnt in the process o /action research0 in model building.

Rationale of Study

%: #ears e4perience o O33"OCT or enhancement o micro credit in Orangi, ;arachi and other cities/villages o
3a5istan with out an# collateral or subsid# hs pla#ed an important role in povert# education among low income
communities. The improved has been evolved through learning b# doing. 1 lot o mista5es had been made and a
number o 5e# lessons have been learnt. The methods have been evolved in process. This stud# will indicate the
diferent steps ta5en time to time and its impact on growth o program and sustainabilit# o the institution. These
steps and lessons ma# help other !icro 9inance 8nstitutions -!98s. to grow as well as help O33"OCT to grow
urther.

This stud# will provide6

<ocumentation o micro credit model on the basis o /action research0.
8nitiatives and capacities o poor people to survive and improve their lives and 5ind o support the#
needed.
<escription o micro credit model or povert# reduction.

8n this conte4t, this stud# will provide wa# to strengthen and broaden 2ancial sector to address povert# reduction
practices and strategies.



Methodology

The methodolog# o the stud# will be to e4plain the process o changes through anal#sis o secondar# data,
interviews and ocus group discussions. This research will conducted or the period +ep.'( to +ep.*) means rom
the beginning o program up till now.

The research will be done b# dividing microcredit program in our sections and identi#ing the changes with
related indicators both or inside Orangi, where O33"OCT implementing microcredit and or outiside Orangi, where
replication o micro credit is being carr#ied out b# NGOs/CBOs in their own communities. +indh Rural +upport
3rogram -+R+3., an NGO replicating O33"OCT0s microcredit program is selected or this stud#. <etails o sections
and indicators are e4plained below.
Research Tools

7 +econdar# data i.e. =uarterl# progress reports, loan records, pro2les o borrowers and case studies.
7 8nterviews rom diferent sections o O33"OCT,s management and 2eld staf and +ind Rural +upport 3rogram
-+R+3. that replicated the micro credit program.
7 9ocus group discussions rom the O33"OCT borrowers in Orangi and in two villages o +ind, where program is
being replicated b# +R+3, an NGO in +angarh.


a; <eli-ery System

8ndicators to identi# change in deliver# s#stem are as ollows6

i) Selection Criteria

Research will document the selection criteria o borrowers and its implementation or whole period. 1n# change in
selection criteria will be the indicator or change in deliver# s#stem.

ii) Loan Appraisal

<ocumentation o loan appraisal process will be done. Changes will be identi2ed in this process and will be
considered as change in deliver# s#stem.

iii) Loan Approval

>oan approval procedure will be documented and changes will be identi2ed as indicator or deliver# s#stem.

b; Reco-ery system

8ndicators or change in recover# s#stem are as ollows6

i) Method

!ethod o recover# s#stem will be documented or whole period and changes will be identi2ed as the indicator or
change in recover# s#stem.

ii) Collection of Installments

Collection process o installments o loan b# borrowers will be documented. Changes will be identi2ed in this
process as indicator or change in recover# s#stem.

ii) Dealing with delay payments

<ela# in pa#ing o installments has a signi2cant importance in microcredit program. This is also related to
increase or decrease o bad debt. This research will be documented the process to identi# the dela# pa#ments
and how institutions i.e. O33"OCT and +R+3 deals with it. ?ow did the# improve their process. 8denti2cation o
change in the process will be considered as indicator or changes in process o dealing with dela# pa#ments o
borroweres.


iii) Dealing with defalters

@nderstanding o the reasons o the deaults in pa#ment is directl# related to the sustainabilit# o an# micro
credit as well as institution. +imilarl#, identi2cation and nature o deaulter and process to deal with them is also
have a vital improtance in credit program. This will be documented in research and changes will be identi2ed as
an indicator or change in recover# process.

iii) Monitoring System for Recovery

Recover# perormance is directl# related to its monitoring s#stem. <ocumentation o loan and installments
pa#ments, on time inormation, management and reporting s#stem are main actors o monitoring s#stem or
recover#. This research will document the monitoring s#stem and program. Changes will be identi2ed in this
s#stem as indicators or change in recover# s#stem.

5; =ccounting System

Research will document the accounting s#stem and identi# the changes in the s#stem as indicator or the change
in accounting s#stem.

5; Management

Nature o managent is bac5bone or institutional eAcienc#, strength and growth. There are various actors
related to management. This research will deal the ollowings6

i) Decision Ma!ing "olicy

<ecision ma5ing process is a crucial or an# organistation. 1t one hand it demands or Be4ibilit# and on other
hand it also re=uires a chec5 and balance s#stem. This research will document the decision"ma5ing polic# and
will identi# the changes as indicator or change in !anagement.


ii) #eam $or!

<istribution o responsibilities among wor5ers and their relation with each other e4plains the nature o team wor5
within institution. This research will document the structure o institution, responsibilities and relation among the
personals. Changes among these actors will be identi2ed as change in management s#stem.

iii) $or!ing Condtions and %nvironment

8nstitutional wor5ing condition and environment depends upon salar# structure/acilities or staf, diferences in
salaries, attitude o top level management with staf, understanding o problem acing b# staf in wor5 and
guidance e4plains the wor5ing conditions and environment o institution. This research will document these
actors and changes as indicator or change in management.

<ata Collection

8normation will be gathered through6

a. O33 >iterature

Review o O330s literature will be done to document the histor# o the program.

b. O33"OCT documentation

O33"OCT documentation consists o =uarterl# reports, pro2les o borrowers, case studies o program, budget and
accounts and statistical data o the borrowers. Review o these documentations will be done or research.

c. 8nterviews

8nterviews will be done with the management and 2eld stafs o O33"OCT and borrowers in Orangi.
9or replication outside Orangi, visits will be mande to +R+3 or interviews and 2eld visits.

<ata =nalysis

C Changes will be identi2ed through6

D <ocumentation o process rom literature, O33"OCT documentation and statistics
D 8nterviews rom management

C Changes in diferent sections li5e deliver# s#stem, recover# s#stem, accounting s#stem and management will be
anal#sed in order to loo5 at the impact.
C +tatistical data will be anal#sed to to e4plain the nature o growth.
C 8nstitutional strength/ wea5nesses will be anal#sed b# relating growth with management actor.
C E4plaining process o institutionaliFation.


Time >rame

? The Study is li/ely to ta/e one full person months o-er a 5 months period starting from &ct% #$$#%

? (ead researcher1 Mr% Hari Ram from Social Policy and <e-elopment Center :SP<C; has agreed to
underta/e this study%

? He *ill create a team of sur-eyors and other au0iliary sta, to collect secondary data1 inter-ie*s
and focus group discussions under his super-ision and to compute the data that emerges%

? The responsibility of design of the Study1 its e0ecution and @nal report *ill be the responsibility of
the lead researcher%


Budget reAuired


%. Researcher0s 9ee Rs. )**,***

). <irect Cost or visiting institutions and 2lleds Rs. :*,***

G. 3rinting and publication o report Rs. %:*,***
T & T = ( Rs.H**,***




Research Content

%. 8ntroduction

). 3urpose and ObIective

C !ission and ObIectives
C 9uture 3lans

G. ?istor# and Bac5ground

C ?istor# O33"OCT
C !ain 3hases o microcredit program
C >eadership

H. 8nstitutional strength/9actors

C >egal +tructure
C Organisational +tructure
C ?uman Resource !anagement

:. >oan <isbursement and Outreach

C 3rocedure or loan deliver#
C Outreach o the program
C Economic 3ro2le o Clients

J. 9inancial 3erormance

1nnual Growth o micro 2nance program
8ncome statement and balance sheets
>oan 3ortolio 1nal#sis

(. Replication o O330s !icro2nance 3rogram

'. Communit#0s E4perience with !icro credit

C )* +uccessul case studies
C )* @nsuccessul case studies

&. 3olic# Recommendations and +uggestions







&rangi Pilot Pro.ect 7 &rangi Charitable Trust :&PP 7 &CT;
(Brief Description)
'ntroduction

&PP 7 &CT *as registered in 1!" to support people+s e,ort in their economic de-elopment and
peasant proprietors by pro-iding credit% The ob.ecti-e of the program is to ma/e the credit
accessible to e0isting micro enterprise units and farmers at mar/et rate of mar/ up to increase
production and generate employment%

Bac/ground

1ccording to ;arachi <evelopment 3lan )***, (:K o ;arachi0s labor orce is emplo#ed in the inormal sector. The
maIor problem o this inormal sector is that it has no access to credit. The# are orced to ta5e loan rom inormal
mar5et with a rate o 'K to %)K mar5 up per month. OCT estimated that there are )G,*** small businesses in
Orangi emplo#ing more than %)*,*** persons.

OCT research revealed that the production and emplo#ment in urban and rural areas could easil# be increased
provided the credit is accessible. The OCT micro credit program provides credit to e4isting businesses without
comple4, length# procedure and collateral. These loans var# between Rs. %,*** to Rs. :*,*** with average loan
amount between Rs. %:,*** to Rs. ):,***. !ar5 up on loan charged as mar5et rate o %'K per annum.

+ep.%&'( to +ep.)**), OCT provided loan to &,%&( units amounting to Rs. %'H.J( million in urban and rural areas.
Out o which Rs.%:J.J) recovered with service charges amounting to Rs. )&.GH million. The rate o recover# is
around &:K.

Replication

Success of micro credit program attracted to 89&s7CB&s and groups from se-eral areas of Pa/istan
for replication in their areas% =s per &PP philosophy1 replication is not limited to the program but
replication of institution in terms of role and responsibility% 't needs capacity building on local le-el%

To replicate micro credit program &CT is pro-iding 5 types of support to strengthen CB&s789&s%

? >irst is training and guidance on concept and methodology% #$ CB&s789&s already got training
from #4 cities%
? Second is Core funding support for operational e0penses% 3 CB&s from 3 cities got support for core
funding from &CT%
? Third is line of credit to these organiBations%

1t initial stage, O33 L OCT provided loan rom its revolving und and borrowing rom commercial ban5 through
over L drat acilities and deposited recovered installments bac5 into the account. 1nnual grants or overheads
and donations or revolving loan unds ollowed, which have made OCT less dependent on ban5 over L drats. The
program has been replicated b# HH NGOs/CBOs rom several urban and rural areas o 3a5istan. 8n +indh, Rs.JH.H&
million has been given as loan to %))(units thru ): CBOs/NGOs in %% cities/villages. 8n 3unIab, Rs.)%.'J million
has been given as loan to %H%J units thru %G NGOs/CBOs in %% cities and villages.

&CT Budget #$$# ) #$$5

Total (oan C Rs% 5$1$$$1$$$
Operational E4penses M Rs. ),*G',)H'
Total C Rs% 5#1$5!1#2!