Professional Documents
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OPD Business Plan 2017-19
OPD Business Plan 2017-19
DEVELOPMENT (OPD)
BUSINESS PLAN
2016-17 – 2018-19
Submitted to:
2
4.6 Reaching Out .........................................................................................................30
4.7 Collaborations and Partnerships ...........................................................................30
4.8 Learning and Development ...................................................................................30
4.9 Financial Projections .............................................................................................31
4.9.1 Portfolio Projections ....................................................................................... 37
4.9.2 Income/Expenses Projections ......................................................................... 39
4.9.3 Cash Flow Projections ..................................................................................... 42
4.9.4 Balance Sheet Projections ............................................................................... 42
Annex 1: The Board of Directors ..........................................................................................45
Annex 2: OPD’s Committees ................................................................................................46
Annex 3: OPD Support Programme: The Board of Director .................................................47
Annex 4: OPD’s Organogram ...............................................................................................48
References ...........................................................................................................................49
3
EXECUTIVE S UMMARY
This document presents the Organization For Participatory Development’s (OPD)
Business Plan (2016-17 – 2018-19). It details the OPD’s microfinance programme,
presents its current performance and elaborates a strategic plan, aimed at
strengthening the social and community orientation of the OPD, professionalising its
organisational governance, and processes and structuring a socially responsible
micro-finance programme in Gujranwala District. The Business Plan capitalises on
the institutional support provided by the Pakistan Poverty Alleviation Fund (PPAF)
over the years and sees it as a core strategic input for achieving the desired results.
The OPD signed its first partnership agreement with the PPAF in May 2002. Since
then, the OPD has provided loans to low-income entrepreneurs, disbursed financial
capital, and invested in improving its governance, human resources, management
structures and capacity to monitor, audit and review efficiency and effectiveness of its
micro-credit programme. In partnership with PPAF, the OPD has introduced the
Triple Bottom-Line (TBL) framework of managing sustainability, which emphasises
that organisations must produce social, environmental and economic value. The
OPD is committed to perform its economic, social and environmental role in low-
income communities.
The OPD values its longstanding partnership with the PPAF in managing its
microcredit portfolio. The generous financial as well as technical support from the
PPAF helped the OPD to consolidate its position so far and now aim to scale up in
next three years. In addition to the PPAF’s active portfolio of PKR 84 million, a credit
line of PKR 220 million and an endowment fund of PKR 17.6 million are some of the
snapshots of this valuable partnership.
The OPD’s current gross portfolio stands at PKR 90.3 million (June 2016) is
projected to grow to PKR 306.3 million in next three years. Similarly, the
outstanding loan is projected to grow from 6,095 to 16,584 in next three years. The
number of branches will be doubled by the end of 2018-19 to 10. In addition, the
OPD intends to increase number of SOCs form 5 per branch to 6 to optimise the
operational costs per branch. Thus, total number of SOCs is projected to grow to 60
in next three years. The OPD’s average loan size will also growth from its current
1
Ghanghro and Khan 2015; Kraus et al. 2012.
4
level of over PKR26,000 to approximately PKR 32,000, PKR 36,000 and PKR 37,000
by the end of 2016-17, 2017-18 and 2018-19 respectively.
This expansion will be achieved through accomplishing maximum recovery, expanding the
outreach, reducing client dropout/exit rate, professionalising employees, effectively using
management information system (MIS) and improving internal controls.
5
SECTION I: PROBLEM, INSTITUTIONS AND MANAGEMENT
This section presents a brief overview of the problem of poverty and the role of MFIs
in general and the OPD in particular in addressing the issue. The section also outlines
the governance and management structure of OPD.
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1. 1 POVERTY, INCLUSIVE FINANCIAL SERVICES AND PAKISTAN
Poverty has been a major challenge for policy makers in Pakistan. In line with the
national poverty line, the proportion of poor in Pakistan based on 2011 data is
12.4%, which declined from 23.9% in 2005 (GoP 2014). The poverty estimates based
on US$1.90 and US$3.10 a day for the same period are 8.3% and 46.0% respectively
(OPHI 2016). However, the estimates for the newly adopted Multidimensional
Poverty Index (MPI) suggest that 44.2% of Pakistanis are poor (World Bank 2016).
Even though since 2005 the GDP has been growing an average 5 percent a year, it is
not enough to alleviate absolute, relative, situational and generational poverty. The
evidence suggests that economic growth without equity considerations will not
eliminate poverty (SPDC 2015).
The provision and access to credit and financial services is seen as one of the short to
medium-term strategies for poverty alleviation. In particular, micro-financial
products address the relative and situational poverty and offer low-income families
opportunities to improve their income. Access to affordable financial services,
evidence suggest, reduces poverty2. In Pakistan, only 14% of the people have access
to the formal financial institutions while the informal financial arrangement such as
committees, shopkeepers, moneylenders, hawala/hundi money transfers serve the
needs of 36% 3 . The situation demands an institutional change in the financial
service. Micro-Finance institutions (MFIs) can bring the desired change by
developing affordable financial products that serve the need of the poor and include
them in the mainstream economic development.
Increasingly, the global institutions such as the World Bank and the United Nations
see MFIs as an important part of the global strategy of poverty reduction. Evidence
suggests that at the end of 2013, the microfinance community reached 211 million
clients, 114 million of whom were living in extreme poverty 4. However, MFIs have
still been finding it challenging to innovate new products and strategies of reducing
extreme poverty. This is also the case in Pakistan.
2
Claessens and Tzioumis 2006
3
Nenova et al. 2009
4
https://stateofthecampaign.org/2015-report-executive-summary/
5
PMN 2016; Ghanghro and Khan 2015.
7
professionalization of MFIs’ organisational governance and management structures
and the Triple Bottom-Line sustainability framework together can accomplish the
reduction in poverty in future. OPD aims to be an active part of that future.
The Organization for Participatory Development (OPD) was first registered in 1991,
under the Societies Act 1860 as a non-governmental civil organization. The OPD
started its microcredit programme in 1993 in consultation and partnership with the
Orangi Pilot Project (OPP, Karachi). It replicated its strategy of alleviating poverty in
Gujranwala city by providing affordable loans to low-income individuals who did not
have access to high quality financial institutions. The programme aimed at building
assets, reducing commercial risk, and sustaining commercial and financial viability of
small enterprises. The partnership with the OPP and successful replication of its
microcredit strategy led OPD to establish a range of partnerships with national and
international donors and NGOS, including UNDP, UNICEF, the Canadian
International Development Agency (CIDA), The Asia Foundation (TAF) and LEVIs
and PPAF. However, it is the partnership with PPAF, which has contributed greatly
in building OPD as a socially responsible institution. With its head office in
Gujranwala city, currently the OPD operates in three out of five tehsils in the district,
namely Gujranwala City, Gujranwala Saddar, Kamoke and Wazirabad.
In the last 25 years, the OPD has implemented numerous projects focusing on
education, health, micro-credit, enterprise development, women’s empowerment as
well as research and advocacy. However, in recent years, the OPD has focused
exclusively on the sustainability of its micro-credit programme in consultation and
collaboration with the Pakistan Poverty Alleviation Fund (PPAF), aiming to establish
itself as a Non-Banking Financial Company (NBFC). In so doing, the OPD has greatly
benefited from the professional advice and financial support provided by PPAF and
has acquired a licence and is incorporated under Section 42 of the Companies
Ordinance 1984 under its new brand name the OPD Support Programme (OPD-SP).
Currently, it is in the process of incorporation under NBFC regulations. The OPD will
remain as a registered organisation under the Societies Act 1860 while all assets and
liabilities pertaining to its microfinance programme will be transferred to the OPD
Support Program.
In order to become a professional and successful NBFC, OPD has in July 2016
completed a management review of its organisational processes, practices and
structure: this includes a review of leadership, decision-making practices and
processes, organisational structure, strategy and culture, community-
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orientation/relations, people management, administrative policies, and learning and
training procedures and arrangements. Two UK-based management scholars and
practitioners conducted the review and presented their findings and
recommendation to the Board. The management review was a step to address the
PPAF recommendations related to governance, HR policies and internal controls.
Based on the management review, the Board in August 2016 has provided the
strategic direction which OPD has begun to implement both at the organisational and
programme levels. Below we provide a brief overview of the changes and current
management structure.
The core values that the OPD realises in its programmes and processes are
transparency, accountability and sustainability.
Goals:
Providing access to quality and affordable financial services to improve
household income and living standards of low-income entrepreneurs
and businesses.
Delivering sustainable development to low-income communities with
particular focus on gender equality, quality education and preventive
health services, healthy nutrition, sustainable agriculture and
affordable and inclusive microcredit & socially responsible and
sustainable microenterprise development.
Developing and implementing the Triple-Bottom Line sustainability
framework to managing organisational processes and its impacts.
1.3 GOVERNANCE
The OPD is registered under the Societies Act 1860 and governed by its constitution.
The OPD’s Executive Council and Board of Directors is entrusted largely with the
governance responsibilities. The Executive Council is comprised of 15 members while
there are nine members of the Board of Directors excluding the CEO, who is a non-
voting member of the Board of Directors. The Board is headed by a Chairperson and
assisted by the General Secretary, Treasurer and two committees, i.e. the Finance and
Audit Committee and the Human Resources Committee. Both committees are
constituted to oversee financial and human resource matters and are headed by the
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chairperson and two members. The Board of Directors meets quarterly while both
committees also meet quarterly and hold separate meetings. The board is gender
balanced, comprising five men and four women. The list of the Board of Directors
and the details of Audit Committee and HR Committee is given in Annexes 1 and 2.
Since the OPD is going through an institutional development process and in the next
quarter it will be transformed and rebranded as the OPD Support Programme once
the process of licensing and incorporation is completed under NBFC. Currently,
Section 42 of the Companies Ordinance governs the OPD Support Programme,
implemented by the Securities and Exchange Commission of Pakistan (SECP). The
ordinance requires a minimum of three directors/promoters to make up the Board of
Directors, which direct and control the strategic process and direction of the
organisation and ensure that the OPD Support Programme follows the principles
related to transparency and accountability, the legal and regulatory environment,
appropriate risk management measures, information flows and the responsibility of
senior management and the board of directors” 6. The board of the OPD Support
Programme consists of three directors/promoters (for details see Annex 3), which
will expand in the next 8 months by bringing in like-minded, supportive and willing
professional members of society.
For the transition period (12 months, starting from August 2015), until all assets and
liabilities from the OPD are transferred to the OPD Support Programme, the current
OPD board and its committees will continue to provide help, support and guidance to
the Senior Management Team (SMT), which is detailed below.
The OPD’s senior management is comprised of its founder and Chief Executive
Officer (CEO) Mr, Qurban Raza Shah, a Chief Operating Officer (COO) Dr. Shakil
Ghori (this is an interim position and it aims to implement the strategic changes,
approved by the Board). In addition, both the CEO and COO, the senior management
team includes Mr. Akbar Baig, Mr. Sulman Tariq and Mr. Shehzad Warrich based at
the OPD’s head office and 5 Branch Managers based in branch offices situated in
Gujranwala, Kamoki and Wazirabad. The qualifications and experiences of key
people in key management positions are:
Chief Executive Officer: Mr. Qurban Raza Shah – Mr. Shah is a veteran social
development thinker and a longstanding advocate of voicing and promoting
economic and political rights of the poor in Pakistan. He has more than 50 years of
management and leadership experience.
6
SECP, Corporate Governance, https://www.secp.gov.pk/corporate-governance/corporate-governance/
10
Chief Operating Officer: Dr. Shakil Ghori: With a master’s degree in Management
of Non-Governmental Organizations from London School of Economics (LSE), and a
PhD focusing on customer satisfaction, service marketing and quality assurance in
higher education from Oxford Brookes University, United Kingdom, Dr. Ghori has
more than 20 years of professional experience of working in the United Kingdom and
Pakistan.
Manager Field Operations and Teams: Mr. Mirza Akbar Baig – Mr. Baig has a
master’s degree from Punjab University and worked for more than 13 years on
development projects. For more than nine years he worked on managing
microcredit/microfinance projects. He is a master trainer in Micro Entrepreneurship
and attended the TOT workshop at the First Women Bank of Pakistan. He also
attended training workshops on Islamic Agri-finance, support group methodologies,
gender & development, social mobilisation, participatory methods and monitoring &
evaluation.
11
Manager Field Monitoring and Innovation: (In the process of
recruitment)
For Organogram and details of other employees, Please see the Annex 4.
12
SECTION II: PROGRAMME STRATEGY, OPERATIONS AND
FINANCES
The section details the performance of the OPD. This includes the OPD’s programme
strategy, operations and finances. This performance is a reference point for the
business plan, which this document presents.
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2.1 PROGRAMME STRATEGY
2.2 PRODUCTS
The OPD offers three types of financial products to low income entrepreneurs and
businesses, i.e. working capital loans, social franchise loans and microenterprise
loans. All three products are designed to address the needs of low-income
entrepreneurs. The OPD is currently evaluating the economic and social
performance of its products, based on the market intelligence and changing demands
of its primary stakeholder- low-income entrepreneurs. The current number of loans
under working capital, social franchise and micro-enterprise are 5,724, 34 and 106
respectively. Further details of these products are presented below.
Repayment procedure Instalments every Instalments every 30 days Instalments every 30 days
30 days
Grace period 5 working days Instalments every 30 days Instalments every 30 days
# of instalments 12 12 12 – 15
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2.3 OUTREACH
The OPD focuses on entrepreneurs (both men and women) living and doing business
in low- income areas in and around Gujranwala city. The five branch offices are
located in Gujranwala (three branch offices, i.e. Satellite Town, Shaheenabad, and
Khiali), Wazirabad (one branch office) and Kamoke (one branch office). The OPD’s
clients engage in commerce, retailing, small-scale trading, handicrafts, small-scale
manufacturing, light engineering workshops and the service sector, livestock, poultry
and fish farming. . The OPD (August 2016 data) serves 5,864 entrepreneurs out of
which 3,106 are women (close to 53%). The OPD’s number of clients under different
financial products and productive sectors are presented below:
Livestock/poultry/fish farming 22
Working
Manufacturing/light 195
engineering/workshop
Handicrafts 727
Services sector 137
Social Franchise Loan 34
Micro-Enterprise Loan 106
Total 5864
2.4 PRICING
The OPD has adopted a uniform pricing strategy for all of its financial products. The
pricing includes 20% service charges on a flat rate basis, 1% processing fee charged
up front (reduced from 3% from April 2016 in line with PPAF’s advice), 1%
contingency fee to underwrite the loan amount in the event of a client’s death. In
addition, PKR100 are also charged as up front application fees. The pricing is in line
with other mainstream MFIs in Gujranwala. The OPD’s income from its microcredit
portfolio covers 100% of the operating costs.
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2.5 COMPETITIVE ENVIRONMENT
The OPD started its microcredit programme in 1993 in Gujranwala district. It has
extensive experience in delivering individual loans. There are three types of
organisations operating in the microcredit/microfinance sector in Gujranwala
district, i.e. MFBs, MFIs and RSP. 15 such organisations working in Gujranwala
district (PMN 2016), as listed below:
ASA Pakistan
First Microfinance Bank Limited (FMFBL)
Khushhali Bank
Kashf Foundation
National Rural Support Program (NRSP)
Jinnah Welfare Society (JWS)
Punjab Rural Support Program (PRSP)
Tameer Microfinance Bank Limited
Finca Micro Finance Bank
APNA Micro Finance Bank
U-Micro Finance Bank
Waseela Micro Finance Bank
Sahil Development Organization
AKHUWAT Foundation
Pak Oman Micro Finance Bank
Data below shows that other MFIs and RSPs have a larger number of active loans,
bigger portfolios and more branches than the OPD.
These MFIs and RSPs operate with a broader donor base and work with multiple
donors for their microcredit programmes. Some of them manage several projects in
other social sectors such as livelihood, education, and health. The banks, however,
16
appear to have even higher investment and solid professional organizational
structure. Below is a list with details of microfinance banks in the district.
OPD is a small organisation compare to other MFIs and RSPs but it has had two
distinct competitive advantages. Firstly, it enjoys a very close relationship with the
low-income communities, which is an outcome of its 25 years of social development
work in the city. Second, it is a competent organisation for delivering individual loans
to low-income entrepreneurs and therefore it has a strong market position because
other MFIs and RSPs provide group loans and do not address the needs of those who
prefer individual loans.
This section describes the OPD’s operation i.e. methods and delivery of financial
services, loan features, performance and measures taken for managing risks to
safeguard its loan portfolio.
The OPD offers individual loans to low-income entrepreneurs and businesses. This
method softens the competitive environment7 in which OPD operates and liberalises
the capital market by removing the social costs attached to the group loaning
methods8 i.e. issues of individual privacy and cultural stigma associated with debt.
The OPD delivers its financial products through its network of five field offices in
Gujranwala district. 22 Sector Loan Officers (SOCs), five managers and five
accountants manage the loan portfolio of the five field offices. Each loan officer
handles a portfolio of 200 to 250 low-income entrepreneurs.
7
Other MFIs and RSPs in Gujranwala offers group loans
8
Lehner 2009
17
Marketing
individual /
group
meetings
Form
Recovery
issuance
Monitoring &
Evaluation
Disbursemen Form
t submission
Approval of Client's
loan financial
application and social
appraisals
The loaning process starts from holding individual/group meetings in the pre-
selected low-income communities where clients are provided with information on
financial products that the OPD offers. In addition, the OPD also attracts clients as a
result of referral from friends, extended family members and relatives. Clients willing
to apply for loans contact SOCs and visit one of the OPD’s five branch offices that The
provide them a computerised loan application form, after filling out basic
information. The clients are then provided with information and the paperwork
required for submission of the loan application form, i.e. CNIC, photographs, proof of
address (utility bill etc.) and profiles of personal guarantors. The clients visit the
branch office with the complete paperwork and submit their loan application form.
The OPD staff members carry out the clients’ financial and social appraisal including
collecting information on the poverty scorecard. Once suitability for the loans are
established, the loan application forms are forwarded to the head office for the
verification of the information. The monitoring and evaluation team verifies the
accuracy of the information and identifies the gaps. The Field Manager, then,
approves the verified applications and issues the cheques. The cheques then go to the
branch managers of the relevant field office who invite the clients to collect their
cheques. The clients are invited to collect the cheques along with two personal
guarantors and are given the repayment plan. The process, from loan application
submission to issuing the cheque, takes between 15 to 20 days. OPD has established
three channels-cash deposit in the relevant branch, through OMNI, and JAZZ Cash-
which its clients can use to make payments.
The effective term for the OPD’s typical loan (98.2%), i.e. working capital and social
franchise loans, is 12 months while for a very few (1.8%), i.e. micro-enterprise loans,
18
this term is 12 to 15 months. Currently the OPD’s average loan size is PKR 26,717 for
men and PKR 26,306 for women, showing in the 2015-16 financial year. Clients have
to make repayments in 12 equal monthly instalments including the principal amount
and the service charges. The loans are designed in two cycles, i.e. clients who
complete one successful cycle are offered an opportunity to apply for another loan
with increased value in the 2nd cycle based on their needs and requirements as well as
subject to their successful social and financial appraisal.
The worth of the OPD’s outstanding portfolio at the end of August 2016 is PKR 84.66
million. Women hold a slightly greater share, i.e. 51% compared to men (49%). The
OPD’s 90% clients make regular repayments in time. However, 10% of the clients
have outstanding loans under different ageing buckets. Most prominently, 402 clients
(6.85%) have had outstanding loans for more than 6 months. Some of these loans are
a result of a few members of staff involved in embezzlements for which litigation and
court cases are filed and legal actions to recover the embezzled amount is underway.
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2.8 RISK MANAGEMENT
The OPD takes all standard measures to minimise risk to its microcredit portfolio.
The process of financial and social appraisal and use of poverty scorecard provided
from PPAF are some of the practices that are in place for risk management. In
addition, clients are asked to provide details of two guarantors, one from their
immediate family and one from friends, neighbours, relatives or extended family.
This provides social collateral to some extent, from people who are financially
excluded and have no access to the formal banking sector. For loans more than PKR
30,000, post-dated cheques are collected from clients as an additional measure of
risk management.
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SECTION III: FINANCIAL PERFORMANCE AND STRATEGIC
PRIORITIES
The section reports the current financial performance of the OPD. This includes its
position on profitability, recovery, portfolio quality and efficiency and details the
strategic priorities for the next 12 months.
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3.1 PROFITABILITY
The OPD has successfully covered its operating costs including personal and
administrative costs and has achieved operational sustainability. . Data for the past
two years indicate a profit of PKR 4.2 million in 2014-15 and 0.14 million in 2015-
16,
Table 7: Annual Income: Expenditure
2014-15 2015-16
Total Income 41,192,881 34,364,671
Total Expenses 36,912,731 34,220,817
The OPD has achieved the operational sustainability9 by reducing the management
cost i.e. uncompetitive compensation packages for employees.
In 2013/14, the OPD achieved 99.32%. However in the last two years, (2014/15 and
2015/16) the recovery rates decline i.e. 95%. This rapid and undesirable change in
the recovery rates is a accumulated effect of high employee turn-over, financial
irregularities in the field offices, weak monitoring mechanisms, absence of staff
training and lower levels of pay and compensation.
The portfolio quality during past three financial years is given in the Table 8, below.
9
It is important to note here that the OPD’s financial statements also take into account depreciation as well as
loan losses. For example, last financial year (2015-16) the OPD allocated PKR 2.86 million for loan losses and
doubtful debt while the depreciation amount for the same period is calculated to be PRK 1.1 million. Thus, the
OPD appears to achieve financial sustainability.
22
Average loan size Female 22,160 24,354 26,306
Recovery rate (%) 99.32 95 95
Portfolio at risk (%) 1.03 4.88 4.94
No. of Branches 5 5 5
Data available for the last financial year (2015-16) indicates that the total disbursed
amount is (PKR 139.44 million) and total value of the portfolio is PKR 90.87 million.
A total of 5,263 loans were disbursed in 2015-16 and 5,969 loans reach their
maturity. The recovery rate during the last financial year was 95% with the portfolio
at risk (PAR) at 4.94%.
3.4 STRATEGIC PRIORITIES FOR THE NEXT 12 MONTHS: STARTING FROM AUGUST
1 2016
ST
The OPD has already taken the following steps to address the problems that caused
decline in the recovery rate. The recovery process includes a risk of financial
irregularities at field level. The risk has originated from the practice of SOCs
collecting cash repayments from client and using them. Establishment of the simple,
transparent, and risk free financial system at field level is the key to improving
recovery. The OPD has taken several steps to accomplish desired goal, including
complete removal of the practice of cash handling at branch level, introduction of the
financial and social guarantee system for employees, implementation of the daily
reporting system and orientation/training programmes, and regular interaction of
the senior management team with SOCs. This OPD is committed to further refine and
develop a simple, transparent and risk free financial system with the help of PPAF
23
and other stakeholders, including other MFIs and RSPs. In addition to this, the OPD
plans to introduce competitive salary packages to attract professional and talented
individuals and to retain its experienced employees. To achieve this HR objective,
OPD has allocated a realistic budget in the business plan and has begun to explore
other income streams, grants and project funding from other donor agencies.
In the business plan, one of the key strategic priorities of the OPD is to introduce
competitive compensation packages and create self-actualisation opportunities for its
employees. The OPD plans to do it by implementing the growth strategy, which is the
core of the business plan. The OPD has already taken steps and considering to
borrow against its endowment fund and to develop OPD’s own microcredit portfolio.
This is at an early stage and will take some time to materialise.
The OPD’s true potential lies with its ability to connect to its targeted communities.
This relationship goes back to more than two decades of uninterrupted association in
terms of numerous projects covering multiple development themes such as
education, health including its work on AIDs and sexually transmitted diseases
among high risk segments of the population in Gujranwala i.e. sex workers and truck
drivers, nutrition, gender, WASH and microcredit. Capitalising on its two distinct
competitive advantages (Knowledge of social development and expertise in
individual loaning), the OPD plans to expand its outreach, innovate new financial
products and methods of delivering them, and increase its portfolio, number of loans,
amount of loan, and active clients in the next three years. The OPD has taken key
steps to accomplish the desired results. The OPD has reviewed its loan methodology
and has taken several steps to improve its outreach, including designing and
implementing information dissemination campaigns, educational material (IEC)
related to loan process.
24
3.4.3 REDUCING CLIENT DROP-OUT RATE
The current client dropout rate is calculated to be close to 60% indicating that more
than half of the clients do not take second loan. The OPD has begun a process of
investigating the reasons and causes of this high rate of dropout. In the business
plan, retaining credit worthy clients and reducing the dropout rate are the OPD’s
strategic priorities, which will result in reducing the delivery cost of micro-credit,
improving the productive of micro-credit team and developing stronger relationship
between the OPD and its low-income communities.10 The OPD is also trying to
promote market assessment and planning based on evidence. For this purpose,
development of data collection mechanisms is in process to use information on
determinants of clients’ dropout and satisfaction.
The management team based at the head office have required knowledge, skills and
experience, however, currently job role evaluation, preparation of job description and
job analysis is underway and will take a couple of months to develop a new structure
matching available competencies with newly developed job roles. OPD plans to
establish a Centre for Community Learning, Innovation and Citizenship that will
provide in collaboration with local, national, and international academic institutions
short training courses to its employees and entrepreneurs. The OPD has already
begun the process of exploring potential partnerships. The OPD plans to make the
centre a research, training and educational forum for all its stakeholders.
10
A large number of studies provide evidence to support the assertions that high dropout rate makes it expensive
to deliver financials services to low income households10, retaining clients reduces administrative costs, default
risks and increases average loan balance as well as organisations’ productivity (Meyer, Graham & Pagura 2001).
Furthermore, the cost of recruiting new clients is higher than retaining old clients (Schreiner 2004). It is also
evident that both microcredit institutions and clients gain from a long term relationship (Silki 2013). It is also
understood that acquiring a new client cost 4 to 10 times more than retaining the existing client.10
25
appropriate reporting lines and delegation of authority, proper supervision structure
and monitoring mechanisms. The internal controls on loan disbursement and
recovery are being reviewed and improved processes are to be put in place by next
month. A monitoring team comprised of 5 people is recruited and is in a process of
further strengthening. The smoothing functioning of FIS and MIS provide effective
tools to monitoring the portfolio in real time and allow the management to generate
appropriate reports to closely monitor portfolio at risk (PAR) data around all ageing
baskets.
The vision, mission and values, outlined in sub-section 2, provide the basis for the
OPD to remain and grow as a social development organisation in its outlook. This
social development orientation is in line with the aspirations and ideological
positions of its board, leadership and management. This means that the OPD sees
microcredit/microfinance as a strategic entry point for creating social value, in
addition to economic value During the life of this business plan (i.e. 2016-17 to 2018-
19) the OPD will continue to create economic and social value by strengthening its
micro-credit programme. For example, Since a large proportion of the OPD’s clients
are from retail sector, discussions are underway to acquire specialised knowledge and
skills in retail sector to engage with clients for not only provision of financial
products but to provide them knowledge, information and support in enhancing
entrepreneurial skills and ultimately their profitability and help them with
developing knowledge of socially responsible retailing practices.
26
SECTION IV: THE BUSINESS PLAN
This section spells out the OPD’s future plan for next three years i.e. between 2016-
17 and 2018-19. The OPD intends to take advantage of the current transition period
to consolidate its market position and to put forward an ambitious growth plan for
next three years. During next three years, the OPD while scaling up its operation
intends to restructure, rebrand and reinvent its microcredit operation.
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4.1 MARKET / PROSPECTIVE CLIENTS
Based on the population numbers, it is estimated that there are 400,000 to 550,000
potential borrowers in Gujranwala district in line with PMN’s methodology and the
framework offered by Kraus et al., (Ghanghro and Khan 2015; Kraus et al. 2012). The
current microcredit portfolio of the district is approximately PKR 3.4 billion with
149,777 active borrowers (PMN 2016), indicating current penetration rate between
25% and 35% and an average loan size of roughly PKR22,700. Thus, there is still a
gap to reach out another 250,000 to 300,000 potential borrowers in the district.
The perception of households about their economic situation also indicate that there
are opportunities for MFIs to reach out the households, particularly the ones that are
outside the formal banking sector and offer them small loans to improve their
livelihood.
28
Graph – 1
Perception of Economic Situation of the Households in 2015 compared
with 2014 in Gujranwala district, Punjab and Pakistan
60
50
40
30
20
10
0
Urban Rural Urban Rural Urban Rural
Gujranwala District Punjab Province Pakistan
The OPD will continue working on the products it currently offers as outlined in
previous section. It will continue offering working capital, social franchise and micro-
enterprise loans. However, these three products will be fine-tuned in line with
market and client demands. Similarly, the OPD will continue using its branch office
model for disbursement and recovery of its loan products.
The fee structure will be the same as the OPD is using now i.e. 20% service charges,
1% loan processing fee and 1% contingency fee with PKR 100 as form fee. However,
the average loan size will increase from its current level of over PKR26,000 to
approximately PKR 32,000, PKR 36,000 and PKR 37,000 by the end of 2016-17,
2017-18 and 2018-19 respectively.
4.4 OUTREACH
The current outreach of the OPD will expand in next three years from 5 branches to
10 branches. At the same time number of SOCs and clients will also go up
accordingly. The new branches will be open after carrying out feasibility in line with
its SOPs. The number of active client will be increased from its current level of 5,864
to 16,584 by the end of third year, a 282% increase in the total number of clients. The
number of SOCs will increase for 25 at present to 60 by the end of third year.
29
Table 11: Outstanding Loans and SOCs
2016-17 2017-18 2018-19
Number of loans outstanding 8115 11996 16584
Number of loan officers 36 48 60
No. of Branches 6 8 10
The OPD will actively market its product by developing IEC materials i.e. leaflets,
brochures and booklet in simple Urdu. In addition, pictorial materials will also be
developed for unschooled prospective clients. The OPD will retain individual loaning
as its unique selling point and will focus on developing as well as imparting
knowledge base to benefit its client in terms of helping them connecting to the
market effectively.
The OPD is interested in developing collaboration and partnerships with other sector
actors, institutions and donor agencies in Pakistan and abroad. The OPD will
strengthen its relationships with national network bodies in the sector as well as
engage with them and other MFIs operating in the country to learn from their
experience. The OPD will also seek memberships of national bodies and will
participate in events on various platforms.
The OPD will establish a Centre for Community Learning, Innovation and Citizenship
(CIC) with an aim to initially provide orientation and training to its own employees.
Lack of understanding about the microcredit sector, community development
concepts and issues around poverty appeared to be some of the area where the OPD’s
employees’’ knowledge is deficient. The CIC will offer the OPD’s field staff with an
opportunity to improve its knowledge and understanding on these issues. The centre
will have its own separate learning and development budget and staff.
30
4.9 FINANCIAL PROJECTIONS
The financial projections are calculated for next three years based on certain
assumptions. The key assumptions for this business plan are the OPD’s plan to
actively scale up its microcredit operation by increasing its number of outstanding
loans from 6,353 at present to 16,584 in next three years with doubling the number
of branches from 5 to 10. The detailed assumptions include its loan portfolio, income,
budget (expenditure) including operational expenses such as salaries and other
expenses. These assumptions are presented in Note to Account in details on quarterly
basis for the next three years.
31
32
33
34
35
36
4.9.1 PORTFOLIO P ROJECTIONS
The PPAF’s outstanding portfolio is projected to grow form PKR 90.87 million at
present to PKR 271.94 million during the life of this business plan. In addition, the
assumptions presented above under Note to Accounts, also include constituting a
smaller OPD’s own microcredit portfolio from PKR 3.9 million funded by the
commercial borrowings against its equity pool including endowment and sub-
ordinate loan from the PPAF. Thus, at the end of third year of this business plan, the
OPD’s gross microcredit portfolio is projected to be approximately PKR326 million.
During the same period (2016-17 to 2018-19) the equity is projected to grow from
PKR44.5 million at present to PKR71 million by the end of third year. The OPD will
expand its microcredit operation from 5 branches to 10 in next three year. It will add
one branch this year (2016-17), two branches next year (2017-18) and another two
branches in 2018-19. The OPD will also increase one SOC in each of its branches
bringing the number of SOCs to 6, thus raising the total number of SOCs by the end
of year three to 60.
37
38
4.9.2 INCOME/EXPENSES PROJECTIONS
During next three years, the OPD’s income is projected to be PKR 47.63, PKR 76.98
and PKR 111.98 million in first, second and third year respectively. The major
proportion of income will come from services charges (approximately 78% to 80%)
while remaining 20 to 22 per cent will be contributed by loan processing fee, form
fee, interest on deposit, interest on investment and other income.
In terms of expenses, salaries make the major part of upto 70% to 75% while
depreciation and other administrative expenses make the remaining part of the
operational expense. Among operational expenses, salaries will grow from PKR23.6
million in Year one to PKR 39.98 million in Year three. This is due to the fact that the
number of branches, SOCs and staff at the head office will increase to in line with the
business plan. In addition, salary structure will be revised gradually to make it more
market competitive.
100%
90%
80%
70%
60% Depreciation
50%
Other administrative expense
40%
Salaries
30%
20%
10%
0%
2018-19 2017-18 2016-17
39
The total financial expenses are projected to be PKR12.31 million, PKR 27.29 million
and PKR 41.31 million for 2016-17, 2017-18 and 2018-19 respectively. The OPD at
present is reviewing its branchless banking options that it uses for mainly recovery
i.e. OMNI and Jazz CASH to reduce cost and to minimise the risk in recoveries.
Alternative to the branch less banking are getting repayments through bank account
for which vouchers can be printed in bulk and given to each client. This will save the
branchless bank projected accumulated cost of PKR 6.71 million in next three years.
80%
60%
Branch-less banking charges
0%
2018-19 2017-18 2016-17
-20%
The projected net income for next three year will be PKR1.44 million in year one
(2016-17), PKR12.61 million in Year 2 (2017-18) and PKR 23.64 million in year
three (2018-19).
40
41
4.9.3 CASH FLOW PROJECTIONS
The cash flow projections after adjusted for non-cash items for 2016-17, 2017-18
and 2018-19 are PKR 11.5 million, PKR24.95 million and PKR39.29 million
respectively. The quarterly cash flow projections are presented on the next page.
The projected asset and liabilities ratios will be 110%, 109% and 113% for 2016-17,
2017-18 and 2018-19 respectively.
The equity is projected to increase from PKR 44.5 million at present to PKR 71
million by the end of third year (2018-19) including endowment and sub-ordinate
loan of PKR17.6 and PKR 20 million respectively.
42
43
44
ANNEX 1: THE BOARD OF DIRECTORS
Name Designation Qualification Occupation Organization Year of Experience
Ms. Hina Inam General Secretary M.A. Philosophy Chief Editor and Writer Radio MF 103, Lahore 23 years
Mr. Basharat Rasool Treasurer FCA Chartered Accountants J.A.S.B (Chartered Accountants) 18 years
Mr. Shakeel
Member MPA Senior Banker Bank AL-Habib Ltd. 24 years
Hussain Memon
Youth Commission for Human
Ms. Shazia Khan Member M.A. Sociology Management Executive 24 years
Rights (YCHR)
Community Support Concern
Begum Shaista Jan Member MBA MFI Executive 32 years
(CSC), LHR
M.A. Philosophy & Chief Editor, Writer and Hamshahri Magazine, Lahore,
Mr. Shafqat Ullah Member 27 years
History Businessman Pakistan
M.A Philosophy, M.A. Soon Valley Development
Mr. Gulbaz Afaqi Member MFI Executive 36 years
Urdu Programme
45
ANNEX 2: OPD’S COMMITTEES
HR Committee
1 Ms. Hina Inam (Chairperson), Chief Editor and Writer, Radio FM103, Lahore
2 Ms. Tanveer Jahan (Member), Consultant, Educationist and Researcher
Mr. Shazia Khan (Member), Senior Management Executive
46
ANNEX 3: OPD SUPPORT P ROGRAMME: THE BOARD OF DIRECTOR
Year of
Name Designation Qualification Occupation Organization
Experience
Consultant,
Akhter Hameed Khan
Fayyaz Baqar Chairperson MS Economics Educationist and 39 years
Resource Centre
Researcher
Chief Editor,
M.A. Philosophy Hamshahri Magazine,
Shafqat Ullah Member Writer and 27 years
& History Lahore, Pakistan
Businessman
MS Philosophy, Consultant,
Tanveer Democratic Commission
Member Diploma in Educationist and 29 years
Jahan for Human Development
Human Rights Researcher
47
ANNEX 4: OPD’S ORGANOGRAM
48
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Ghanghro, A.K. & Khan, N. (2015) Estimating potential market size for microcredit in Pakistan, Pakistan
Microfinance Network (PMN), no. 27, December 2015.
GoP (2014) Pakistan Economic Survey 2013-14, Ministry of Finance, Government of Pakistan,
http://finance.gov.pk/survey_1314.html
Krauss, A., Lontzek, L., Meyer, J., & Frommelt, M., (2012) Lack of Access or Crowded Markets? Towards a
Better Understanding of Microfinance Market Penetration (August 23, 2012). CMF Working Paper Series, No.
01-2012. Available at SSRN: http://ssrn.com/abstract=2587014 or http://dx.doi.org/10.2139/ssrn.2587014
Lehner, M. (2009) Group lending versus individual lending in microfinance, Discussion paper no. 299,
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September 2016.
Siliki, AC., (2013) Why people dropout from microfinance institutions? Case study of an MFI in Mali
(Jyesigiso), Solvay Brussels School: Economics and Management.
Schreiner, M. (2001) Scoring drop out at a Micro lender in Bolivia, Center for Social Development. Washington
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