Table of Contents

1 INTRODUCTION:....................................................................................................................................................3
BACKGROUND OF PROJECT: .............................................................................................................................................3
OBJECTIVE: ..................................................................................................................................................................3
METHODOLOGY ADOPTED:...............................................................................................................................................3
SCOPE AND LIMITATION OF PROJECT:..................................................................................................................................4
2 GS NETWORK ORGANIZATIONS: DECENTRALIZATION AND IT’S OBJECTIVES..............................4
BACKGROUND OF MICROFINANCE OPERATIONS ...................................................................................................................4
2.1.1 Governance:.................................................................................................................................................7
2.1.2 Strategy: ....................................................................................................................................................11
2.1.3 The recommendations:.............................................................................................................................11
3 SMSS INCENTIVE SCHEME FOR LOAN OFFICERS:...................................................................................12
WHY STAFF INCENTIVES?.............................................................................................................................................12
DESIGN OF STAFF INCENTIVE SCHEMES...........................................................................................................................13
WHO SHOULD BE INVOLVED IN THE DESIGN?.................................................................................................................14
BASIC PRINCIPLES FOR STAFF INCENTIVE SCHEMES:.........................................................................................................14
MINIMUM REQUIREMENTS FOR STAFF INCENTIVE SCHEMES................................................................................................15
3.1.1 Fairness......................................................................................................................................................15
3.1.2 Transparency..............................................................................................................................................16
DEFINING THE INCENTIVE SCHEMES’ OBJECTIVES (STEP ONE)...........................................................................................16
3.1.3 Strategic orientation: ................................................................................................................................16
GOAL..........................................................................................................................................................................19
3.1.4 Organization culture:.................................................................................................................................19
3.1.5 Staff productivity: ......................................................................................................................................19
3.1.6 Objectives of staff incentive scheme: ........................................................................................................20
SOME BASIC ISSUES:.....................................................................................................................................................21
3.1.7 Weight of Monetary Incentives in Total Pay:.............................................................................................21
3.1.8 Individual incentive versus group incentive scheme: ................................................................................22
3.1.9 Staged versus linear scheme: ....................................................................................................................23
3.1.10 Maximum performance level versus reference performance level: ........................................................23
DESIGNING AND CALIBRATING BONUS FORMULA:...............................................................................................................24
3.1.11 Selection of performance measurement parameters:...............................................................................25
3.1.12 Choosing reference levels: ......................................................................................................................26
3.1.13 Allocation of weights: .............................................................................................................................26
3.1.14 Construction of bonus formula:...............................................................................................................26
3.1.15 Calibration of incentive formula:.............................................................................................................28
3.1.16 Cost benefits analysis:..............................................................................................................................30
4 DEFINING ROLES RESPONSIBILITIES AND ELIGIBILITY CRITERIA FOR KEY STAFF
POSITIONS:................................................................................................................................................................32
LOAN OFFICERS:..........................................................................................................................................................32
BRANCH MANAGER.......................................................................................................................................................33
1 YEARS OF EXPERIENCE AS LOAN OFFICERS FOR GRADUATES ........................................................33
3 YEARS OF EXPERIENCE AS LOAN OFFICERS FOR POSTGRADUATES..............................................33
AREA MANAGER...........................................................................................................................................................33
MANAGER (OPERATIONS AND HR).................................................................................................................................34
MANAGER (FINANCE)...................................................................................................................................................35

1
5 MODIFYING ORGANIZATIONAL STRUCTURE FOR SMSS: ....................................................................36
GAPS IN CURRENT ORGANIZATIONAL STRUCTURE:..............................................................................................................36
5.1.1 Position of central team manager (CTM): ................................................................................................36
5.1.2 Position of area manager:..........................................................................................................................36
5.1.3 Redundancy of loan officers: ....................................................................................................................37
5.1.4 Proposed organizational structure:............................................................................................................38

2
1 Introduction:
Background of project:

The project had been floated by ICICI Prudential Life Insurance Company. It selects MFIs and
NGOs working in rural areas as its channel partners and through them sells life insurance
policies which have been customized according to requirements and profiles of rural populace. In
Andhra Pradesh, ICICI Prudential Life Insurance Company is working with two such MFIs.
Both the MFIs have undergone some radical change in terms of structures and strategy. One of
them i.e. Grama Siri (GS) had been operating through a network of MFIs only. Now it has started
direct lending through SHGs. Another MFI i.e. Star Microfin Service Society (SMSS) is barely
two years old. It is still in experimentation phase as regards organizational structure and long
term strategic direction is concerned. Our study was mainly aimed at assessing the impact of all
these changes and gives any suggestions so that the two organizations can cope up with changes
taking place.

Objective:

Following were the objectives of project:

• To study the decentralization effort at Grama Siri and suggest measures to make it more
effective
• To design incentive scheme for loan officers of SMSS
• To suggest modifications in current organizational structure in order to make it scalable
and to remove redundancies if any
• Suggesting clear cut roles and responsibilities for key functionaries of SMSS, also
identifying eligibility criteria for recruitment purposes

Methodology adopted:

3
For GS, we assessed the past performance of network organizations on the basis of indicators
like loan outstanding, funds received, number of SHGs formed etc. then we interviewed chief
functionaries and key staff members of all the network organizations to gain an understanding of
their own operations and the environment in which they are working. Combining these two
findings, we identified the bottlenecks and possible solution. For SMSS, we assessed their
current level of operations and on this basis we tried to find out their staff requirement and also
how best it can be organized into an organizational structure which is compatible with the
planned growth of organization. We studied the MIS reports of last six months relating to loan
disbursement and performance of each loan officer. Combining these findings with the strategic
requirements of organization, we identified the performance indicators for loan officers and on
this basis we developed formula for the incentive to loan officers.

Scope and limitation of project:

Our project was limited to the operational areas of the two organizations. We visited the field
level centers of both the organizations to gain an understanding and also to find the relation
between objectives of project and field level operations. In general, given the nature of project,
our study was limited mainly to the offices of both the organizations. But in case of GS we had
to visit four districts of AP to cover eight of network organizations. Similarly we had to visit four
Mandals of kurnool district to understand branch level operations of SMSS.
Of the major limitations of project, one was language barrier. In both the organizations lower
level functionaries knew only one language i.e. Telagu which we were not conversant with.
Another limitation was lack of clarity about project objectives in the beginning. Due to this we
were hard pressed for time in the fag ends of our study.

2 GS network organizations: decentralization and it’s objectives

Background of microfinance operations

In terms of SHG formation, GS’ microfinance programme started in 1985. At that time, Mahila
Mandals were formed in villages and these were further sub-divided into SHGs on the basis of
economic homogeneity.

4
Loans received by Gram Siri from RMK were channeled to clusters or the partner organizations
and from there to groups for on-lending. Lending through Gram 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 organizations. By March 2004 GS was working with 13
partner organizations and 382 groups.
Mr. A N Murthy, CEO of Gram Siri is the overall head of the organization, for Microfinance
operations he is supported by a microfinance program coordinator. The total number of staff
members of GS is 40, which includes its field level staff (called animators). The partner
organizations have their own staff managing microfinance program. Occasionally some staff
members of GS are deputed to the partner organizations to manage the operations.
Gram Siri started with a strategy of developing small organizations and empowering them to
carry out micro-credit activities. The main purpose behind formation of this network of
organizations was to spread the activities of GS to newer areas and newer people. It also aimed at
local area capacity building. This has not been very successful since the partners have not
become self-reliant even after ten years of continuous support. There is no repayment discipline
in the partners. The repayments are erratic and overdue are very high (PAR 60 is 43.08%). GS and
its network still have very limited outreach. It is only working with 382 groups directly and 13
partner organizations, which all taken together cover around 30% of the total households in their
work area. It is in this context that we have tried to analyze the network with the objective of
finding out the extent to which it has achieved its goal. We have also tried to see that if the goal
has not been achieved then what are the reasons and how best it can be achieved. For this
purpose it is essential to have an idea about how the network of organizations has performed
over the years.

Growth: Loan outstanding each year

45000000 Operational self sufficiency
40000000 800
Operational self sufficiency (%)

GS SNEHA
700
35000000 GRAND SP READ
600
Loan outstanding

30000000 ARCHIES 500 GRASP

25000000 GARD 400 GARD
20000000 GRASP 300
ARCHIES
15000000 SP READ 200
GRAND
SNEHA 100
10000000
0 GS
5000000
2002 2003 2004 2005
0
2002 2003 2004 2005
5 Year

Year
6
 Growth: Total loans disburbsed each year

40000000 Growth: Number of SHGs each year

35000000 200
180 GS
Loan amount disbursed

30000000 GS
160
GRAND GRAND
25000000 140
ARCHIES ARCHIES

Number of SHGs
120
20000000 GARD GARD
100
15000000 GRASP 80 GRASP
SPREAD 60 SPREAD
10000000 SNEHA 40 SNEHA
5000000 20
0
0

96

98

00

02

04
19

19

20

20

20
96

02
98

00

04
19

19

20

20

20

Year
Year

Above charts further corroborate the opinion stated about performance of network
organizations. In terms of number of SHGs formed each year, all the network organizations
are showing positive trend. But the rate of growth is very slow. In case of parameters like
total loan outstanding and total amount disbursed each year, all the network organizations,
excepting parent organization i.e. GS are showing stagnant trend. Similarly, if we analyze the
graph on operational self sufficiency of network organizations, we find that the operations are
not efficient. The operational self sufficiency of all the organizations is less than 100 percent.
This scenario indicates that the network is veering away from the objective with which this
whole process of daughter organization creation was started. As has been mentioned earlier,
outreach is another major problem for the network as a whole. Only 30 percent of all the
target population has been covered by the network. When the objective to reach newer areas
and benefit as many people as possible then this scenario indicates a mismatch between the
objectives and achievement. To gain further insight into this less than adequate performance,
it’s imperative to analyze functioning of organization.

2.1.1 Governance:

2.1.1.1 Skills and Characteristics of Board Directors: ideal situation vis-à-vis situation
of GS
Effective governance depends primarily on the skills and characteristics of the individual
directors. Collectively, these attributes should represent a diverse set of experiences,
backgrounds, areas of expertise, ethnicity, and gender. Although the main prerequisite for
effective governance of a financial institution is a solid business sense, an MFI board can
provide additional guidance to the institution if its members have expertise in microfinance.

7
Of equal value is expertise in law, marketing, or information technology, which is particularly
relevant to microfinance. The level of board members’ experience and influence in their
respective fields may vary significantly in a board that combines members able to dedicate
greater time and energy to the board with those who can play more of a representational role.
The following skills are important assets to any MFI board:
§ Business sense. A microfinance board must have solid business sense, with some financial
expertise in two areas. The first area is financial analysis, which allows the board to
understand and measure the performance of the institution in the key areas of capital
adequacy, asset quality, profitability, and liquidity management. The second area is financial
auditing, which provides the board with the capacity to adequately assess the strength of the
institution’s internal control mechanisms. In case of GS, all the network organizations have
staff members of other organizations of network as their board members. These staff
members are not necessarily the management staff of their respective organizations. No
definite criteria are set for even this selection of staff members as representatives on the
boards. Further none of these staff members have the level of expertise as has been
mentioned above. This is mainly due to faulty human resource policy of the organization
itself which does not require knowledge of functional area as prerequisite for recruitment.
This situation results in inefficiency at the organization where the person concerned works as
employee and it is further replicated in the board where that particular employee is made
board member. The inefficiency as employee is compensated by key functionary of the
organization as almost all the key functionaries maintain tight control over the functioning of
organization. But there is no way to handle the inefficiency as board members.
§ Microfinance experience. Given the relative newness of MFIs, there are not many experts
in this field. However, including individuals with some experience in this area on the board
can be very valuable to the institution. On this issue, it can be said that the policy of
recruiting staff members is beneficial. These are the people who have been working in
microfinance field for quite some time. Still the type of exposure that they have, it is difficult
to conceive that they are in a position to provide any strategic direction to the organization.
This conclusion again has been derived from the work culture of organization where any
employee other than chief functionary doesn’t have any authority to take strategic decision.
§ Financial markets expertise. Individuals who understand the local financial markets and
know the players, as well as understand or have experience in international financial markets,
can be important contributors as MFI board members. In case of GS network organizations
no such expertise is available.

8
§ Legal and regulatory expertise. All MFIs, but especially those that have entered the
regulated financial sector or are considering such a change, will benefit from individual
directors who bring legal expertise to their boards. In case of GS network organizations, all
the members are either social workers or staff members. There may be some superficial
understanding of issues, but in depth understanding is not available.
§ Marketing expertise. With increasing competition, MFIs are being required to more
aggressively “sell” their products to micro enterprise customers. Because marketing is still a
relatively new area for MFIs, directors with expertise in this field and in product development
can provide guidance to MFIs. The board of network is again lacking on this expertise.
§ Technology expertise. Increasing competition, emphasis on cost reduction, and the
increasingly complex nature of microfinance operations (e.g., savings mobilization and
diversified products) require that institutions enhance the information technology they use.
Integrated and automated information technology systems enable the institution to better
evaluate its performance at any given moment, as well as reduce operating costs. Boards will
benefit from individuals with technological expertise. The network organizations also are in
the process of setting up this type of MIS. But the kind of expertise that has been mentioned
is not represented on the board of any of the network organizations.
§ Fundraising. For the nonprofit MFI, board members are expected to play an active role in
fundraising. Individuals with prior experience and contacts represent a significant asset. In
case of network organizations it’s the chief functionary of GS only who lobbies for funds on
behalf of all the network organizations. Even the chief functionaries of other network
organization are not capable of lobbying with funding agencies independently. Same is the
situation of other board members also.

2.1.1.2 Terms, Director Removal, and Performance Reviews:

All microfinance boards should have mechanisms for regularly reviewing the performance of
Individual directors and for replacing those who are not providing the organization with the
leadership it requires. This is particularly important in microfinance boards because of the
changes facing this field and the need for directors who possess the vision and skills to
respond effectively to these changes.
Furthermore, all the mechanisms like induction and retirement of board members,
performance evaluation of board members etc. should be in place. But in case of almost all
the network organizations this is the most neglected aspect of functioning of board. There is
no fixed term for the board members. There is also no set procedure for induction,

9
performance evaluation and retirement of board members. Also the meetings are not very
regular. All these result in inadequate deliberations board level. Also the quality of
deliberation is not up to the mark. Freshness of ideas, that is so vital for quality decisions to
emerge, is not there because of lack of policy on term and retirement of board members.

2.1.1.3 The consequence:

GOVERNANCE
INTERNAL ACCOUNTABILITY
PROVIDERS OF
FUNDS
BOARD MANAGEMENT
MANAGEMENT ACCOUNTABILITY STAFF ACCOUNTABILITY
REGULATIONS

BENIFICIARIES

EXTERNAL ACCOUNTABILITY

The frame work explains the role that governance plays in organizational setting. It
establishes a link between external and internal stakeholders of organization. As far as
internal stakeholders are concerned, it demands accountability from management and this
ensures that management demands accountability from staff members. With respect to
external stakeholders, strong governance ensures that organization remains accountable to
them. This helps in setting the organization in well defined strategic direction. In case of GS
network organizations, due to weak governance there is not very strong demand placed on
management. Due to this management does not have much of motivation to demand
accountability from its staff members. The result is a work culture of almost all the network
organizations which is not very performance oriented. This can explain the sluggish
performance of all the network organizations. On external accountability front, due to weak
governance the network organizations are not prevented from wavering from their
commitment to the objectives of decentralization. The organizations are very complacent
about the progress that they have made so far. There is no one to question them about this

10
performance and hence sufficient push towards optimal performance, which should ideally
result into benefit to larger section of target population, is not there.

2.1.2 Strategy:
At present GS is following the strategy of converting clusters into organizations. Clusters are
the largest possible operational unit which can be managed efficiently. They don’t have
growth as their goal. But when these have been converted into full fledged organizations, the
priorities and role have changed. This is more so relevant when they have been created with
the primary purpose for benefiting larger section of population. In such a situation, there has
been created a clutter of organizations. As clusters the operational areas were contiguous. As
organization the same situation prevails. This is resulting into duplication of resources with 6
organizations working in the operational area of Bapatla mandal of Guntur district. In same
area the parent organization is also located and its own resources are adequate to serve the
target population of that region. Further in perusing growth the organizations are eating into
operational area of each other. This is also creating confusion in the mind of target
population. To avoid this situation some of the organizations have opened three branches into
new and far-off areas. This is adding to the already high transaction cost of microfinance
operations. Hence there is need of long term strategy for growth which should decide the
operational area of organizations.
One of the limiting factors of GS and network organizations 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 organization as it already has a
number of other MFIs working in the area such as Share micro fin, Spandana and government
run Velugu project. The presence of such competitive organizations 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.

2.1.3 The recommendations:

In order to make the board strong and effective it should be restructured on following lines:
• Composition
• Term of directors
• Renewal of board

11
 • Evaluation of the board
• Structure

Composition: The board should represent diverse set of background, experience, and
expertise. It should be as varied as possible in terms of skill areas mentioned earlier.
Term of directors and renewal of board: This should be clearly ascertained. The rules
regarding induction of new board members, their tenure, retirement of board members should
be fixed and adhered to honestly.
Evaluation of board members: We are talking about appointment of monitors when we talk
about appointment of board members. But the mechanism to monitor the monitors should be
set in place. This can be done thru setting up procedure for evaluation of performance of
board members. For this the relevant criteria should be identified and the process of
evaluation should also be ascertained. The evaluation can be done through external evaluator
or it can be done by the process of self evaluation of board members themselves.

3 SMSS Incentive Scheme for Loan Officers:

Why Staff Incentives?

The provision of microfinance services is extremely labour-intensive. Typically, an MFI’s
salary burden amounts to between 50% and 70%. This means that more than half of a total
administrative expense is accounted for by direct and indirect labour costs. Any decision to
alter compensation levels or salary structure may have important consequences for financial
performance. It therefore deserves management’s full attention.
Furthermore, the selection and training of new staff members is costly, making experienced
MFI employees a valuable resource. Management should be interested in anything that might
improve employees’ motivation, including staff incentive schemes. MFIs strive to improve
institutional outreach and to deliver acceptable financial performances. Well designed staff
incentive schemes can have powerful effects on the performance and productivity of
microfinance operations. So staff incentive schemes are a potential tool for boosting MFI
performance.

12
Well-designed staff incentive schemes can have positive and powerful effects on the
productivity, efficiency and quality of MFI operations. Conversely poorly developed schemes
can have serious detrimental effects. Incentive schemes must be transparent so that staff
members affected should be able to easily understand the mechanics of the calculation. Thus
the system should not be overly complex and should contain as many objective factors and as
few subjective variables as possible. Furthermore, the “rules of the game” should be made
known to everyone and should not be changed arbitrarily. In addition, it is essential that the
incentive scheme be perceived as being fair, and thus the goals set out by the scheme must be
attainable, and better performing staff members must indeed be rewarded with higher
salaries. Finally, everyone must be able to achieve a higher compensation by working better
and harder.

Design of Staff Incentive Schemes

Step 1: Defining the incentive scheme’s objectives.
We need to be crystal-clear about what we are trying to achieve with the scheme. The
objectives of the incentive scheme must be in line both, with the strategic goals of the
financial institution and its organisation culture.
Step 2: Determining staff members to target and financial estimate
Identifying those staff members who contribute most to the achievement of the incentive
scheme’s objectives is an important step. Often, the introduction of a scheme at one
organisational level or function may create a need to implement schemes at other levels as
well. Step 3: Selection of the incentive mechanisms.
Incentive schemes include: merit pay, incentive pay, perquisites, benefits, profit sharing, gain-
sharing, ownership, Employee Relationship Marketing or a combination of these
mechanisms. There is further distinction between short-term and long-term schemes as well
as between tournaments, individual and group based incentives.
Step 4: Conducting the technical design work.
This includes formula development and calibration, as well as spread-sheet testing. It helps to
use a participatory process in designing the scheme.
Step 5: Analysing the costs and benefits.
This is the point where we need to conduct a proper cost-benefit analysis and to estimate the
impact that the planned scheme will have on operating costs and the organisation’s financial
performance. In the short run, a bonus scheme will increase total staff costs. If the system is

13
well-designed, these costs will later be compensated by increased staff productivity and
output.
Step 6: Running a pilot test.
Field testing the scheme in a controlled environment is very important. The only real test for
our scheme is how it will be received in the field.
Step 7: Selling the scheme to staff.
It should be made sure that staffs understand the incentive schemes’ mechanics and the
reasons for the scheme. If staff does not accept the scheme, it will have no or even
counterproductive impacts on their motivation.
Step 8: Monitoring and adjusting the scheme as necessary.
Staff incentive schemes are of such critical importance in operations of financial institutions
that senior management should regularly monitor and review the performance of the schemes
utilised by the organisation. Are the objectives of the organisation still the same? And does
the scheme in place still achieve the intended purpose(s)? Depending on the answers to such
questions, it may be appropriate to make changes and adjustments.

Who Should Be Involved in the Design?

The implementation of monetary staff incentive schemes from scratch naturally implies
changes in the organisation culture. Thus, the design of staff incentive schemes typically
requires the committed participation of senior managers and sometimes of the board of
directors. In order to assure that the incentive scheme is perceived as fair and leads towards
the expected results, representatives of all functional levels of staff should participate in its
design. This also helps to define the performance indicators adequately. To achieve this
participation, various techniques were used by us. Participation of loan officers was
facilitated through focus group discussion with them. Personal interviews were conducted to
know the opinions of key functionaries of the organization. Opinion of other staff members
was also solicited through questionnaire survey.

Basic Principles for Staff Incentive Schemes:

If incentive schemes are to be effective, they must be accepted by those they target. To ensure
acceptance, they should be in line with four principles according to which employees judge
their remuneration:

14
1. Equity Principle: This principle states that employees would like their compensation to
reflect their contributions to the organization. Those who contribute more to the success of
the organization would (and should) expect a higher compensation than those who contribute
less. If outstanding performance of individuals was not acknowledged, high performing staffs
are likely to become unmotivated.
2. Status Consistency: Status can be as powerful a motivating force as monetary
compensation or intrinsic factors. Status is usually linked to an employee’s position within
the organization’s hierarchy, and it is not usually correlated with income between different
organizations. However, the monetary compensation within organizations should be widely
status consistent. There should not be a situation where the subordinate’s total compensation
is higher than the superior’s total compensation.
3. Distributive Fairness: Staff members look at what kind of salary they receive for their
efforts and compare this with their peers’ salaries. Any inconsistency in it can be highly
demotivating for the adversely affected employee group.
4. Procedural Fairness: Employees are not only interested in the outcome of the “salary
distribution”, but also in the process itself. They might ask: What is the process that was used
in order to decide who gets how much? Staff members wish to understand the mechanism
that was used to determine their individual salaries, and this mechanism should be acceptable
to them.

Minimum Requirements for Staff Incentive Schemes

The two most important minimum requirements for such schemes are fairness and
transparency.

3.1.1 Fairness
• The goals or reference standards set out for employees must be attainable. Otherwise,
rather than motivating staff, the incentive scheme will have a detrimental effect on their
motivation and performance.
• Staff members who perform better than others should receive higher compensation. This
fact should be understood by everyone in the organization.
• When staff members work harder and produce better results, they should receive a higher
compensation.
• The compensation system should reflect the hierarchical levels within the organization.

15
3.1.2 Transparency
• Staff incentive schemes should be kept simple enough that they can be understood by all
who are affected by them.
• As much as possible, incentive schemes should be based on measurable, “objective”,
variables rather than subjective performance indicators. The use of subjective variables
automatically reduces the system's transparency.
• It is important that the “rules of the game” be known to everyone affected by the scheme.
The rules of the game are constituted by such things as performance measurements, minimum
requirements, and any formulae used for calculating individual payouts. They should be
communicated clearly. In addition, the scheme should not be changed too frequently –
otherwise the organization risks making the relationship between performance and
compensation unpredictable for staff members.

Defining the Incentive Schemes’ Objectives (Step One)

The definition of the incentive scheme’s objectives is a critical step in the incentive scheme’s design.
They must be in line both, with the strategic goals and the culture of the organization. The objectives
of the scheme and the organization culture then determine the type of incentive scheme that we want
to employ.

influence
Strategic orientation Objectives of Staff
Incentive scheme
e
in

Organizational culture
rm
te
de
Co hiev
ac
nt
rib me
ut nt
e
et

Incentive scheme
o

• The definition of the incentive schem

critical step in the incentive scheme

3.1.3 Strategic orientation:

This is defined by current strategic positioning and strategic goals of the organization.
Current strategic position outlines the competitive strengths of the organization and goals

16
indicate where the organization wants to go from here. Clarity about both these factors is
important so that push in this intended direction can be facilitated through an appropriate
incentive scheme. Strategic positioning of SMSS can be understood with help of following
framework:

PRICE

SERVICE PRODUCT

Any microfinance institution competes on above three attributes. Following is the

comparative study of SMSS and it’s competitors:
Price:

SMSS Other MFIs operating in the region

• Rate of interest: 15% flat per • Rate of interest: 15% flat per
annum annum flat
• Membership fees: 120 Rs. Per • Member ship fees: ranging
new loan disbursed from 100 to 200 Rs.
• Insurance premium: Rs. 150 • Insurance premium: ranging
flat from 10 Rs. Per thousand of
• Other charges: payment of 8% claim amount to a flat charge
of loan amount towards of Rs. 150 to 250
premium payment for cattle • Other charges: loan loss
insurance and loan loss provisioning to be collected
provisioning from borrowers

17
From above comparison it becomes clear that the cost to the borrower in getting loan from
SMSS is comparable to the costs involved in case of its competitors. Hence price cannot be
the point of competitive advantage for SMSS.
Product: SMSS at present has five loan schemes out of which only one loan scheme i.e.
income generating activities loan, is fully functional. Other schemes are yet to be launched.
But the competitors of SMSS have greater number of schemes and all the schemes are fully
functional. These schemes have been customized to the requirements of clients. So, on this
point too, SMSS can’t be said to be scoring over its competitors.
Services: Due to its unique positioning, this can be the competitive edge for SMSS. It has
only local people as its staff who better understand the needs of people of the region. Also the
borrowers can bond easily with these people and the level of trust is higher in this
relationship. The secretary of SMSS is himself a local resident of the region and commands
respect of people. The organization, though new in microfinance, has been operating in the
region since 1979. All these features place SMSS in a better position than its competitors in
terms of relationship, reliability, personality. Cashing on it, it can serve its client better than
its competitors. So it can be deemed to be competitive strength for the organization. The
incentive scheme should be such that it boosts service orientation of all staff members and
motivates them to serve their client better than the competitors.
Strategic goals: this constitutes the second aspect of strategic orientation of SMSS. These are
as follows in the order of their importance (as told by the secretary and other key
functionaries of SMSS):

18
 Rank Terming
Goal
(according to (long, medium
importance) or short term)
1 Increase outreach medium
2 Increase volume of loans medium
disbursed
3 Maintenance of good portfolio long
quality
4 Mobilize more funds from funding long
agencies
5 Launching new products Short--
medium

3.1.4 Organization culture:

SMSS is the microfinance wing of Star Youth Association. It was registered as separate
organization in April 2002 and almost all the staff members were recruited at that time. The
main values of organization are efficiency, professionalism and accountability. Due to
emphasis on these values, there is prevalence of strong performance culture in the
organization. Management has got clearly defined performance expectations from its
employees. In turn, employees also have expectations that their efforts will be rewarded
adequately. Furthermore, due to start up nature of organization, employees tend to identify
more with their work and functional groups than they do with SMSS as organization. So in
this cultural setting, a performance based incentive scheme has more chances of being
motivating force than any other kind of incentive scheme. Further the stronger nature of
identity with workgroup indicates that performance parameter should be derived mainly from
the nature of task being done by particular staff member.

3.1.5 Staff productivity:

Before deciding upon objective of incentive scheme, it is also essential to know the current
level of staff performance. From earlier analysis it is clear that incentive scheme is a suitable
measure to boost the performance of employees of SMSS. Now the analysis of current
performance will indicate the scope for improvement in performance. Following graph

19
indicates the performance of loan officers in terms of number of loan outstanding per loan
officer per month for last six months of current financial year:

A
800
B
600 C
400 D
E
200
F
0
G
jan feb mar apr may june
H
I

From the graph it becomes clear that the performance of most of Jloan officers has been
stagnant in last six months. So there is ample scope for improvement in performance of loan
officers. Though incentive scheme is not the only measure which is going to improve the
performance, but it definitely is one of the many factors. Further, experience and research on
this issue indicates that monetary incentive goes a long way in improving performance of
employees.

3.1.6 Objectives of staff incentive scheme:

On the basis of above analysis of strategic orientation and organizational culture of SMSS,
following objectives for incentive scheme can be derived:

Rank (as per importance) Objective Expected

results

1 To increase the productivity Increased outreach and

& service orientation of loan Penetration satisfied clients
officers and branch
managers

2 To create stakes of key staff Improved overall growth of

positions in SMSS’s organization
performance

20
3 To increase overall staff Reduced turnover and
motivation and long term consequent saving on
loyalty training

Some basic issues:

3.1.7 Weight of Monetary Incentives in Total Pay:

One fundamental question is to what extent the affected staff members’ total income will be
fixed rather than variable. In other words, how much weight should the incentive component
have in total employee remuneration?

3.1.7.1 Too Low Incentives

If incentive pays were too low, staff may not increase their performance. A small incentive is
unlikely to motivate most employees to work much harder. A variable incentive must be of a
certain minimum size to be effective. Those who are targeted by an incentive scheme should
have the feeling that it “really makes a difference” – otherwise they are unlikely to change
their behavior. Too low incentives may even have detrimental effects on staff motivation if
employees do not perceive that their efforts were acknowledged altogether – then, the
incentive scheme may reduce their intrinsic motivation.

3.1.7.2 Too High Incentives:

If the variable portion of total compensation becomes too large, the job might only attract
those who enjoy risk. Such behavior is highly undesirable for loan officers of any
microfinance institution. Further, too high incentive means greater financial insecurity as the
total monthly income of employee is rendered uncertain by too high variable component.
This may be a demotivating factor for the affected employees.

3.1.7.3 Basic Salaries:

To avoid subjecting the staff members to excessively high degrees of risk, base salaries
should be such that the “typical” employee can cover his/her basic monthly needs from this
source of income. “Basic needs” comprise at least housing and food, plus normal medical and
educational expenses. If base salaries fall significantly below this level, employees will be
subjected to considerable financial risk. This almost certainly would lead to low morale and

21
increase staff turnover. For the same reason, it probably does not make sense to use
“negative” bonuses (i.e. penalties). In the worst case, the bonus earned should be zero, and if
a staff member never earns any bonuses then his/her poor performance may eventually be
reason for dismissal.
Judged on these parameters, the basic salary of SMSS’s loan officers appears to in
appropriate range. There are three grades of loan officers, categorization being based on
number of loans being handled. The lowest category gets Rs. 1500 as basic salary with
regular allowances like those for house, travel etc. the next grade gets Rs. 2000 and the
highest grade gets Rs. 3000 with regular allowances. Given the high unemployment of the
region and prevailing market rates for the salaries of loan officers (which ranges from 1500 to
4000), it can be said that basic salary structure of loan officers of SMSS is appropriate and
adequate

3.1.7.4 In numbers:
The industry standard for loan officer’s incentive is that it should be in the range of 20 to 50
% of base salary. In case of SMSS, the initial objective is to increase outreach. Hence higher
proportion of total compensation should be based the contribution of a particular loan officer
to this objective of organization. In other words, a higher proportion of salary should be
variable. So we have taken it at 50 % of basic salary.

3.1.8 Individual incentive versus group incentive scheme:

Individual-based incentive schemes are appropriate if:
1. Individual output is easy to measure.
2. Employees have enough autonomy that they can decide themselves how much effort they
will put into their job.
3. There is no need for close cooperation among staff members, and competition between
them is even beneficial for the whole organization.
4. The organizational culture favors individual achievement.
The performance of loan officers is relatively easy to define and measure. Loan officers are
expected to produce and control as many loans as possible (this is the outreach aspect), to
build up large portfolios (which is related to the sustainability aspect), and to maintain
excellent portfolio quality. All of these performance criteria can be easily measured, both in
individual and in group lending. All these criteria are easy to measure for individual loan

22
 officer. Hence for loan officers individual incentive scheme is more appropriate. It helps
make the incentive scheme more objective than a group incentive scheme can do.

3.1.9 Staged versus linear scheme:

Staged incentive scheme has graded incentive structure with each grade fixed for a certain
range of performance. Linear scheme has linear relationship between performance and
incentive. The disadvantage of staged scheme is that it not as sensitive to variation in
performance as the linear scheme is. With a linear system, even very small changes in the
output of staff members have a perceptible economic impact for them. This means that the
employees have an economic incentive to improve their performance at all times, and not just
whenever they are close to reaching a new stage. Due to these reasons we have chosen linear
scheme for loan officer of SMSS.
Incentive

Incentive

Performance measure Performance measure

3.1.10Maximum performance level versus reference performance level:

The risk involved in fixing maximum performance level is that we fix a cap on the bonus
payments that staff members can achieve. Even those staff embers who manage to perform
above the cap receive only the maximum payable bonus. Thus, the use of a maximum
performance level produces a disincentive for staff members to develop ideas on lifting the

23
current “frontier” by changing the delivery process or coming up with product innovations.
Even very efficient production processes can be improved even further if employees are
properly motivated to think about innovations. In contrast, use of reference performance level
means using what can be considered as solid level of performance to compare the
performance of employees. If an employee performs better than the reference level then he
will receive an incentive greater than what has been fixed by the organization for that
reference level of performance. If he/she performs worse than the reference performance,
then he will receive proportionately less incentive than what has been fixed for the reference
performance level. Using reference performance levels can bring several important benefits:
• The values chosen for the reference output levels reflect the reality of MFI operations. In
fact, the numbers denote what can reasonably be expected from committed, competent, and
experienced staff members. Thus, reference levels have a more positive, more effective
signaling function than theoretical (or practical) maximum numbers that might seem
unattainable for the majority of staff members.
• By using reference values, it is possible to pay higher bonuses to staff members whose
performance exceeds reasonable expectations. Thus, this type of scheme establishes positive
incentives for everyone – including the best performers – to work harder and to produce even
better results. Once the organization moves up the learning curve, there will be changes in
what are considered” reasonable” performance levels for experienced staff members. If the
incentive formula uses reference levels, it is very easy to adjust the values used in the
formula. Such changes can be communicated without too much controversy. After all, the
staff's own experience will show that the new reference levels are reasonable and attainable.
By adjusting the reference levels upwards, management makes it relatively more difficult for
staff members to earn the same bonuses as before. This effect will tend to control the
maximum bonuses payable to employee and still allow truly exceptional performers to earn
adequate (and theoretically unlimited) rewards, so that these staff members retain an
incentive to perform. So reference performance level is more appropriate standard to measure
the performance of employees.

Designing and calibrating bonus formula:

The design and calibration of bonus formulae involves six steps:
1. Selection of the performance measurement parameters

24
2. Allocation of reference levels including a reference bonus and reference performance
levels.
3. Allocation of weights to each of the performance measurement parameters
4. Construction of the bonus formula
5. Calibration of the scheme’s parameters

3.1.11 Selection of performance measurement parameters:

As defined earlier in the incentive scheme injective of SMSS, the performance measurement
parameters should include those parameters which measure:
• The contribution of loan officer to growth of organization in terms of loan
portfolio: it can be measured by the number of new loans disbursed by a loan officer
in a month. But, at the same time it should also include a measure for old loans also.
If loan officer looses his old loans then the net growth may be zero and this situation
defeats the objective of incentive scheme and does not contribute to achievement of
the goal of organization. So this measure should old as well as new loans.
• Portfolio quality: this can be measured by size as well as overdue amount. As far as
size is concerned, it can be measured by the number of loans as well as volume of
loans. Both the measures need to be included to prevent any bias due to conditions
outside the control of an individual. An older loan officer may have higher volume of
loans and yet lower number due to may be saturation of capacity of that region. In
such case if only number is used in incentive scheme formula, then it will demotivate
the loan officer in such situation. Similarly a new loan officer may have smaller
volumes but larger number of loans because of the cyclical nature of lending. In such
a situation if only volume is used as parameter then this loan officer is going to be at
disadvantage. So to remove such biases, both the measures of size are going to be
included. For measurement of over dues portfolio at risk is the standard measure that
is used by all the microfinance institutions. It is the ratio of overdue loans to total
outstanding.
So following are the variable that we have found suitable for use in the incentive scheme
formula as a measure of performance of loan officers:
• Outstanding loan officer wise: volume as well as number of such loans
• Over dues: portfolio at risk(PAR)
• Number of new loans as well as number of old loans

25
3.1.12 Choosing reference levels:
Reference level, as defined earlier, is that level of performance which can be considered as
satisfactory performance for the organization concerned. This should be fixed at such a level
that it should appear attainable to the employees concerned. To meet these criteria, we have
taken average performance for all the chosen parameters as the reference level of
performance for the incentive scheme. This average has been calculated on basis of
performance of last six months to reflect the current realities of performance. Reference
bonus for this level of performance has been fixed at 50% of basic salary for the concerned
category.

3.1.13Allocation of weights:
This has been based on two factors: opinion of key functionaries of SMSS and importance of
various parameters. Portfolio quality includes indirectly a measure of growth also as it
includes number of total loans as well as volume. Besides this it measures another parameter
of importance i.e. arrear. Hence it has been given two third weight. Growth, as measured by
number of new loans as well as old loans has been given remaining one third weight.

Parameter weights
Growth measured by number of new loans One third weight
disbursed as well as number of old loans
Portfolio quality measured by arrear and loan Two third weight
portfolio size
3.1.14 Construction of bonus formula:
As has been explained earlier, the bonus scheme chosen by us is linear one in which bonus
varies linearly with performance of loan officers. To establish this linearity we have
constructed following formula:
P*A*RB1+L*RB2
Here,
P=portfolio size= (A/C)*.5+ (B/D)*.5
Here,
A=volume of loan outstanding for a particular loan officer
B= number of loan outstanding for a particular loan officer
C=reference value of volume of loan outstanding

26
 D= reference value for number of loans outstanding
.5= weight given to both the measures of portfolio size
A= arrear
For loan officers with >400 active clients: A = (4 - m)/4, where (m) = (volume of
loans overdue/c)*100
For loan officers with 399 to 251 loans: A = (3 - m)/3
For loan officers with <250 loans: A = (2 - m)/2
L= growth as measured by number of new loans as well as old loans
= (X/N)*.5+ (Y/O)*.5
Here,
X= number of new loans for a particular loan officer
Y= number of old loans for a particular loan officer
N= reference value for new loans
O= reference value for old loans
RB1= reference bonus for portfolio quality
RB2= reference bonus for growth parameter
The basic premise on which this formula is based is comparison of a loan officer’s
performance against reference performance. This has been done by taking ratio of a particular
loan officer’s performance and reference performance. As P and A, both combined, measure
portfolio quality; they have been combined together by multiplication. L is a separate factor
and hence it has been added to P*A.

Calculated reference values for different parameters

reference boni RB1 RB2

LOAN OFFICER (GRADE-1) 1000 500
LOAN OFFICER (GRADE-2) 650 350
LOAN OFFICER (GRADE-3) 500 250

PARAMETERS FOR P
REFERENCE VALUES
VALUE WEIGHTS (%)
VOLUME OF OUTSTANDING
(A) 1500000 50
NUMBER OF OUTSTANDING
(B) 360 50

PARAMETERS FOR A

MAXIMUM ACCEPTABLE (%)

27
 LOAN OFFICER (GRADE-1) 4
LOAN OFFICER (GRADE-2) 3
LOAN OFFICER (GRADE-3) 2

PARAMETERS FOR L VALUE WEIGHTS

NUMBER OF NEW LOANS (N) 178 50

NUMBER OF REPEAT LOANS
(O) 194 50

3.1.15 Calibration of incentive formula:

Once the structure of the scheme is set, we must calibrate the formula’s parameters such that:
• All employees have a fair chance to earn the reward
o Identify structural outliers
o Identify the “winners” and “losers” of the scheme
o What is the percentage of staff who do not earn incentives?
• Employees receive rewards which are high enough to enhance the desired behavior
o What is the percentage of staff who earn the maximum incentive (if any)?
• The weights allocated to the parameters are in line with the incentive scheme’s objectives
Annexure one shows relevant calculations which has been done for last three months of
current financial year and projection ahs been made for the month of June. The projection has
been made on the assumption, that once incentive scheme is implemented it is going to arrest
the downward trend in performance of loan officers and will motivate the loan officers
showing positive trend, continue the trend. As far as results of calibration are concerned,
these are as follows:

APRIL
BONUS AS % OF BASE
P A L SALARY
1.24 0.81 1.22 54
1.28 1.00 1.21 63
1.74 1.00 1.51 83
1.39 0.74 1.19 54
0.92 1.00 0.99 47
0.96 1.00 1.22 52

0.91 0.71 0.85 36

0.78 0.88 0.89 38
0.67 1.00 0.77 35

28
0.46 0.25 0.50 12
0.34 -2.60 0.40 0

MAY

BONUS AS % OF BASE
P A L SALARY
1.31 0.81 1.25 56
1.33 1.00 1.18 64
1.59 1.00 1.36 76
1.45 0.69 1.33 55
1.14 1.00 1.23 58
0.98 1.00 1.20 53

0.92 0.83 0.86 40

0.96 1.00 1.12 51
0.77 0.65 0.85 31

0.48 0.88 0.50 22

0.35 -1.35 0.42 0

JUNE
BONUS AS % OF BASE
P A L SALARY
1.34 0.83 1.37 60
1.36 1.00 1.33 67
1.76 1.00 1.56 85
1.29 0.66 1.32 50
1.21 1.00 1.27 61
0.94 0.98 1.17 50

1.09 0.91 1.01 50

0.90 1.00 1.06 48
0.75 0.85 0.86 36

0.00 1.00 0.00 0

0.75 0.48 0.81 26

The results indicate following things:

• Incentive scheme is distinguishing between poor performers and excellent performers:
the loan officer who has got highest incentive has performed excellently on all
parameters.
• Every employee stands fair chance to get incentive: almost all the employee is getting
incentive, barring one. This indicates that loan scheme is fair. Any employee working

29
 harder can expect to get incentive. Better performers are going to get better
incentives.
These observations indicate that the reference values chosen and the structure of formula
adopted is appropriate.

3.1.16Cost benefits analysis:

3.1.16.1Financial cost benefit analysis:

parameters Without incentive scheme With incentive scheme

Volume of loan outstanding 15957945 17171295

Net income 58336.64663 66087.92038

Increase in net income 13.29% increase

Form the figures given above; it becomes clear that the scheme is beneficial for the
organization. The projections show an increase in net income despite the fact that very
conservative estimates have been used. But it is very difficult to establish any direct
correlation between performance improvement and staff incentive. In such a situation the
reliability of such estimates gets reduced. But implementation of incentive scheme can still be
justified by enumeration of non-financial benefits of scheme.

30
Out of these benefits many cannot be measured in concrete financial terms. Those which can
be measured have been used to conduct financial cost benefit analysis of incentive scheme.
Benefits Costs

• Increased staff productivity (and, • Bonuses / rewards: You may deduct

thus, reduced staff costs such as planned salary increments (e.g. under
training, workspace, equipment, etc.) a merit pay scheme or adjustments for
inflation) if these were (temporarily)
• Increased outreach replaced by the incentive scheme.

• Self-selection of staff (those who are • Increased risks (the higher the

not willing to work hard might not productivity of employees is, the
find the job attractive or may resign) higher is the concentration of
responsibility and the higher the

• Higher potential to attract highly damage if an employee leaves the

skilled staff (and to retain them) due institution).

to higher total salaries.

• Increased income from interest and • Maybe: decreased intrinsic motivation

fees Non-staff costs related to the

increase in business

• Increased portfolio quality (and, thus,

decreased provisions and write offs)

• Maybe: increased loyalty and

commitment of staff

So the analysis indicates that under the assumed conditions, incentive scheme is going to be
beneficial for the organization, even though it can not be proved in concrete financial terms.

31
4 Defining roles responsibilities and eligibility criteria for key
staff positions:
The framework that we have followed for this task is as follows:

A particular key
position

Roles and responsibilities of a

particular key position

Corresponding task
requirements

Eligibility criteria to match

the task requirements

Every key position in an organization is required because it discharges unique set of roles
and responsibilities. To carry out these roles and responsibilities, there are certain specific
skill requirements. These skill requirements are fulfilled by specific education and
training in faculties dealing with that area. These training and educational requirements
determine the eligibility criteria of that staff position. Based on this framework all the key
positions and their roles and responsibilities have been identified have been identified.
From these the specific eligibility criteria have been derived which have been presented
in tabular form below.

Loan officers:
Roles and responsibilities Skill requirements Specific educational and
other eligibility criteria

32
 • Generating reports and • Rapport building  Intermediate
statistics
• Local language  or experience &
• Loan analysis
• Monitoring, control, and • Service oriented computer knowledge
follow-up work
• Complete understanding of ( for metric passed
• Generation of new
business the microfinance activities of candidates)
the MFI  On job training
• Basic mathematical  Exposure visits to
computation skills friendly MFIs
• Understand customer needs
 Availing training
opportunities at donor
agencies

Branch manager
Roles and responsibilities Skill requirements Specific educational and other
eligibility criteria
• Supervisory role • Administrative acumen

• Planning weekly • Local language • Graduation (minimum)

meetings & follow • Complete

up action understanding of the • 1 years of experience as

microfinance activities loan officers for
• Problem solving graduates
of the MFI
• Eliciting reports
• Computer proficiency • 3 years of experience as
• Maintain discipline loan officers for
• Well Versed with the
postgraduates
• Loan analysis
duties of loan officers • Computer proficiency
• Basic understanding of
accounts

Area manager
Roles and responsibilities Skill requirements Specific educational and other

33
 eligibility criteria
• Collaborative effort • Computer proficiency • Graduation ( minimum)
• Monitoring & control • Local language • Fresh MBAs may be
• Motivating the field • Understanding of the recruited for the post
staff work profile of loan • 2 years branch manager
• Random field visits & officers and branch experience for post
trainings managers graduates

• Database management • Team work oriented • 4 years branch manager

• Random checking of • Management skills of experience for graduates

accounts, reports. planning & control • Probation for fresh

• Periodic assessment of • Interpersonal skills MBAs- 1 year with salary

the micro-credit & perks of branch

programme manager

• Suggestions for • Computer proficiency

improved delivery
mechanisms

Manager (operations and HR)

Roles and responsibilities Skill requirements Specific educational and other
eligibility criteria
• Coordination • Experience • Minimum educational
• Administrative • Demography of the qualification-

• Planning clientele Graduation

• Administrative • MBA
• Expansion
strategies acumen
• Analytical skills • 5 years of experience

34
 • Communicating • Interpersonal skills as area manager or
with funding • Computer equivalent post ,
agencies, banks proficiency preferably in a MFI
• Interacting with • Identifying • 4 years of experience
representatives of relevant in a similar capacity,
funding performance preferably in a MFI
agencies/financial indicators • 3 years of work
institutions. experience for MBAs,
• Performance preferably in a MFI
appraisal
• Computer proficiency

Manager (finance)
Roles and responsibilities Skill requirements Specific educational and
other eligibility criteria
• Financial • Accounting practices • Graduation
management (preferably in
• Financial planning • Expertise in financial commerce stream)

• Cost control management • MBA (Finance)

• Internal auditing • CA/ CS

• Risk management • Demand assessment

• Demand management • 3 years of work

• Identifying diverse experience in any
sources of fund organization in
finance department,
• Experience preferably in a
NBFC/MFI

• Computer proficiency

35
5 Modifying organizational structure for SMSS:
For this it is essential to understand the current organizational structure of SMSS. Current
organizational structure of SMSS is as follows:

CEO

Central team manager

Area manager (Velgode) Area manager (Sirvel) Area manager(Atmakur)

Branch manager Branch manager Branch manager

(Velgode) (Sirvel) (Atmakur)

Loan officers Office manager Office assistant

Gaps in current organizational structure:

5.1.1 Position of central team manager (CTM):

At present this position acts as assistant to chief functionary of SMSS. He is the person taking
care of day to day operational decisions. He has to perform supervisory role for financial
matters as well as other operational matters. Besides he also has to take care of human
resource issues in the organization. For microfinance institution finance is very vital function
and a full time activity. Hence this should be a separate and full fledged position. The rest of
the responsibilities of CTM should be clubbed together into one position of operations and
HR manger. We are not advising HR as separate position because the organization is small
and hence the HR issues are not very big.

5.1.2 Position of area manager:

At present there is one area manager and one branch manger for each branch. This is
duplication of human resource. All the supervisory roles for a branch are performed by
branch manager. Furthermore as per our recommendation there is position of operations and
finance manager to take care issues out of ambit of branch manager. So for current level of
operations the position of area manager is redundant. In case of bigger scale of operations a
position of area manager can be created for every three to four branches.

36
5.1.3 Redundancy of loan officers:
According to the expansion plan of organization it plans to have 25oo clients per branch. This
is as per requirement of Gramin model. For this number of loan officers can be calculated as
follows:
Number of cluster meetings required each week: for all the groups under supervision
Number of groups per cluster: 8
Number of members per group: 5
Time required for conducting one meeting and covering the distance between two
meeting places: 1 hour
Work hours and days: 7 hour per day, 6 days per week
Tasks to be performed: cluster meetings and group formation
This implies, number of clients a loan officer can handle per week= 4*8*5*6=960
This implies, a maximum of three loan officer are required per branch. But at present
every branch has 4 to 5 loan officers. This needs to be corrected.
Keeping in mind this analysis, we have proposed following organizational structure:

37
5.1.4 Proposed organizational structure:

CEO

Manager (Operations &HR) Manager (finance)

Branch manager Branch manager Branch manager

Velgode Sirvel Nandyal rural

Loan officers Office manager Office assistant

References:

Robins, Stephen P., organization Theory, Third edition, New Delhi, Prentice Hall Private
Ltd.,2003

38
Galbraith, Jay R., Organization Design, First Edition, London, Addison-Wesley Publishing
Company, 1977
Holtman, Martin; Mattis grmbling, Toolkit for designing staff incentive scheme, first edition,
Nairobi, Microsave, 1995

39