SymBanc

1
SymBanc A Simulator for Microfinance
Institutions

• Gary Hirsch, Guy Stuart,
• Jay Rosengard, Don Johnston
• International System Dynamics Conference
• July 20, 2005

2
Microfinance

• Financial services for the poor
• Services
• Savings
• Credit
• Insurance
• Remittances and transfer payments
• Poor those living in households where the per
  capita expenditure is less than 1 per day, in
  developing and transitional economies
• 2005 is the UNs Year of Microcredit

3
Microfinance Institutions (MFIs)

• MFIs range in size and type from local savings
  cooperatives to large (divisions of) commercial
  banks
• E.g. Grameen Bank, Bank Rakyat Indonesia,
  BancoSol, Compartamos, Mann Deshi Mahila Sahakari
  Bank
• Largest institutions are in Asia, especially
  South and South-East Asia
• Mission can be one or all of
• Financial intermediation
• Economic development
• Poverty alleviation
• Womens empowerment

4
Active Clients

• Credit
• Active clients has outstanding loan at time of
  report
• Microcredit Summit in 2004 reports that, as of
  12/31/2003, its 2,931 member institutions had
  just under 81 million active clients -- this is
  hard to believe
• Good guesstimate 60m to 70m active clients
• More savers than borrowers
• Big four Bangladeshi MFIs have over 10m savers
  (same as borrowers)
• BRI has 30m savers (10x the of its borrowers)
• Numerous credit unions and cooperatives provide
  savings services
• No good count of insurance clients many
  borrowers pay for life insurance to cover the
  outstanding balance of their loan in case they
  die
• New medical insurance products being
  developed-jury is out

5
Strategic Questions

• Urban/rural
• Women only, men and women
• Group or individual lending
• Credit only, or credit and savings

6
Operational Issues Information and Cash Flows

• Large number of small transactions
• Swakrushi Federation of cooperatives in Andhra
  Pradesh, India process about 80,000 savings
  deposits of Rs.20 (40 cents) per month, through
  259 coops
• In May 2004 BRI made 211,320 loans with avg. size
  of just under 1,000, through approx. 4,000 local
  offices
• ASA in Bangladesh had 264 borrowers and 290
  savers per staff member as of 12/31/2003
  (mixmarket.org)
• Highly reliant on local, non-formal information,
  and information feedback from own operations.
  Results in
• Step lending
• Aggressive delinquency management based on good
  MIS
• Great emphasis on maintaining institutional
  reputation of fair but firm

7
Overview of MFI Model Drivers of Borrowing
8
Overview of MFI Model Sources of Funds
9
Overview of MFI ModelBorrowing by Stage
10
Overview of MFI Model Delinquency and Default
11
Design Features to Enhance Learning The Model

• Realistic constraints eliminate easy options,
  require thoughtful strategies
• Tradeoffs require careful choices--e.g.,
  aggressive marketing or high interest rates may
  increase revenue, but attract poor credit risks
  or create repayment problems
• Short-term profitability vs. long-term viability
• Easy to paint yourself into a corner and run
  out of money despite early breakeven

12
Design Features to Enhance Learning Interface

• Students can control how often decisions are
  made, must keep their eye on the ball
• They can compare results across strategies to
  identify relative advantages
• Capability to drill down into detailed results to
  understand whats happening
• Dump results to spreadsheet to do more extensive
  analysis
• Challenging scenarios let students reality-test
  strategies

13
Defining Target Market
14
Loan Product Design Decisions
15
Staffing and Productivity Decisions
16
Results Profit and Loss
17
In High Growth Strategy, Borrowers Grow Until MFI
Runs Out of Cash...
18
Even Though MFI is Profitable
19
Rapid Growth of Branch Network Has Kept MFI from
Building Equity Required by Funders
20
Less Aggressive Growth Strategy Permits MFI to
Build Equity...
Medium
High
21
...and Ultimately Attract More Borrowers
High
Medium
22
What Students Learn from Using SymBancTM

• There are characteristic ways of failing such as
  growth outrunning capital or pursuing high volume
  at the expense of profit and building equity
• There is no single right answer multiple ways to
  succeed depending on objectives
• Strategies do require internal consistency--the
  right combinations of target market, product
  design, staffing and branch expansion, and
  funding sources
• Good strategies under some circumstances may not
  survive economic shocks need to be resilient

23
SymBanc As A Teaching Tool (1)

• SymBanc developed initially for FIPED (Financial
  Institutions for Private Enterprise Development)
• International executive program at KSG/Harvard
  University
• 2-week program offered once a year since 1995
• Covers both microfinance and SME finance (MSMEs)
• Focuses on the sustainable provision of financial
  services for MSMEs and low-income households
• Participants senior executives from financial
  institutions, non-governmental organizations, and
  international assistance agencies high-ranking
  government officials
• Consists of core lectures, applied case studies,
  practical exercises, simulated negotiations,
  participant presentations

24
SymBanc As A Teaching Tool (2)

• SymBanc funding from Harvard Provosts Fund for
  Instructional Technology for promoting the
  innovative use of IT in teaching
• Introduced in stages to facilitate
  familiarization
• Participants divided into three-person teams
• Taught as case studies
• Multiple scenarios with different policy
  objectives
• Preparation at home with discussions in class
• Interactive, iterative, and competitive
• Everything in one small file on rented laptops

25
SymBanc As A Teaching Tool (3)

• More efficient effective than conventional
  means to
• Introduce complex policy (strategic) and
  operational (tactical) interrelationships
• Explore tradeoffs between achievement of
  institutional mission and financial
  sustainability
• Confirm or refute assumptions and preconceptions
• Reflects messiness of real world
• No single correct answer - bundles of viable
  scenarios
• Important to identify and mitigate unanticipated
  shocks
• SymBanc simulation is truly a dynamic system