Microfinance and HIV/AIDS:
Defining Options for
Strategic and Operational
Change
A Workshop for MFI
Managers and Decision Makers
Goals of the Workshop
• Help participants identify myths and learn the facts about
HIV/AIDS
• Help participants recognize the impact of HIV/AIDS on
MFIs and their clients
• Show participants how to hone in on and monitor internal
and external factors affected by HIV/AIDS
• Help participants understand the institution’s options for
responding to the disease
• Provide participants with strategies to mitigate the
internal institutional and external risks of operating in a
high prevalence HIV/AIDS country or region
• Prepare for action with an increased strategic
understanding that will lead to operational change.
Overhead: Options
• Option One: Ignore the crisis.
• Option Two: Buffer clients against the effects of the
disease (refined/modified or new products, insurancetype support for staff, linkages to HIV/AIDS support
organizations).
• Option Three: Mobilize to protect and buttress
communities (work with AIDS orphans and community
health programs).
Overhead: Options Clarified
• Option One: Ignore the crisis
“Business as usual.”
• Option Two: Buffer clients against the effects of the
disease (refined/modified or new products, insurancetype support for staff, linkages to HIV/AIDS support
organizations)
“Financial-services orientation with
eye to client/household needs.
• Option Three: Mobilize to protect and buttress
communities (work with AIDS orphans, community health
programs, and so on)
“Activist.”
Overhead: MFI Financial Costs Related to
Responses to HIV/AIDS
Financial costs
Overhead 1-4: MFI Financial Costs Related to Responses to HIV/AIDS
no responses
late responses
early responses
Time in years
Source: Based on Aventin, L., and Huard, P., “HIV/AIDS and Business in Africa,” Discussion Paper No. 19,
Management of Social Transformations, UNESCO, 1998.
CGAP Business Planning Framework
CGAP Business Planning Framework
Strategic Planning
Strategic Planning
Operational Planning
Operational Planning
Mission
Mission and
and Goals
Goals
Markets
Markets and
and Clients
Clients
Products
Products and
and Services
Services
Environmental
Environmental Analysis
Analysis
•• Competition
Competition
•• Collaboration
Collaboration
•• Regulatory
Regulatory factors
factors
•• Other
Other external
external issues
issues
Marketing
Marketing channels/
channels/
Product
Product and
and service
service
projections
projections
Institutional
Institutional Assessment
Assessment
•• Boards
Boards and
and management
management
•• Credit
Credit and
and savings
savings
program
program
•• Human
Human resources
resources
•• Administration
Administration
Institutional
Institutional Capacity
Capacity and
and
Resources
Resources
•• Loan
Loan loss
loss provision
provision
•• Loan
Loan officer
officer caseload
caseload
•• Personnel
Personnel expenses
expenses
•• Administrative
Administrative expenses
expenses
Financing
Financing Sources
Sources
Financing
Financing Strategy
Strategy
Financial Management
Financial Management
Strategy
Business Plan as
an Ongoing Tool
Overhead: Importance of Client Loyalty –
An Example of a Repeat Borrower
Key Client
Segments
(B) Repeat
Borrower
with Low
Loyalty and
Small Loan
Size
(C) Repeat
Borrower
with High
Loyalty and
Small Loan
Size
(D) Repeat
Borrower
with Low
Loyalty and
Large Loan
Size
(E) Repeat
Borrower
with High
Loyalty and
Large Loan
Size
1. Average
loan
outstanding
per year
$200
$200
$700
$700
2. Number of
years likely to
remain a client
1
4
1
4
3. Multiply 1X2
200
800
700
2800
4. Average
profit margin
1%
5%
1%
5%
$2
$40
$7
$140
5. Multiply 3X4
(A) First Time
Borrower
LOSS
(3)
(a)
(2)
(b)
(c)
(1)
Asymptomatic
Stage
Up to 10 years
Early Stage
Frequent
Hospital Visits
Stage
Bedridden Stage
12 months
Source: Development Alternatives Inc. 2003; updated 2004.
6 months
Death/
Burial
Increased Financial Pressure on Households
Overhead: Increased Household Financial
Pressure
Care for Orphans
Stage
12 months +
Economic
Recovery
Overhead: Major Risks to Microfinance
Institutions
Financial Risks
Operational
Risks
Strategic Risks
Credit Risk
•Transaction risk
•Portfolio risk
Transaction Risk
•Human resources risk
•Information and
technology risk
Governance Risk
•Ineffective oversight
•Poor governance
structure
Fraud Risk
Reputation Risk
Legal and Compliance
Risk
External Business Risk
•Event risks (political,
macroeconomic, natural
disaster,
health/epidemic)
Liquidity Risk
Market Risk
•Interest rate risk
•Foreign exchange risk
•Investment portfolio risk
Overhead: Impact of HIV/AIDS on a
Microfinance Institution
HIV/AIDS in the Workplace
Insurance cover
Increased
absenteeism
Increased
staff turnover
Loss of skills
Loss of tacit
knowledge
Declining
morale
Health & safety
Medical assistance
Increased demands
for training &
recruitment
HIV/AIDS in the market—
declining number of clients,
business investment, and
labor pool
Funeral costs
Increased costs
Declining reinvestment
in MFI
Declining
Declining profits/
profits/
sustainability
sustainability
Declining reliability
Declining
productivity
Overhead: Cost of Delinquency
Item
Initial Loan Amount
Interest Rate
Loan Term
Weekly payment
Interest
Principal
Calculation
1000
15% flat
25 weeks
Total
6
40
46
14 weeks
11 weeks
Payments received
Payments overdue
Lost Income and Principal
Income
66
Principal
440
Total
506
Expected Revenue per 1000 loan
150
Variable costs per 1000 loan
90
Expected Net Revenue
60
Actual Income Received
84
Cost per loan
90
Actual Net Revenue Received
-6
Number of loans Required to Earn Lost Principal
Lost Principal/Net Revenue per 1000 loans
Number of loans Required to Earn Lost Principal
Lost Principal and Income/Number of 1000 Loans
7.3 loans of 1000
440/60
8.4 loans of 1000
506/60
Overhead: Financial Products for Different
Stage of HIV/AIDS
Key
Emergency Loan: ▲
Housing Loan: ■
Preventative Health: ●
Cash Advance:
Salary-based Loan: >
Period of difficulty with contract:▐
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Asymptomatic
Stage
Up to 10 years
Early Stage
Frequent
Hospital Visits
Stage
12 months
Bedridden Stage
6 months
Death/
Burial
Products
▲▲▲▲▲▲▲▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐ ▐
Care for Orphans
Stage
12 months +
Economic
Recovery
Overhead: Importance of Identifying the
Impact of HIV/AIDS on MFI Operations
“Long-term sustainable responses will only be achieved if
all stakeholders (leadership, managers, personnel,
shareholders) within [MFIs] are convinced of the real
business rationale for action. In particular, a committed
and knowledgeable leadership is paramount.”
“A clear understanding of the specific impacts of HIV/AIDS
on a company and of the context in which these occur is
a critical factor in the development of effective and
appropriate policy and program responses.”
Source: UNAIDS, et al., The Business Response to HIV/AIDS: Impact and Lessons
Learned
Overhead: Board Member Responsibilities
Board Member Responsibilities
Enhanced Responsibilities in an
HIV/AIDS Context
Fiduciary
•Ensure the financial health of the MFI
•Safeguard the interests of all the institution’s
stakeholders (particularly when MFI intermediates funds
from commercial banks or depositors or has outside
private investments)
•Serve as a check and balance to instill confidence in the
company’s investors, staff, customers, and other key
stakeholders that managers will operate in the best
interests of the institution.
Fiduciary
•Monitor the overall financial health of the MFI, ensuring
that the MFI is managing its liquidity and safeguarding
institutional equity in an environment with increased
Strategic
•Participate in the organization’s planning process,
including development of its three components: a strategic
plan, an operational plan, and an annual budget—focusing
predominantly on the strategic plan
•Review and annually assess progress toward stated
strategic goals
•Monitor progress toward annual quantitative objectives of
the operational plan and budget, reviewing both
expenditures and revenue
•Monitor financial projections, including, at a minimum,
loan disbursements, loan portfolio, active clients, and
deposits (if applicable).
Strategic
•Ensure that the new operational plan and budget
consider the potential costs and financial impact of
HIV/AIDS
•Monitor financial reports and ratios, analyzing trends that
pressure on the bottom line and profitability.
may be affected by HIV/AIDS.
Overhead: Board Member Responsibilities
Continued
Board Member Responsibilities
Enhanced Responsibilities in an
HIV/AIDS Context
Supervisory
•Ensure that the significant risks—including financial,
operational, and strategic risks—the MFI faces have been
identified
•Confirm that strategies are in place to manage risks or
that there are a plan and timeline for implementation
•Review management reports and information from
internal and external auditors to determine whether those
strategies are working effectively
•Hold management accountable for identifying appropriate
risks and implementing the risk management framework.
Supervisory
•Ensure that the health/epidemic risk of HIV/AIDS has
been identified
•Confirm that strategies to deal with the impact of
HIV/AIDS are in place, including a plan and a timeline
•Hold management accountable for implementing a risk
management framework that includes HIV/AIDS
•Review internal audit reports thoroughly because the
incidence of fraud is often higher in an HIV/AIDS context,
and perform occasional spot checks of the institution.
Management Assessment and Accountability
•Supervise selection, evaluation, and compensation of
senior management
•In the transition from a small, growing, entrepreneurial
organization to an established institution, ensure that the
company survives.
Management Assessment and Accountability
•Evaluate performance of management in managing new
risks related to HIV/AIDS
•Move the institution beyond dependency despite the
economic impact of HIV/AIDS.