An innovative presentation

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 UN’s 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
– Women’s 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
Size of
Loans
Target Borrower Applicants Borrowers
Population
Current Loans
by Stage
Funds Available
for Lending
Branches, Loan
Officers and Other
MFI
Strategy
Staff
Interest Rate
and Terms
Product
Design
Area
Demographics

8. Overview of MFI Model: Sources of
Funds
Target Borrower Applicants Borrowers
Population
Current Loans
by Stage
Funds Available
for Lending Repayment
Loan Losses
Savings
MFI
Strategy
Net Income
Branches, Loan
Officers and Other
Staff
Interest and Fee
Income
Interest Rate
and Terms
Size of
Loans
External Sources
of Funds
Product
Design
Area
Demographics
MFI Equity

9. Overview of MFI Model:Borrowing by Stage
. Stage 1 Stage 2 Stage 3
New
Borrowers
Current Loans
New to Stage N in Stage N
Delinquent
Curing in Stage N
Delinquency
Becoming
Delinquent
Default
Repeating
Stage N
Going on to
Next Stage
Dropping
Out

10. Overview of MFI Model: Delinquency and Default
Area
Demographics
Target Borrower Applicants Borrowers
Population
Current Loans
by Stage
Delinquent Loans
by Stage
Cured
Delinquencies
Defaulted
Loans
Loan Losses
Funds Available
for Lending
Repayment
MFI
Strategy
Net Income
Branches, Loan
Officers and Other
Staff
Interest and Fee
Income
Interest Rate
and Terms
Size of
Loans
Dropout
External Sources
of Funds
Expenses Product
Design
Savings
Cost of
Funds
MFI Equity

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
what’s 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...
Capital Adequacy
1
0.75
0.5
0.25
0
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96
Time (Month)
Capital Adequacy : high growth
Capital Adequacy : medium growth
Capital Adequcy Standard : medium growth
Medium
High

21. ...and Ultimately Attract More Borrowers
Total Borrowers
40,000
30,000
20,000
10,000
0
0 6 12 18 24 30 36 42 48 54 60 66 72 78 84 90 96
Time (Month)
Total Borrowers : high growth
Total Borrowers : medium growth
Medium
High

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 Provost’s 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