Standardization, efficiency and responsiveness in microfinance

Last week, we looked at the subject of monitoring and supervision as an important factor in the successful management of any microfinance institution. We highlighted the importance or intra-institutional information flow. The need for members of management and certain categories of staff to be acquainted with what their colleagues and others are doing in the organisation led us to what we termed management by all of us – our term for the management technology in which monitoring and supervision is a crucial and shared responsibility.

Today we introduce another important activity that facilitates successful management of human organisations – standardisation. Every organization desires to deliver its products or services in the most efficient manner. The pursuit of efficiency requires that things be done in a certain way that is agreed upon, documented and democratised among the participants in the organization or industry. Standardisation is the reason why certain activities of an organisation are documented and approved by the highest level of the leadership before they are implemented across the system. Some of the easily recognisable standard documents of an organisation include accounting standards, the procedure manuals of companies – operations, internal audit and product papers of lending institutions, among others.

Essentially, when procedures are standardised, inefficiency and waste are reduced, time is saved and the consistency of the quality of the end product can be guaranteed.Standardisation is simply the tendency to uniformity and elimination of the rampancy of individual variety. Standards make the comparison of service providers easy. In these days of outsourcing, the uniformity of procedure entailed in standardisation, enhances comparability and interoperability. It also simplifies the evaluation of costs and benefits from outsourced activity.

In microfinance, standardisation involves uniformity of such processes as the formation of groups – selection of members to make up the group, selection of loan beneficiaries from a group, loan disbursement and recovery, record keeping, monitory and performance rating. It also reflects in standard rules of groups’ operations, including the number, size and limit of loans, charges, minimum contribution, savings rate and other rules applicable to a loan. A standardisation process will also affect spending patterns. Cost structures are made public within the institution as regards staff and work tools as well as the responsibilities of staff.

The climax of standardisation is the codification of all procedures such that almost every function, baring those with specific special needs, can be performed simply by reference to the manual. What this does is to trim out frivolous activity and cost, ensure predictability, limit discretion, which once coupled by the absence of accountability is unmitigated corruption. Some have also said that the role of standardization is to eliminate “useless and disadvantageous diversity and variety”.

While standardisation enhances efficiency and raises quality, it appears to be in conflict with another import attribute of a successful microfinance operation – flexibility. There is no doubt that microfinance institutions need to be fleet-footed enough to respond very quickly to the needs of their clients. Indeed, ability to respond quickly to needs of their clients is critical to two lives: the life of the organization and the life of its clients who are often in urgent need of quick intervention. By the very nature of the target clients of microfinance institutions, it is difficult to define a category of need and advance it to the level of a gospel in terms of general applicability. As many as there are clients, so there are varieties in their needs, even of the same service. Money, for instance, is likely to have different meanings to clients whose houses have been washed away by flood and those who need it to improve their existing enterprises. So speed is very important.

Although the maintenance of standards does not foreclose the capacity of institutions to respond to their clients’needs with customised or taylor-made solutions, to achieve such performance often demands a lot of flexibility (which means thinking outside the box and invariably outside the procedures), sometimes with a lot of discretion, with its high susceptibility to error and corruption. Here lies the challenge of management – to achieve that balance between the interpretation of standard procedures on the one hand and flexibility and creativity on the other, in such a way as to leave the institution with superior results. This apparent dilemma should be a regular challenge of management in any well-run institution. It is the kind of challenge that confronts every economy – to bring a healthy balance between inflation and unemployment.

This conflict is not peculiar to business managers. Those with some understanding of intermediate macroeconomics know that like standardisation and flexibility, unemployment and inflation have an inverse relationship. One will always head north once the other is heading south. Governments all over the world, even though some behave as if they do not understand the meaning, set out to achieve price stability in order to protect the welfare of their citizens. This means they must keep inflation down. They also set for themselves the target of rapidly growing the economy. These two phenomena do not always go together. Keeping inflation down often requires a reduction in spending and production, income growth and consumption spending, which implies high levels of unemployment. So government is continually engaged in a balancing act between high levels of growth and low levels of inflation.

Yet there is ample evidence that the conflict between standardisation and flexibility is often a mere conjecture. Indeed, some scholars have found that microfinance loan officers, with good relational aptitude and styles, often exercise discretion in very productive ways that enhance the overall performance of their organisations. In other words, if discretion is properly exercised against a proper understanding of the existing of rules of proper organisational conduct, the likelihood is a positive impact on performance. Microfinance institutions should therefore not reject the important need to standardise their operational procedures on grounds of the need to be flexible. If properly applied standardisation and flexibility work well together and often aid the adjunct need for speed in service delivery.

Emeka Osuji