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She has stocks worth Rs 20,000 in the shop, which is the same amount as she
had when she started.
She pays herself Rs 2,500 a month, every month.
She borrowed Rs 5,000 from her brother, without interest, at the start, and
has not repaid any of this loan.
She has Rs 2,500 in the cash box belonging to the business.
She spends Rs 20,000 a month on goods to be sold.
She put her own savings of Rs 10,000 into the business when she started.
Her customers owe her Rs 10,000 for goods bought on credit.
Her sales are Rs 25,000 every month.
Her passbook shows that she has accumulated savings of Rs 17,500 since the
business started. She hopes to use this money to expand the business in the
future.
She owes Rs 5,000 to suppliers for goods bought on credit.
Assignment
Prepare a balance sheet for Meena’s business, showing the financial situation
on 31 March 2002, and an operating statement of the financial operation of
the business for a month.
What are your comments on the way Meena manages her business?
Session 2, Financial analysis exercise
There have been 20 members from the beginning, two years ago.
Each member saved five rupees a week for 50 weeks each year; they did not
make savings during two festival weeks each year.
Their savings now total Rs 10,000.
The members paid one rupee per Rs 100 per week on loans they took from
the group.
The members owe Rs 10,000 to the group.
During the two years, the members had paid Rs 250 to the group in fines for
late attendance.
Laxmi has Rs 4,000 in cash (belonging to the group) hidden in her house.
Assignment
Prepare a balance sheet of Laxmi’s group for the day she was interviewed,
and an operating statement for a year.
What will you suggest to the bank manager? Should he accept the group’s
savings, and should he also consider the members as potential borrowing
customers?
Session 2, Financial analysis exercise
Gita has saved five rupees every week for 50 weeks, making a total of Rs 250.
Gita and Hari pay Rs 2,500 a year as school fees for their children’s education.
They have eight goats, worth Rs 500 each, and earn Rs 2,000 a year by selling
milk.
They owe Rs 2,500 to Hari’s brother; no interest is payable on this loan.
They own Rs 3,000 worth of cooking vessels and a bicycle worth Rs 1,250.
They spend Rs 10,000 a year on food.
Gita keeps the family’s cash in a box hidden in her hut; they have Rs 750 now.
They owe Rs 1,500 to the local shopkeeper for goods taken on credit.
They have five chickens worth Rs 250 in total, and sell eggs worth Rs 1,000 in
a year.
They owe the local moneylender Rs 7,500; he charges no interest but makes
the family work for him without pay for several weeks during the planting
season.
They spend Rs 1,500 a year on medical expenses; one child is frequently ill.
When she is not working in the fields, Gita weaves baskets, which she sells for
Rs 2,000 a year; she spends Rs 1,000 a year on the raw material for these
baskets.
Gita has Rs 2,500 worth of jewellery, given as dowry by her family.
The family does not own the plot on which their hut stands, but the material of
their hut is worth Rs 2,500.
The family earns Rs 10,000 a year from day labour for other villagers.
The family’s clothing is worth about Rs 1,000.
They lent Hari’s sister Rs 2,000 some time ago; she does not pay any interest
on that amount.
Assignment
Prepare a balance sheet for Gita’s and Hari’s household, and an income and
expenditure statement for one year.
How can Gita and Hari benefit more from their membership of the group?
Assuming that this household is a representative sample, what will you
recommend to the NGO?
Session guide
2. Strategies
Divide the participants into groups of up to three or four members each. The
participants can work alone, and larger groups are not advisable; large groups may
intimidate the business owners, and the participants who most need to learn may
allow others do all the work.
Groups should, if possible, include some members who are familiar with simple
financial accounts and others who may have more experience in field contact; each
can learn from the others.
This exercise is designed to enable the participants to find out more about the needs
of their customers. Most MFI customers are women, so some women business owners
must be interviewed, if possible. It may not be easy to find them, since women’s
micro-businesses are often ‘hidden’ in their homes or elsewhere. If local customs
make it difficult for men to interview women, some groups should be made up of
women only. Ensure that each group has at least one member who can speak the
local language.
4. The assignment
The following assignment may be written on the board or reproduced and handed
out.
a) Prepare and present a very brief description of the business, its owner, the
reason why s/he started it, its history, the numbers of jobs it is creating, and
the owner’s opinion about its main strengths and problems.
b) Prepare and present a simplified approximate balance sheet (statement of
condition) and profit/loss account (statement of operations) for the business.
The balance sheet should be for the time and date of the interview, and the
operating statement can be for a day, a week, a month, a season, a year—
whatever period is most appropriate.
c) Show briefly how the business fits into the financial economy of the owner’s
household: what other sources of income they have, how they save, and from
where they obtain money in emergencies.
d) Analyse the data, and prepare and present a brief appraisal of the business
and, in particular, of the way in which its owner is managing its finances. Is
the available money deployed optimally? What improvements would you
recommend?
e) Describe what, if anything, you believe your MFIs could do for the business.
What are the implications of this case for micro-finance in general?
The group members should sit or squat at the level of the business owner,
however uncomfortable or dirty this may be.
If customers want to do business, the group must wait until they have
finished; otherwise it will be depriving its interviewee of his/her income.
One member of the group should ask the questions, while the others take
notes, not on threatening official-looking clipboards but small, unobtrusive
notebooks.
Many micro-businesses are routinely threatened and harassed by the police or
other authorities; the group must recognise this fear, and show that its
members are not people of that type.
The group is asking the business owner for personal and confidential
information; the members must recognise this, and hold the discussion out of
the public eye if possible. Interviewing women is particularly difficult in some
societies. Women participants should interview women business owners.
6. Obtaining information
Few micro-businesses have written records, and their owners themselves may not
know their monthly sales, or expenses. Also, they are unlikely to pay themselves
regular wages. They are more likely to take money from the business as and when
they need it, and to reinvest it when they do not, without recording the transaction as
such.
It is possible, however, to obtain reasonably accurate information, and groups can
use it to show their interviewees how their resources are deployed, and whether they
are making money or not.
Groups should observe visible signs as well as asking questions. The quantity and
condition of goods in stock, the appearance of the products and of the business, and
the owner’s way of dealing with customers are all indicators of management, and can
suggest avenues for questions.
Information can be obtained by ‘triangulation’; the daily sales of a tea shop, for
instance, can be obtained in many different ways:
Most micro-business owners try to maintain some record of credit sales, if they sell
on credit, and of how much they owe to their suppliers, if they buy on credit. Any
other records they keep may be unintelligible, or wrong. It is often better to rely on
verbal information and observation, even if some written data is available.
While few micro-businesses have records of sales, many business people keep some
record of their purchases. If they buy from wholesalers, they probably have receipts,
and they may also keep some informal record of other purchases. The total figure of
purchases, plus an estimate of the average mark-up, can provide a very good
approximation of the total figure for sales.
Many business owners save money, even if they are also short of cash. They realise
that they may need money urgently in case of an accident, sickness, or some other
emergency, and they also realise that they need to discipline themselves into making
regular small savings. They may do this through a local informal cash collector,
through a rotating savings and credit system (ROSCA), or through some other means.
They often have records of such savings.
Before the interviews, members of each group should meet briefly to allocate
responsibilities and to prepare a simple checklist in order to avoid omitting any
important information.
7. The interviews
Ensure that the participants follow the guidelines on business selection, and that they
carry out the interviews properly. Some senior staff members may not wish to go into
the market if it is hot or raining; ensure that they understand that micro-finance
clients have to operate in all weathers, and micro-financiers must be willing to do the
same.
Try tactfully to see something of each group’s interviews, but do not take part in any
way. If possible, briefly observe and make some notes about each business, in order
to be able to comment more usefully on the groups’ presentations.
8. The presentations
Ensure that every group knows when and where to reassemble, and what time the
presentations are to be given. Provide any necessary paper sheets, which are better
than OHP slides or PowerPoint presentations, since they can be kept in view for
reference in later sessions.
The participants should treat this as an exercise in ‘slick’ and well-organised
presentation. They should remember the following.
Figures should be rounded to enhance clarity and to avoid giving any spurious
impression of accuracy. Any calculations must be free of errors.
9. Instructions
Maintain the time limit strictly, and ensure that any errors are pointed out and
corrected. In particular, groups should avoid labelling the previous period’s surplus as
‘retained earnings’ or ‘reserves’, and then supposing that any remaining difference
between the assets and liabilities is an error.
As suggested above, most micro-business owners reinvest their profits
‘unconsciously’; their businesses survive and grow only because they do this, and
this is the main source of capital for most businesses, everywhere.
The balancing figure for retained earnings may include increases in value of assets—
such as tools or equipment, or any buildings or land, because of inflation—but for
most micro-enterprises, which have survived more than a few months, this does
reflect reinvestment, and the owners’ understanding that excessive withdrawals,
however much the money is needed for consumption, will only ‘kill’ the business.
10. Discussion
Ensure that the following issues are covered.
11. Conclusion
Conclude the session by reminding the participants that the people whom they have
been discussing and from whom they have learned so much, are their customers.
They must learn what they need, and then satisfy those needs in a way which is
affordable to them and profitable to the bank or MFI.