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Company Profile

BENEFITS AND RETURNS OF HAVING A PERSONNEL INCENTIVE PROGRAM: Cantilan Bank Microfinance Incentive Scheme Gen. William Hotchkiss, Ret. Mindanao Regional Roundtable 26 August 2004. Company Profile. Cantilan Bank operates in Surigao del Sur and Surigao del Norte;

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Company Profile

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  1. BENEFITS AND RETURNS OF HAVING A PERSONNEL INCENTIVE PROGRAM: Cantilan Bank Microfinance Incentive SchemeGen. William Hotchkiss, Ret.Mindanao Regional Roundtable26 August 2004

  2. Company Profile • Cantilan Bank operates in Surigao del Sur and Surigao del Norte; • Authorized by the Bangko Sentral ng Pilipinas on June 8, 1980; • Has 6 branches participating in the MABS program and a soon to open new approved branch in Socorro Island, Surigao del Norte; • Has been in microfinance for almost 5 years;

  3. Company Profile • Total Resources as of April, 2004 Php286M; • Total Loans Portfolio Php237M; • Past due ratio of 4.79%; • Total Microfinance Portfolio Php25.7M; • Number of active clients of 4,758; • PAR% of 1.9% • Number of AOs 38.

  4. Setting up a Microfinance Performance-Based Incentive Scheme Circumstances that inspired the Bank to set up incentive Scheme • Top management’s belief, determination and motivation towards successful program implementation; • Microfinance Outstanding Loans performance; • AOs’ efficient and quality performance.

  5. Initial Constraints and Limitations Encountered • No concrete idea in formulating incentive scheme; • Backroom acceptance/ buy-in; • Target to earn incentive was smaller, thus not cost effective;

  6. Initial Constraints and Limitations Encountered • Policy limitation (use of client’s deposit to hide delinquency); • Creates lax mindset to Account Officers as targets were easily achieved;

  7. Initial Constraints and Limitations Encountered • Senior Managers apprehension as follows: • Costly; • Might spoil AOs’ mindset to perform only because of incentive; • Might create factions with other loans department units.

  8. Formulating and Installing the Incentive Scheme • Incentive Scheme was formulated with the assistance of MABS; • Thorough brainstorming sessions; • CBI Incentive Scheme was designed to focus on Account Officer’s productivity and asset quality; • Bench mark to earn incentive which was set initially at P400K in terms of portfolio; at least 80 active clients; and PAR not more than 5% for individual AO and the unit as a whole;

  9. Formulating and Installing the Incentive Scheme • Incentive Proposal was then presented to the board for approval; • BOD approved the Incentive Scheme as a policy;

  10. Formulating and Installing the Incentive Scheme • It was installed initially at the branch where MF was pilot tested and gradually replicated and enhanced to achieve higher production efficiency and quality; and • MIS played an important role in computing the monetary reward

  11. Results of Having an Incentive Scheme • The bank has maintained its high level asset quality; • Better team work and back room support; • Work force is more motivated to strive more; • Increased Account Officer’s efficiency;

  12. Results of Having an Incentive Scheme • Currently, most of the Account Officers have reached more than a million portfolio with not less than 100 number of accounts for individual loans; while in • Group loans, most AOs have more than P750K portfolio and 250 to 300 accounts; • PAR percentage remained to be not more than 1.9% end of April, 2004.

  13. With Incentive Total Incentive Cost is P3,700.00; plus allowance for probable loss, 1% of the P1Mportfolio =P10,000.00; Total Cost of P13,700/month Without Incentive Say PAR is 10% 31 days and more of the portfolio =P100K at 20% allowance for probable losses equal to P20,000, plus Provision for current loan 1% P900K = P9,000.00 Total Cost of 29,000/ month Cost to Benefit Ratio: How much it cost for a bank to pay incentive for AOs’ having an average quality loan portfolio of P1M compared to no incentive with a possible PAR of 10% 31 days and more? (BSP circular 409 used in provisioning)

  14. General Features – Cantilan Bank’s Microfinance Performance Based Incentives

  15. Objectives • To improve MFU Staff productivity and profitability; • To reward good staff performance; • To motivate branch staff for backroom support

  16. Features • It is performance-based • Scheme balances • Portfolio Quality • Portfolio Quantity

  17. Uses 3 Performance Indicators • Portfolio at Risk (PAR); • # of Active Borrowers Outstanding; • # of Loans Disbursed during the period. • Schedule of incentive is based on Break-even (B-E) Yield Analysis.

  18. Pre-conditions Regarding Incentive Payment • MFU (or Product) PAR 1 day or more should not be more than 5%. If MFU’s overall PAR 1day or more is greater than 5%, no one can receive any incentive for the month; • Individual Loan: AO portfolio is above break-even starting at minimum of P600,000. However, we require P700,000 (for AOs’ under individual lending whose AOR is within 30 min. radius to the bank); • Group Loan: P700,000 portfolio per AO;

  19. Pre-conditions Regarding Incentive Payment • Individual Loan: AO’s # of active borrowers is above the break-even number, starting at 110 (AO’s AOR outside 30 min. radius), 120 (AO’s AOR within 30 min. radius to the bank); • Group Loan: 230 accounts per AO;

  20. Incentive Sharing Who are entitled? % share/ AO generated Incentive Account Officer 60% MFU Supervisor 15% Product Head 5% Branch Share 17% CHQ share 3%

  21. Basis in Computing the Incentive Pay • MIS reports on: • Performance by Account Officer; • Portfolio at Risk (PAR % and Days Over Due).

  22. Monitoring and Disbursements • MFU Supervisor submits all monthly reports to the Branch Head and Product Head. • Branch Head recommends for the approval of the incentive; • Product Head prepares the computation; • Checked by the Loans Head; • Approved by the General Manager.

  23. Sample Incentive Computation

  24. Total Incentive which will be divided accordingly P3,700.00

  25. Reviewing and Upgrading the Incentive Program • Effectiveness of the incentive scheme is measured quantitatively and qualitatively on the following: • Performance of every Account Officer; • Team work; and • How backroom support supports the program. • Initiatives in continually upgrading the program • The bank is doing its incentive review process on an annual basis for incentive strengthening and enhancement efforts; • R&D is in-charge of review and upgrade process.

  26. “Take care of your men and your men will take care of you” THANK YOU…

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