Innovations in Reducing Costs and Enhancing Productivity: Field Treasury Systems

The paper was commissioned by the Microcredit Summit Campaign in 2006. The paper examines the the innovations the Kashf Foundation (KF) employed to lower the internal factors that contribute to increased cost of funds. It describes three stages of fund management in KF, the outcomes of and lessons learned in each stage. Up to year 2002:

• KF disbursed and recovered loans through field staff.
• Result: security risks, idle funds in field bank accounts and information lags.
• Lesson: elimination of cash handling by staff.

From 2002-2003:

• KF clients interacted with the MFI branches.
• Result: heavy traffic of clients at branches.
• Lesson:
  • Need for a sustainable structure to take care of security risks, operational risks and fund management;
  • Strategic partnership with a commercial bank for a long-term solution.

From 2004-2005:

• KF entered into partnership with a commercial bank. KF clients would interact with the bank for disbursements and recoveries.
• Result: the bank expressed concern about the operational burden.
• Lesson:
  • Efficient fund management impacts the overall costs of funds;
  • Frequent management information systems would streamline reconciliation procedures;
  • Dependence on the commercial bank would hinder growth.

The paper concludes by outlining KF future plans to ensure sustainable fund management through:

• Working with a greater number of commercial banks;
• Collaborating with Pakistan Post;
• Internalization of cash management system.