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Microenterprise Access to Banking Services (MABS)

October 2004

Microfinance Staff Incentive Scheme

A Step-by-Step Instructional Guide to the
MABS MF Incentive Scheme MS EXCEL Template
The goal of this instructional guide is to allow Microfinance Managers of MABS Participating
Banks to conveniently input necessary bank data in order to create a staff incentive table based
on a break-even yield analysis. This template is a user-friendly program designed to complement
the research report entitled Performance Based Incentive Schemes for Microfinance Operations
of Rural Banks.
The Template:
The MS Excel template consists of four (4) inter-linked MS Excel worksheets, namely: a)
Breakeven, b) Targets, c) Table, and d) Incentive Distribution."
BREAKEVEN Worksheet :

The Breakeven worksheet will allow managers to calculate the

breakeven portfolio amount per microfinance account officer. In
other words, it will calculate the minimum size that an account
officers (AOs) portfolio should reach, in order for the MFU to be

TARGET Worksheet

This worksheet allows managers to set minimum incentive

targets for their account officers that are based on the breakeven
amount and desired MFU goals. As the MFU matures and as
account officers gain more clients, management can increase
the minimum target in order to challenge the staff to improve
productivity while maintaining quality accounts.

The three (3) targets are:

1. Minimum Portfolio at Risk (PAR) Ratio that an account
officer should have in order to begin receiving monthly
2. Minimum Number of Outstanding Clients that an account
officer must have in order to begin receiving monthly
3. Minimum Number of Loans Disbursed per month (both new
and repeat loans) that an account officer must have in order
to begin receiving monthly incentives.

MFU Staff Incentive Template Guide

TABLE Worksheet

This worksheet is the output when the inputs and calculations on

the Breakeven and Target worksheets have been completed.
The table should be distributed to account officers, supervisors
and in-house staff so that all MFU staff would be motivated to
reach incentive targets.

Please see Figure 1 for sample table:

Figure 1 - Sample Table Worksheet

There are two (2) versions of the template provided with this user guide. The first template
EMPTY.XLS is the version that managers are expected to use to calculate their banks own
incentive scheme. The second template EXAMPLE.XLS is the version where all the input data
has been filled in using MABS recommended targets, to give managers a general guide on how
their incentive scheme should look.

MFU Staff Incentive Template Guide

This last worksheet allows MF supervisors to calculate the

incentive distribution for each MFU staff once the incentive table
has been used to calculate the total incentives earned for all
AOs. It allows supervisors to establish a different weighting
scale for each staff depending on their contribution to the MF
loan dispersal and collection process.


Please note Most of the cells in the template have been protected. Template users can and
should only input data into the cells that are light blue. The green and yellow cells contain
calculated data output using the inputted data.
Calculating the
Step 1:
Input Necessary

Step 2:
Find the Net
Financial Spread:

Description & Screen Shots

This section asks for four monthly loan portfolio inputs over the course
of one year: loan portfolio balance, total financial income, total financial
expenses and monthly loan loss provisions for the MFU. If the MFU
does not have data for a full year, but would still like to calculate an
average break-even, the supervisor can input the necessary data of all
available months.

PLEASE NOTE - Since an AOs salary increases once they have

become regularized, such expenses influence the break-even
calculation. Also, because the minimum incentive targets should
correlate with the minimum targets for AO regularization, supervisors
should only input accumulated portfolio data of regularized AOs, not
probationary AOs. As a result, this template is ideally designed for
MFUs that have several AOs who have been regularized for over 12

The data for Month 1 should be 1 year before from the present date in
order to calculate an AVERAGE break-even for formalized AOs over a
period of a year. For example, if an MFU is designing an incentive table
from October 2004, then to obtain an average net financial spread,
Month 1 should begin with portfolio data for November 2003 next to
the Month 1 cell.

This section uses the following formula to calculate the Net Financial
Gross Financial Spread
Gross Receipt Tax
Loan Loss Provision
Divided by 100

Gross Financial Spread is

Gross Product Yield
Financial Expense

Step 2 obtains the necessary accumulated data from the table in Step
1. As a result, no input is necessary in Step 2.

MFU Staff Incentive Template Guide

Step 3:
Compute for the
Direct and Indirect

Direction to calculate Break Even Amount

The following data are needed to compute for the Total Direct Costs:
Number of account officers
Average Monthly Salary & Bonuses per AO
Average Monthly Salary & Benefits for supervisor
Average Monthly Salary & Benefits for MFU Encoder/Accounting
Average Monthly Transportation/Fuel
Average Monthly Communication expense
Average Monthly Supply expenses
Average Monthly Training/Professional fees
Average Monthly Depreciation expense
The following data are needed to compute for the Total Indirect Costs:
Average Monthly Salaries & Benefits for Other Staff The salaries
of all other staff indirectly involved with the MFU (managers, guards,
in-house staff) should be calculated and multiplied by the
percentage of time they spend with the MFU.

Average Other Indirect Operating Expense

The template will automatically calculate the annualized Average Per
AO/Year by multiplying the average monthly expenses and divided by the
number of AOs.
The template will automatically calculate for the Total Directs and Indirect
Costs by adding the various direct costs of the MFU and the indirect (or
overhead) costs that are applied to the MFU by the bank.

The data needed

on these
worksheets can be
derived from the

Step 4: Analyzing
the break-even

At this point, you have already calculated for the Break-Even Amount.
This is the portfolio amount that each account officer should have
reached in order to begin being profitable for the bank.
Once all the data for sheet 1 has been inputted, the template will
automatically generate the break-even yield for this MFU. This value is
the minimum portfolio that each account officer must generate before
they can begin turning a profit for the bank. Once the data has been
verified, the template user should move onto worksheet 2, where the
calculated break-even will be referenced.

MFU Staff Incentive Template Guide

Step 5:
Set the

After completing the Break Even worksheet and the Break-Even amount has been
computed, move to the Targets worksheet to set the minimum incentive targets.
At this point, the bank has to establish the following parameters in order to get the
data needed by the incentive scheme table (Figure 1):
Portfolio data
o The bank needs to input the expected incremental amount to get the
minimum portfolio requirement for the AOs to begin receiving incentives
o The minimum portfolio requirement is the calculated break even portfolio +
the expected incremental amount. MABS recommendation is 50,000100,000 for the incremental amount of portfolio.
Portfolio at Risk data
o Maximum PAR for the MFU to receive incentives (MABS recommends that
this be no more than 3% over 30 days for the entire MFU portfolio)
o Maximum PAR per account officer to begin receiving incentives (MABS
recommends that the maximum PAR over 7 days for an individual AO should
not exceed 5%)
o Number of days PAR 7-days or 30-days
Number of clients outstanding
o Average loan outstanding portfolio per client
o Breakeven number of clients Note that this is automatically calculated
based on the average loan outstanding.
o Maximum number of clients to be reached by an AO (MABS recommends at
least 150 loans per AO)
Number of loans disbursed per month
o Minimum number of loans disbursed per AO (MABS recommends 20)
o Maximum number of loans disbursed per AO (MABS recommends 40)
Target Weights, in percentage, for each criteria (total of 100)
This section of the template allows the bank to change the weight of various
targets for computing incentives based on the priorities of the bank at any point
in time. Usually PAR is weighted the highest percentage of the incentive but
equally important is the level of outreach or loans disbursed per AO per month.

Portfolio at Risk weighting (MABS recommends 50%)

Number of Clients Outstanding weighting (MABS recommends 25%)
Number of Loans Disbursed weighting (MABS recommends 25%)

Maximum Incentive
o Incentive percentage of outstanding portfolio (MABS recommends 3-4%)
o Maximum incentive at minimum portfolio target Note that this is
automatically generated by the program based on the weights applied to
each of the incentive indicators

MFU Staff Incentive Template Guide

Step 6:
Analyze the
incentive table

Step 7:
Calculating the
distribution for all
staff involved with
the MFU

Once the break-even yield has been calculated and all the incentive
targets have been inputted, view worksheet 3 entitled Table. This is
the completed incentive table based on the specific MFU inputs.

Since the minimum portfolio requirement for AOs to begin receiving

incentives is based on the break-even yield, the management can be
sure that dispersing incentives to well-performing AOs will never be a
financial loss to the bank.

At the end of each month, the MF supervisor must look at the portfolios
of all the regularized account officers and calculate the total incentives
that they have earned. Once this data has been tabulated, move on to
sheet four (Step 7).

The total incentives calculated for each AO will be distributed (if the
management so desires) to all members of the MFU in an effort to show
appreciation for other staff support in maintaining a good performing
quality portfolio. Also, international MF best practices show that a
distribution to other staff besides AOs can increase a sense of
teamwork and cohesion amongst the MFU staff.

At the top of the Incentive Distribution worksheet, a request is made to

give weighting to each MFU staff to calculate the distribution. MABS
suggests that the Account Officer receive at least 60 to 75% of the
incentive because they have played the most direct role in the loan
dispersal, collection, and monitoring process.

The next step is to input each AOs name and input the amount of total
incentives they earned (according to the incentive table). Once this has
been completed, the worksheet will display how much each MFU staff
should receive.

For convenience, worksheet 4 can be printed and hung next to the

incentive table as a motivating factor for all staff to see the monetary
rewards of their hard work.

One way that some rural banks share the incentives amongst all staff is
to host a merienda or beginning-of-the-month celebration to reinforce
the importance that all staff contributed to the MFU performance.

MFU Staff Incentive Template Guide