What if the theoretical framework for microfinance could revolutionize performance measurement? This study uncovers how Gulu District’s microfinance institutions leverage Balanced Scorecard principles, revealing critical insights into their strengths and weaknesses that could reshape service delivery and operational success.
1.8 – The Conceptual Framework of the Research
The conceptual framework of the research is depicted in Figure 1. The dependent variable was drawn from the expected outcome variables such as effective processes, satisfied customers, satisfied shareholders, motivated & always prepared workforce, profitability, and sustainability of the MFIs. All these factors lead to an effective and efficient service delivery.
Effective processes arise when there are fast staff responses, knowledge sharing amongst staffs and established customer relation management to monitor the customers. Customers’ satisfaction, loyalty, and retention are signs of good performance outreach. Shareholders are satisfied when the MFI is profitable and sustainable. The workforce are motivated and are always prepared to work, due to available core competencies and skills, participatory innovations, appropriate available working tools and equipments, team work spirit, and appropriate policies and legal frameworks.
The independent variables were drawn from the basic MFI inputs such as the MFI infrastructure, the employees, customers, environment, internal processes, financial backing and shareholders. These variables were evaluated using the BSC.
The BSC perspectives were considered as the moderating or intervening variables. Each perspective used four selected performance metrics, which were then used in evaluating the independent variables, and consequently generating the dependent variables.
In learning, growth & innovations perspective, the performance measures used were:
- Training – Defined in terms of the proportion of staff receiving training and the total hours per employee of training provided.
- Innovations – Measures the capability of the organisation to develop new products, processes, and services to penetrate new markets and customer segments.
- Knowledge sharing – Accurate and timely information shared among the employees.
- Staff turnover – Measuring the rate at which staff leave or are terminated from employment.
In the internal business processes, the performance measures used were:
- Per unit costs – A measure of resources used in producing a unit of service. For example, cost per loan issued, and cost per member served by the MFI.
- Cycle time – Measure of the time taken for a process to be completed. This can be a key measure of customer satisfaction, as it indicates how much time people wait for a service to be completed. This may include; time to get service, time to process an invoice, time to process a loan application, time to complete a grievance process, etc.
- Response time – Measure of the amount of time taken to respond to a request for service. It is also a key measure of customer satisfaction, since it indicates how much “waiting or queue-time” customers wait for a service response.
- Backlog – Measures the amount of work in queue, waiting to be processed. For example, the number of loan applications waiting for processing.
In the customer perspective, the performance metrics used were:
- Coverage – Measure of the population served by the MFI, which included the number of men & women getting the financial services from the MFI.
- Accomplishment – Overall outcome or achievement of a program, including poverty reduction or improvement on household income or increased awareness of the services.
- Quality – The proportion of services provided without error or complaints. Quality of services may also be determined by, reliability, responsiveness, aesthetics, cleanliness, comfort, friendliness, communication, courtesy, competence, access, availability, and security (Duncan, 2003).
- Satisfaction – Customer satisfaction is measured by a pre-defined survey, based on customers’ comments on their satisfaction levels and the benefits they have attained.
In the financial perspective, the performance metrics used were:
- Profitability ratio – Measures the net income in relation to its balance sheet.
- Financial viability – The ability of an MFI to cover its costs with earned revenue, and not relying on donor funding to subsidize its operations.
- Portfolio quality ratios – Provide information on the percentage of non-earning assets, which in turn decrease the revenue and liquidity position of an MFI. For example, repayment rates, portfolio quality ratios and loan loss ratios.
- Leverage & capital adequacy – Leverage refers to the extent to which an MFI borrows money relative to its amount of equity. Capital adequacy refers to the amount of capital an MFI has relative to its assets. Capital adequacy relates to leverage in terms of the adequacy of the MFIs funding structure.
The MFI must have a mission, vision and strategy, which are translated using the BSC, into strategic objectives and strategic performance metrics. The strategic performance metrics for this study were carefully selected in order to produce actionable outputs, and realizable outcomes.
In the implementation of the BSC, the MFI inputs are continually assessed using actual outcomes obtained after the use of the BSC. Where there are weaknesses in performance, the performance metrics are modified accordingly.
Figure 1 – A Conceptual Framework for the Research
Independent Variables
Dependent Variables
Moderator Variables
Outcomes
Inputs
Balanced Scorecard
- Infrastructures
- Employees
- Customers
- Environment
- Financial
- Shareholders
- Internal processes
- Effective processes
- Satisfied Customers
- Satisfied Shareholders
- Motivated & always prepared workforce
- Profitability & Sustainability
Learning, Growth & Innovations
- Staff training
- Innovations
- Knowledge Sharing
- Staff Turnover
Internal Processes Perspective
- Per Unit Cost of resources
- Cycle time of processes
- Response time
- Reduction of work in queues
Financial Perspective
- Profitability
- Financial Viability
- Portfolio quality
- Leverage & Capital adequacy
Customer Perspective
- Outreach/Coverage
- Achievements of programs
- Quality of Service
- Customer Satisfaction
Ongoing learning & Feedback
Source: Researcher’s view on the MFI Conceptual Framework related to the current research topic
1.9 – Justification of the Study
The demand for microfinance services is overwhelming, especially to the economically poor communities in our midst. Therefore, there is a need in providing effective and professional services to these communities, to improve on their economic status through small loans for income generating activities. In this regards, the study was carried out to determine the effectiveness, and efficiency in service delivery of the MFIs, using the multifaceted concept of the balanced scorecard.
Secondly, the study was justified, since it is a partial fulfilment of the requirements, for an award of a Master of Business Administration degree of Gulu University. Finally, the conclusions drawn from this research might guide policy makers, NGOs, and the MFIs, in decision-makings and in improving performance for effective and efficient service delivery.
1.10 – Limitation of the Study
One of the major limitation factors of this study was that, the study was conducted in a few selected MFIs from Gulu district, which were within the town centre, and might not be a correct representative of all the MFIs in the district. However, this was not intentional because, out of the estimated sample size of the MFIs of twelve (12), the researcher was able to get positive responses from only eight (8) MFIs.
Secondly, the four perspectives of the BSC are rather diversified, and considering the given period for the study, it was certainly not enough to cover each of the perspectives in details. On the other hand, the study could not pick one or two of the perspectives, and concentrate upon, since this would distort the true meaning of the BSC concept. In addition, the four perspectives of the BSC are linked in the Norton and Kaplan model (Nicholas & Thompson, 2006). Again, since each BSC perspective may have several performance metrics, the researcher selected four most critical performance metrics for each of the four perspectives.
Thirdly, the study was conducted using the employees, and customers of the selected MFIs, but getting responses from some of the respondents was difficult, since management of those MFIs restricted the number of respondents to either a few or none.
Frequently Asked Questions
What is the Balanced Scorecard framework in microfinance?
The Balanced Scorecard (BSC) framework is used to evaluate the performance of microfinance institutions by blending financial and non-financial metrics.
How do microfinance institutions measure customer satisfaction?
Customer satisfaction is measured by a pre-defined survey, based on customers’ comments on their satisfaction levels and the benefits they have attained.
What performance metrics are used in the learning, growth, and innovation perspective?
The performance measures used include training, innovations, knowledge sharing, and staff turnover.
What factors lead to effective service delivery in microfinance institutions?
Effective service delivery is influenced by effective processes, satisfied customers, satisfied shareholders, a motivated workforce, profitability, and sustainability of the MFIs.