“How much more expensive is a village banking program when extra education is added?” This is the business case question most often asked of practitioners of fully integrated Credit with Education—the “unified” type of the three integration types presented in post # 64. My colleagues, Ellen Vor der Bruegge, Joan Dickey and I offered an answer specific to the Freedom from Hunger version of Credit with Education, in a paper that did a cost-accounting analysis for four of our partners’ programs. Much of the following is excerpted from that 1999 paper.
In the “linked” and “parallel” types of integration, this question about costs is much easier to answer because the financial and non-financial services are segregated by staffing and management structures into separate cost centers. In contrast, where a Credit with Education implementer employs the same field agent, riding the same motorcycle, supervised by the same program coordinator, delivering both the financial and educational services to groups of clients, there is only one integrated cost center per geographic service area. Moreover, the same senior managers and the same external technical assistance providers are serving both the financial and educational objectives of the organization. There is total integration, explicitly to minimize costs.
Nonetheless, we did a cost accounting analysis to tease out, as best we could, the “marginal costs” of offering health and business education that were additional to the costs of offering the financial services through village banks of rural women. To do this, we assumed that the education component is not the primary reason for establishment of Credit with Education. The principal reason for the incurring of the expenses is the provision of credit and savings services. If the financial services were canceled, the education service would cease to be provided to the village banks. But if the education component were canceled, the credit and savings services to the village banks could continue alone. As such, the basic costs of Credit with Education are assumed to be incurred for running the credit and savings services. Only the directly identifiable marginal or “extra” costs of providing education for health, nutrition, family planning, better business development and self-confidence development are classified as “extra education” costs.
Up-front costs of research and development of the service-delivery design and for start-up of new Credit with Education programs are considered sunk costs; there was no expectation that Freedom from Hunger or its partner organizations would recover those expenses over time. Therefore, these up-front costs are not included in the calculation of the cost of either credit/savings or education. We considered only the recurrent, annual costs that must be factored into any calculation of financial self-sufficiency. However, we did include the international technical assistance costs to Freedom from Hunger for annual or more frequent visits to the implementing partner for troubleshooting and upgrades once the Credit with Education program of the partner was up and running (i.e., start-up costs of technical assistance and training were not included, only the recurrent costs).
The Credit with Education strategy includes four types of education (which are all delivered through “learning sessions,” one session in the course of each regular meeting): village bank management, health/nutrition/family planning, better business development and self-confidence development. The first topic, village bank management, is considered a normal part of responsible implementation of a village banking program and is not included in the calculation of the cost of “extra education.” The “extra” education that would not be offered in a credit/savings-only program includes the three other topics listed above. The calculations of the costs of extra education cover the time and material support allocated to training, implementation, monitoring, reporting and supervision of these educational services delivered by the field agents and their coordinators and local directors or trainers.
The classic method for implementing village banking services depends on active participation by the village bank members. They are expected to manage the individual and group accounting functions, the assessment and determination of loan applications, the meeting procedures and the solution/decision-making process for dealing with problems and issues that arise in the normal functioning of their village bank. Village bank formation starts with five training sessions of three hours each to prepare the clients to assume their important responsibilities. The members then start their village bank with its first loan from the partner organization and actively manage their village bank during the subsequent series of regular meetings, with the help of the visiting field agent.
Preparation and support of group members to manage these responsibilities is a fundamental aspect of the village banking implementation method. Field agents are specifically trained to facilitate member identification of problems, formulation of options to solve these problems, choices from the options, and motivation to implement the chosen options. The same facilitation skills are used by the field agents to implement both the credit/savings and the non-credit/savings learning sessions offered by Credit with Education. The facilitation training for field agents serves both purposes with no extra cost due to the “extra education.”
The education, or learning session, is delivered in a 30-minute segment of each regular village bank meeting. The field agent facilitates the session using the same skills necessary for establishing and supporting members’ self-management of their village bank. For this reason, the preparation of the field agent to serve as the facilitator of the “extra education” learning sessions only requires training on the content of the sessions, for example diarrhea management and prevention or business activity feasibility assessment and selection. The training for content and practice of the delivery techniques are included in the extra costs of delivering this extra service.
The learning sessions facilitated by the field agents on each topic are parts of a topic education module developed by Freedom from Hunger and adapted for local use (considered part of the start-up costs). There is no cost to the local organization to develop the basic education modules.
These extra education sessions are a permanent part of the services delivered. However, as the skills of the members grow to self-manage their village banks, the direct contact with the field agent decreases and concurrently the volume of education offered declines. At this point, the recommended frequency of visits by the field agent to each village bank in his or her portfolio is monthly.
“Extra Education” does not increase the duration of the meetings enough to reduce the number of meetings that can be attended by a field agent each week. The major factors affecting this variable are the dispersion of the local population, and therefore the village banks, and the means/routes of travel between village banks and from the field agent’s home base. Freedom from Hunger staff tell me that village banking program managers have said that eliminating the education sessions would not realistically allow them to add more meetings to the field agents’ schedules for the day, because of the irreducible time for travel and facilitation of financial transactions at each meeting. The extra few minutes required by the extra education is not an important factor in determining the number of village banks visited in a regular week.
The Bottom Line?
For the four Credit with Education programs studied, integration of the “extra education” increased total program costs by 4.9 to 11.1 percent (the three-year average of costs attributable to “extra education” divided by the total program and external technical assistance costs without the “extra education” cost).
Before we assume that this “extra cost” is just a tax on the profit of the implementing service provider, consider this: If this highly integrated kind of Credit with Education service were to drop the extra educational objectives and become a single-purpose village banking program, no staff would be laid off, no vehicles would be sold, and the ratio of field staff to village banks served would remain the same, and therefore no costs would be reduced. Field staff still would have to be trained as facilitators, and their supervisors would be just as busy overseeing their work. Training would have fewer topics to cover. Management would have fewer data points to monitor and fewer objectives to pursue. External technical assistance could be more focused. But more than likely, this minimal slack would be taken up with more intensive training in the remaining topics, demand for more in-depth reporting and monitoring, and elaboration of scopes of work for external technical assistance. The old adage that “work expands to fill the time available” would certainly apply.
It is probable that more expenditure of time and material (= money) would lead to higher-quality services to poor clients. Both financial services and “extra education” would benefit from increased expenditure. However, a highly cost-conscious program makes a carefully balanced trade-off between quality and expenditure. Including “extra education” can either increase overall program expenditure or reduce expenditure on financial services in a “zero-sum” budget. Freedom from Hunger’s version of Credit with Education chooses the latter approach, because the expenditure diverted from financial services to “extra education” does not seem to significantly reduce the performance of the financial services, yet it seems to significantly increase the overall benefit of the program to its poor women clients. And this added benefit is thought by program leaders to enhance the recruitment and retention of clients even in the face of stiff competition.
If a village banking program is fully integrated with “extra education” from its start-up, the number and quality of field staff and vehicles can be the same, the number and quality of managers and trainers can be the same, and the number of person-days and quality of technical assistance can be the same. At least that is what Freedom from Hunger observes when it visits high-quality, single-purpose village banking programs. If so, then the costs of doing village banking with vs. without education can be roughly the same.
This is all well and good, but the trend is toward hybrid models of integration (see post # 64) that require specialized staff to provide a variety of non-financial services, not just the minimal approach to education developed for “classic” Credit with Education of the type just described. The next post examines the “extra costs” of a range of integrated microfinance-health providers.