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Innovations in Reducing Costs and Enhancing Productivity: Field Treasury Systems

Innovations in Reducing Costs and Enhancing Productivity: Field Treasury Systems

Topic :

Various factors determine the sustainability of a financial institution. These include pricing of the product, costs of funds, administrative overheads, loan losses or portfolio quality, and inflation. Each determinant has its own significance and can be controlled in different ways. Pricing of the services primarily reflects the long-term vision of the institution and is set at a level by the management. Cost of funds is usually driven by the sources of funds an MFI has, along with the internal fund management procedures. Administrative costs are driven by the operational structure and productivity of the program. Needless to say, credit risk determines the level of portfolio quality, which the institution carries in its balance sheet. The right balance between all the above factors is critical to making an MFI sustainable.

This paper is focused on internal factors that contribute to increased cost of funds and the innovations the Kashf Foundation in Pakistan employed to lower these costs. The internal factor that drives the cost of funds is the process through which an MFI oversees the fund management within the organization. An effective system of internal fund management ensures the lowest levels of idle funds at any given point in time, thus lowering the costs of overall funds employed in the system. The funds can be accumulated as idle funds in the system for various reasons, ranging from operational inefficiencies, like lags in disbursements, to inadequate procedures deployed by the MFI.

The case study of Kashf Foundation traces the varying decisions that were taken over a number of years with regard to fund management and describes the outcomes and lessons learned. It may be helpful to other institutions to read this and see what conclusions they can draw for their own financial management methods.

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