a fresh approach in human capacity development - microfinance filein cooperation with bank indonesia...

In cooperation with Bank Indonesia and the Indonesian Ministry of Finance

A Fresh Approach in Human Capacity Development - The Establishment of a Certification System for Microfinance Managers in Indonesia

Publisher: Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) Gmbh

Promotion of Small Financial Institution (ProFI) Bank Indonesia Radius Prawiro Building, 2nd Floor Jl. MH. Thamrin No. 2 Jakarta 10110 / Indonesia T: +62 (0) 21 386 6384 F: +62 (0) 21 235 49156 E: [email protected] I: www.profi.or.id Author: Jan Kerer 1. edition Jakarta, 2007

New Ways in Human Capacity Building

ACKNOWLEDGEMENTS

This report on “A Fresh Approach in Human Capacity Building - The Establishment of a Certification System for Microfinance Managers in Indonesia” was commissioned by GTZ under the umbrella of the BI/Ministry of Finance/GTZ program “Promotion of Small Financial Institutions” (ProFI) to provide an insight for donors, governments and central banks as well as other interested parties into the establishment of a capacity building system in Indonesia and the lessons learned thereof. The author is grateful to Bapak Syahrul Bahroen (Head of the CERTIF institute) and his staff for the support with the training partner survey and all the information and support provided. Special thanks go to Ibu Libraliana Badilangoe (Head of the BPR Research and Regulation Division in BI) and her staff for providing data on the BPR industry and logistical assistance in carrying out the BPR survey. The author would like to thank Dr. Alfred Hannig and Dr. Michael Hamp from GTZ for their extensive guidance. Kind support was also given by Ibu Corina Marlina Mailoa, Ibu Evelyn Lindawati Jorisal, and Ibu Lia Wahnawati from the ProFI team. The author is also indebted to the many parties contacted during the write-up of this report. I would like to thank all contact persons and respondents who provided assistance and information. Notwithstanding these acknowledgements, the author retains full responsibility for this report.

New Ways in Human Capacity Building TABLE OF CONTENTS I EXECUTIVE SUMMARY ...............................................................................................................1

I.I Preface ..................................................................................................................................1 I.II Why Create a Certification System? .....................................................................................1 I.III How to Create a Certification System? .................................................................................2 I.IV The System Today ................................................................................................................3 I.V Lessons Learned and Main Recommendations....................................................................3 I.VI Certification as a new Mode of Service Delivery...................................................................4 I.VII Replication of the Model ........................................................................................................6

1 PURPOSE AND OUTLINE OF THE PAPER ................................................................................7 1.1 Background ...........................................................................................................................7 1.2 Structure of the Paper ...........................................................................................................7

2 CAPACITY BUILDING IN MICROFINANCE.................................................................................9 2.1 Critical Issues in Microfinance...............................................................................................9 2.2 Capacity Building as a Core Element of Technical Cooperation ........................................10 2.3 A New Paradigm in Capacity Building.................................................................................11 2.4 Why Establish a Certification System?................................................................................12

2.4.1 Systems, not Institutions .................................................................................................13 2.4.2 Market-driven Capacity Building .....................................................................................14 2.4.3 Role of the Private Sector ...............................................................................................14 2.4.4 Quality Assurance ...........................................................................................................15 2.4.5 Image and Perceptions ...................................................................................................15

3 THE ESTABLISHMENT OF THE CERTIFICATION SYSTEM FOR MICROFINANCE MANAGERS IN INDONESIA ...............................................................................................................16

3.1 Microfinance in Indonesia....................................................................................................16 3.1.1 Overview of the Sector....................................................................................................16 3.1.2 Challenges and Constraints ............................................................................................17

3.2 Prerequisites for the Approach in Indonesia .......................................................................18 3.2.1 Yogyakarta Communiqué and Beyond ...........................................................................18 3.2.2 Diverse and Developed Microfinance Industry ...............................................................20 3.2.3 Potential of the Training Market ......................................................................................20

3.3 The Establishment Process.................................................................................................21 3.3.1 History and Milestones....................................................................................................21

3.3.1.1 Strategy Development (September 1999 – June 2001) ...................................................... 21 3.3.1.2 The Pilot Phase (July 2001 – June 2004)........................................................................... 22 3.3.1.3 The Institutionalization Process (July 2004 – now) ............................................................. 26

3.3.2 Challenges and Hurdles to Overcome ............................................................................28 3.3.2.1 Conceptual Discussions ...................................................................................................... 28 3.3.2.2 Sustainability ....................................................................................................................... 29 3.3.2.3 Training Material Development ........................................................................................... 30

3.3.3 Conducive Factors ..........................................................................................................30 3.3.3.1 Strong Policy Support.......................................................................................................... 30 3.3.3.2 Technical Cooperation Partnership ..................................................................................... 31 3.3.3.3 Conducive Legal Framework for Certification...................................................................... 32

3.4 The System Today ..............................................................................................................33 3.4.1 Legal Structure, Ownership and Governance.................................................................33

3.4.1.1 Statutes ............................................................................................................................... 33 3.4.1.2 Governance......................................................................................................................... 34

3.4.2 Mission and Vision, Goals and Objectives......................................................................35 3.4.2.1 Mission Statement............................................................................................................... 35 3.4.2.2 Vision .................................................................................................................................. 35


3.4.2.3 Goals and Objectives .......................................................................................................... 35 3.4.3 Management and Organizational Structure ....................................................................35

3.4.3.1 Organizational Set-up ......................................................................................................... 35 3.4.3.2 Processes ........................................................................................................................... 37

3.4.4 Service Delivery ..............................................................................................................38 3.4.4.1 Training Course Development............................................................................................. 39 3.4.4.2 Training Partner Support ..................................................................................................... 40 3.4.4.3 Examination and Certification.............................................................................................. 41

3.4.5 Financials ........................................................................................................................45 3.4.6 SWOT Analysis ...............................................................................................................47

3.4.6.1 Strengths............................................................................................................................. 48 3.4.6.2 Weaknesses........................................................................................................................ 49 3.4.6.3 Opportunities....................................................................................................................... 50 3.4.6.4 Threats ................................................................................................................................ 50

3.5 The Way Forward for the Certification System ...................................................................51 3.5.1 The System as Work in Progress ...................................................................................51 3.5.2 Expansion and Deepening..............................................................................................52

3.5.2.1 Vertical Deepening.............................................................................................................. 52 3.5.2.2 Horizontal Expansion .......................................................................................................... 52

3.6 Lessons Learned and Main Recommendations..................................................................53 4 CERTIFICATION AS A NEW MODE OF SERVICE DELIVERY OF MODERN DEVELOPMENT COOPERATION ...................................................................................................................................55

4.1 Modes of Delivery................................................................................................................55 4.1.1 The Right Tool Mix ..........................................................................................................55 4.1.2 ’Outsourcing’ of Technical Assistance ............................................................................57

4.2 Focus on Results.................................................................................................................58 4.2.1 Scope of Results’ Assessment .......................................................................................60 4.2.2 Results at the MFI Customer Level.................................................................................60 4.2.3 Results at the MFI Level .................................................................................................61

4.2.3.1 Personal Level .................................................................................................................... 62 4.2.3.2 Institutional Level ................................................................................................................ 63 4.2.3.3 Environment and Clients ..................................................................................................... 66 4.2.3.4 Business Relations.............................................................................................................. 66

4.2.4 Results at the Training Industry Level.............................................................................67 4.2.5 Results at the Financial Sector Level..............................................................................68 4.2.6 Results at the Policy Level ..............................................................................................71

4.3 Increased Efficiency ............................................................................................................71 5 REPLICATION OF THE MODEL.................................................................................................73

5.1 Where and When does Replication make Sense?..............................................................73 5.2 How to Make Use of Lessons Learned? .............................................................................75

6 BIBLIOGRAPHY..........................................................................................................................76 7 ANNEXES....................................................................................................................................78

New Ways in Human Capacity Building BOXES, FIGURES AND TABLES Figure 1: Financial System Approach ...................................................................................10 Box 1: Capacity Development in the 2005 Paris Declaration................................................11 Figure 2: Reasons for Establishing the CERTIF System ......................................................13 Table 1: Overview of Relevant Types of MFI ........................................................................17 Box 2: Yogyakarta Communiqué 2004 .................................................................................18 Table 2: Evolution of the Training Program 2002 - 2003 ......................................................24 Figure 3: Components of the Training Modules....................................................................25 Table 3: Stakeholder Matrix ..................................................................................................28 Figure 4: Organizational Structure of CERTIF ......................................................................35 Figure 5: Service Delivery Structure .....................................................................................39 Table 4: CERTIF Training Materials Product Range.............................................................40 Table 5: ToT Conducted by CERTIF.....................................................................................41 Table 6: CERTIF Trainers and Training Providers................................................................41 Figure 6: CERTIF Examination Procedure............................................................................42 Figure 7: CERTIF Examination Process ...............................................................................43 Figure 8: CERTIF Exam Data Process .................................................................................44 Table 7: Number of People Certified until March 31, 2006 ...................................................44 Table 8: 2005 Balance Sheet of CERTIF..............................................................................45 Table 9: 2005 Profit & Loss Statement of CERTIF ...............................................................46 Table 10: CERTIF Fee Structure ..........................................................................................47 Table 11: CERTIF SWOT Analysis .......................................................................................47 Table 12: Do’s and Don’ts.....................................................................................................53 Figure 9: Modes of Delivery of Modern Development Cooperation ......................................58 Figure 10: Results and Impact Model ...................................................................................59 Figure 11: Results Chain of CERTIF ....................................................................................59 Figure 12: Relevance of Modules by CERTIF Participants...................................................62 Figure 13: Number of Concrete Improvements after CERTIF...............................................63 Figure 14: ROA for BPR with Certified Director ....................................................................65 Figure 15: NPL for BPR with Certified Director .....................................................................66 Table 13: Assessment of the CERTIF System by Training Partners ....................................67 Table 14: BPR Linkage Banking Partners ............................................................................69 Table 15: Assessment of the CERTIF System by Linkage Banks ........................................69 Figure 16: Flowchart for the Establishment Process of a Certification System.....................74

New Ways in Human Capacity Building ABBREVIATIONS ADB Asian Development Bank ALMA Asset and Liabilities Management Asbisindo Syariah Banking Association BI Bank Indonesia (Central Bank of Indonesia) BKD Badan Kredit Desa (Village Credit Board) BMT Baitul Maal wat Tamwil (Arabic term for house & asset financing: type of

microfinance institution) bn billion BNSP Badan Nasional Sertifikasi Profesi (National Professional Certification

Board) BPD Bank Pembangunan Daerah (Regional Development Bank) BPR Bank Perkreditan Rakyat (People’s Credit Bank, often translated as “Rural

Bank“) BPRS BPR Syariah BRI Bank Rakyat Indonesia (People’s Bank of Indonesia) CAMEL Capital, Assets, Management, Earnings, Liquidity CGAP Consultative Group to Assist the Poor DSP Danamon Simpan Pinjam (Microcredit Unit of Bank Danamon) € Euro FoMFI Discussion Forum on Microfinance Policy Issues GTZ German Agency for Technical Cooperation HRD Human Resource Development IBI Institut Bankir Indonesia (Indonesian Banking Institute) ICT Information Communication Technology ILO International Labor Organization KSP Koperasi Simpan Pinjam (Savings and Credit Cooperative) LDKP Lembaga Dana Kredit Pedesaan (Rural Fund & Credit Institution) LKM Lembaga Keuangan Mikro (Microfinance Institution) LPD Lembaga Perkreditan Desa (Village Credit Institution) LPPI Lembaga Pengembangan Perbankan Indonesia (Institute for the

Development of the Banking Sector in Indonesia) LSP Lembaga Sertifikasi Profesi (Professional Certification Institute) MDG Millennium Development Goal MFI Microfinance Institution(s) MIS Management Information System MoCSME Ministry of Cooperatives, Small- and Medium-Sized Enterprises MoF Ministry of Finance MoU Memorandum of Understanding NGO Non-Governmental Organization NPL Non-performing Loans NTF National Task Force Perbarindo Perhimpunan Bank Perkreditan Rakyat Indonesia: BPR association Perbamida Perhimpunan Bank Perkreditan Rakyat Milik Pemerintah Daerah:

association of state-owned BPR PNM Permodalan Nasional Madani: state-owned finance company ProFI Promotion of Small Financial Institutions RIGP / P4K Rural Income Generation Project / Proyek Peningkatan Pendapatan Petani

Nelayan Kecil (Project to Increase the Income of Small Fishermen and


Farmers), cooperation of Bank Rakyat Indonesia (BRI) and the Ministry of Agriculture

ROA Return on Assets R&S Regulation & Supervision Rp Indonesian Rupiah SME Small- and Medium-Sized Enterprises SWOT Strengths, Weaknesses, Opportunities, Threats ToT Training of Trainers UPK Unit Pengelola Kredit US-$ United States Dollar USP Unique Selling Proposition YPPI Yayasan Pengembangan Perbankan Indonesia (Foundation for the

Development of the Banking Sector in Indonesia) Note: Throughout this report the Indonesian address Bapak or Ibu is used instead of Mr. or Ms.


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I Executive summary

I.I Preface This is a report on the capacity building system developed for the microfinance industry in Indonesia. Even though a number of issues raised hereafter are specific to the microfinance sector and/or the Indonesian context, this report is written against the background of the question of how to efficiently and effectively design donor interventions in the area of capacity building. Many of the questions raised and recommendations given hold true in most sectors and countries where development partners work.

I.II Why Create a Certification System? Limited human capacity and the lack of sufficiently and adequately trained personnel in microfinance institutions remain key constraints in the area of microfinance. The joint Bank Indonesia (The Central Bank of Indonesia, hereinafter referred to as BI), Ministry of Finance and GTZ (German Agency for Technical Cooperation) Program “Promotion of Small Financial Institutions” (ProFI) have –- as part of their efforts to support the development of a sound and viable microfinance sector in Indonesia – established a capacity building scheme, the CERTIF system. The main feature of this system is its focus on skills and competencies needed by microfinance managers to efficiently and profitably run their respective institutions. The capacity building system is centered on a certification institute, the CERTIF Institute, which is in charge of developing skills and competency catalogues, setting standards for training materials and delivery, and carrying out examinations to assess the capacity of microfinance managers. Training development is based on market demand and training programs are carried out by the training providers competing in the free market. The main goals of this capacity building system are:

1. To increase the capacity of microfinance managers, 2. To create a strong training provider market which is customer-oriented and delivers

high-quality training, and 3. To safeguard the integrity of the capacity building system through an independent

and sustainable quality assurance center, i.e. the CERTIF Institute. The reasons for creating a capacity building system centered on certification and quality assurance are manifold:

1. The changed view of development cooperation in general and capacity building in particular: the new consensus in development cooperation which has emerged in the past decades is to put the partner governments and local stakeholders in the driver’s seat. The CERTIF system and Institute was developed through a joint effort by Indonesian stakeholders with support from GTZ at the request of the partners.

2. The evolution of the financial systems approach and the paradigm shift in microfinance: the ’microfinance revolution’ which has taken place since the 1980s has lead to the emergence of a new understanding on how the sector should evolve, namely market-based and -driven. Additionally, donor support strategies should be aimed at strengthening the microfinance system as a whole instead of assisting single institutions. The CERTIF system takes these considerations into account and provides for a broad range of training providers which offer the CERTIF training in the market.

3. The new emphasis on demand by and the needs of the beneficiaries: in order for training to be effective and useful for the beneficiaries, the specific skills and


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competencies needed by these users in their job routines have to be adequately reflected in the capacity building system. The CERTIF courses have been developed in close cooperation with practitioners and the CERTIF examinations assess whether participants have the competencies needed to efficiently and sustainably run their microfinance institutions.

4. The emergence of strong private sectors: history has shown that the participation of the private sector and the introduction of competitive elements in sectors can lead to efficiency gains and cost reductions for the beneficiaries. Therefore, the CERTIF system comprises a broad range of public and private players who all bring in know-how and knowledge specific to the program.

5. The new focus on quality assurance and consumer protection: beneficiaries as customers of training services have a right to access high quality training based on their specific needs. Through the introduction of a strong quality assurance element in the CERTIF system, customer protection is achieved.

6. The emergence of the information society: in competitive markets microfinance services providers need to present and demonstrate a professional and competent image. Through the introduction of the CERTIF certification, microfinance institutions (MFI) can now prove to both their customers and their business partners that they possess the skills and competencies needed to professionally run such institutions.

I.III How to Create a Certification System? The CERTIF system was developed over a timeframe of six years through a joint stakeholder effort by BI, the industry of People’s Credit Banks (BPR), and the financial sector training industry with support from the technical partner GTZ. The establishment of this system was helped by three favorable conditions:

1. A favorable political environment: Indonesian policymakers are increasingly recognizing the importance of establishing demand-driven and sustainable microfinance systems integrated into the financial sector and the economic development agenda. In particular the Central Bank has played a pivotal role in applying international best practices in the microfinance sector and has shifted from a developmental role to a promotional role.

2. A developed (and segmented) microfinance market: the Indonesian microfinance sector is characterized by a large number of microfinance services providers. Apart from the microfinance outlets of large commercial banks, thousands of small MFI are servicing a wide range of customer groups. One big drawback of such a fragmented sector with thousands of independent institutions was, that, before the establishment of CERTIF, there was no ’one-stop shop’ that was providing quality, demand-driven and cost-effective training in microfinance.

3. An established training provider market: at the time of the project’s inception a number of training providers existed catering to the microfinance sector. Two major shortcomings of the system were that a) the overall quality of training was low and varied between different providers, and b) training was mostly provided either by projects (with limited duration) or government institutions (unprofitable and, thus, unsustainable). Nevertheless, once the existing pool of training providers and the large number of potential clients could get support through the CERTIF system, it was deemed to have huge potential to develop sustainably.

From 2001 to 2005, the CERTIF system was created with assistance from GTZ which provided a comprehensive package of technical support for strategy development, curriculum and training material development, capacity building for material writers and


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trainers, institutionalization, and management support. This strategy required the provision of considerable financial and human resources. However, without a serious commitment over a period of time and the support at various stages of the project, the success of the CERTIF system would not have been possible. The strategy - to initially provide a comprehensive technical assistance package and to phase out support - later has proven to be an efficient and cost-effective system.

I.IV The System Today The CERTIF Institute was established in summer 2004 as a subsidiary of YPPI, a public institution founded to support the development of the banking sector. Its objectives are to build the capacity of and to set standards of skills and competence for the personnel of MFI in order to increase outreach and to assure the quality of services to the low-income communities throughout Indonesia. The highest organ of the institution is the supervisory board whose members are from the Central Bank, the microfinance industry, the training provider industry and the technical partner GTZ. Its three main services are:

1. The development of training courses and materials (NB. The provision of training is not a service provided by CERTIF institute but by a number of training institutes which have been accredited by CERTIF),

2. The support of training partners, i.e. the accredited training institutions providing the CERTIF training, and

3. The examination and certification of microfinance managers. All processes and procedures are highly standardized and carried out by competent and motivated staff members of the CERTIF Institute. CERTIF has - in a timeframe of one and a half years - managed to hold four nationwide examinations, train a total of 111 trainers, provide capacity building and other support to nine training institutions and oversee the roll-out of 60 training courses with a total of 1,543 people trained. By keeping its organizational structure lean and by constantly working on improving its processes and procedures, the institute has been able to generate a profit after taxes that totals €48,100. The CERTIF Institute today is a strong and effective institution: as the sole provider of microfinance certification in Indonesia it has a strong market position, a range of high-quality products, and committed and skilled staff. It has acquired an excellent reputation amongst all stakeholders, and has shown a solid financial performance. However, due to the short time since its inception a number of weaknesses remain which are currently being worked on. The Institute has the potential to further grow by expanding its product range to more types of MFI and by deepening its product range.

I.V Lessons Learned and Main Recommendations The successful establishment of the CERTIF capacity building system shows how to efficiently and effectively develop strategies to increase human capacity:

• Embed capacity building into a broader sector development strategy: Capacity building is but one, albeit very important, aspect in developing a sound microfinance sector. The impact of such a capacity building system for the sector can be further increased if this effort is coordinated with other support measures outlined in one comprehensive sector development strategy.

• Provide enough time for conceptual discussions: Particularly when developing a new approach as with the certification system, it is important that all stakeholders jointly


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develop the concept and buy-in. Equally important is the inclusion of a broad range of stakeholders, even those who during the start-up phase do not have a specific role in the institute but might have so later on.

• Leave opportunities open: The CERTIF system was started as a pilot project for rural banks only in order not to overload the system at the beginning. However, opening up the system to a broad range of microfinance providers has from the beginning been part of the concept.

• Do not be too comprehensive: It is more efficient to develop one product first and only expand when product development mechanisms have been established and local capacity has been built up.

• Ensure independence of the system: Probably the biggest asset (which can become a liability) of a certification institute is its reputation. Setting up an institute under the umbrella of a respected organization with a good track record in capacity building and with a certain degree of independence from both the regulator and the supervisor as well as the financial sector helps to build a good reputation. A well-defined governance structure with transparent procedures is important, too, but the key factor is the integrity of the personnel involved.

• Provide enough resources for institutional development: Technical issues such as training material development is the comparatively easy part vis-à-vis the institutionalization process. Substantial resources over a prolonged period of time are needed for institutional and organizational development.

• Do not neglect institutionalization for operational tasks: Due to the ambitious goals set by the central bank, the Institute had to provide most of the resources for rolling out training support and examinations. However, enough time and capacity should be made available simultaneously for fine-tuning the system and processes, and for introducing the necessary technical tools (e.g. test question database, MIS, etc.).

• Use ’smart’ subsidies: Financial support might be needed during the start-up phase in order to ensure the profitability of the system. This requires setting a clearly defined time frame in which support can also be gradually phased out.. Support should be directly offered to the beneficiaries of the system who can then choose at which training institute to take courses. By this means, market distortion is avoided.

I.VI Certification as a New Mode of Service Delivery Development cooperation has changed its face over the past decades and new concepts concerning partner relationship, sustainability, impact, and efficiency have evolved. The three main characteristics of modern development cooperation are:

1. New modes of delivery and partner diversification 2. Focus on results and impact 3. Efficiency

A certification scheme like CERTIF factors in these issues in a more systemic way compared to other, more traditional, capacity building approaches. A new mode of delivery implies interventions at the macro, meso and micro levels and a diversification in project approaches. Rather than supporting single institutions, e.g. a training provider, the creation of a competitive and efficient capacity building market is facilitated. Support comes in various forms ranging from policy advice to knowledge management. Elements include the following:

• Facilitation of change and development processes through establishing joint


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stakeholder forums and guiding discussions; • Policy advice on how to create a conducive framework for sector development and

the inclusion of capacity building as one integral element in these development strategies;

• Technical input on regulations dealing with human resource development (HRD); • Sharing of knowledge and training of key staff by international and/or national

experts on technical issues such as curricula and training material development; • Provision of direct management support through international and/or national

experts; • Technical input on organizational development through international and/or national

experts; • Provision of financial resources to cover start-up costs of systems and institutions,

including funding for the training of trainers (ToT); • Provision of smart subsidies to pay for training of the target group in order to support

the capacity building system and to prevent market distortion; • Supervision and guidance on strategic issues through membership of organs of

capacity building institutions; • Access to national and international knowledge networks and facilitation of linkages

to twinning partners. Only through such a comprehensive and diversified support package as applied in the case of CERTIF, was the successful establishment of the capacity building system made possible. Another piece in the puzzle was ’outsourcing’ technical assistance services from ProFI to the certification institute: CERTIF prepares and supports the participating training partners through the provision of ToT, logistics assistance, and various other consultancy inputs. This significantly reduces costs and frees resources of the technical assistance partner, while at the same time the local capacity for the provision of technical assistance is built up and provided at a fair market price. CERTIF is also a good example of the new understanding of modern development cooperation: the focus has shifted from ’quality at entry’ (input) increasingly towards ’quality at exit’ (results). Indicators for the success of the system are not how many training courses and examinations have been provided but the impact participation in the certification scheme has had on the performance of the participating managers and their MFI. Given the short time since CERTIF has come into existence a quantitative assessment of impacts has not yet shown any conclusive results, particularly concerning customer satisfaction and financial performance of the MFI. Qualitative results, however, show improvements on various levels:

1. MFI industry: a survey carried out for this report shows that managers who participated in the certification program felt their skills and competencies in microfinance management had significantly improved, which is confirmed by the many and far-reaching changes these managers made in their institutions after participating in CERTIF.

2. Training provider market: all nine training partners of CERTIF felt that being a CERTIF partner has contributed to an increase in their own capabilities and to an improvement of their service quality.

3. Financial sector: the main business partners of MFI, i.e. commercial banks, are well aware of the certification program and welcome this initiative. Thus, participation in the certification scheme boosts the image of an MFI with commercial banks, thereby increasing their chances of entering into a business relationship with the latter.

4. Policy: the establishment of CERTIF has clearly increased the awareness of


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policymakers of the importance of competency-based capacity building and increased support for HRD is already reflected in new Indonesian policy papers such as the proposed new microfinance policy.

The certification scheme is designed as a very lean organization and a major emphasis is placed on continuously increasing the efficiency of the system. The technical assistance partner GTZ made use of a mix of tools and support measures in order to keep costs low and to make best use of the resources available.

I.VII Replication of the Model Given the success of the Indonesian certification model the question of where and how to replicate this system arises. The three main favorable conditions identified for the CERTIF approach were:

1. A conducive political environment 2. A developed (and segmented) microfinance market 3. An established training provider market

These conditions are not necessarily prerequisites for establishing a certification system but are issues which have to be factored in and dealt with during the establishment process. Many lessons have been learned during the creation of the CERTIF system and a lot of knowledge on the ’dos and don’ts’ has been acquired by the people involved. When replicating the CERTIF system in other countries or sectors, the parties involved are invited to capitalize on these experiences and to make use of the many documents, processes and procedures developed for the Indonesian certification scheme for microfinance managers.


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1 Purpose and Outline of the Paper

1.1 Background Capacity development remains one of the core activities of technical cooperation. The recent stronger emphasis on impacts and efficiency in projects has led to the emergence of new paradigms in development cooperation in general and to the evolution of new concepts in the field of human resource and institutional development in particular. This paper presents one new approach in the area of capacity building, namely the introduction of a certification scheme (CERTIF). Based on the concrete example of the establishment of such a system for microfinance managers in Indonesia, this paper shows why such an approach has been chosen and what the advantages over more traditional approaches are, how such a system can be established and what the critical issues are, what the main features of the certification scheme are, and what lessons can be learned for replicating such a model in other countries and/or sectors. Even though the themes ‘microfinance’ and ‘Indonesia’ will naturally be prominent throughout the paper, replication of such an approach is neither limited to a specific sector nor to a particular country.

1.2 Structure of the Paper Section 2 Capacity Building in Microfinance gives an overview of critical issues in microfinance and how the perception of development cooperation in general and microfinance in particular has changed over the past decades. This is then further broken down to capacity building and the emergence of a new consensus regarding HRD. The background to and rationale of the establishment of the certification system are presented thereafter. Section 3 The Establishment of the Certification System for Microfinance Managers in Indonesia shows the past, present and future of the CERTIF system in Indonesia. First, an overview of the status of microfinance in Indonesia and the circumstances and prerequisites which led to the establishment of CERTIF is given. This is followed by a description of the establishment process, and its challenges and conducive factors. Thereafter, an analysis of the system today as well as an institutional assessment of CERTIF is presented and the way forward for the system is laid out. Lastly, lessons learned from the establishment process and an overview of ‘do’s and don’ts’ are given. Section 4 shows that even though the CERTIF system was designed for microfinance managers, this certification approach is also an interesting option for development cooperation projects or programs in other sectors as well. The main features of modern development cooperation are a) results-based planning, implementation and monitoring, b) more flexible use of resources, and c) orientation towards more efficiency. In this chapter an indicative impact assessment of the CERTIF system and a cost-benefit (or better cost-impact) analysis is presented. After showing the benefits of the certification system in the previous section, Section 5


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Replication of the Model gives answers on where and how to replicate this model.


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2 Capacity Building in Microfinance

2.1 Critical Issues in Microfinance With millions of poor and low-income households relying on access to sustainable financial services, microfinance has become a vital part of the economy of developing countries. Recent studies and reports have shown how microfinance substantially contributes to achieving the Millennium Development Goals in the areas of poverty reduction (MDG 1), education (MDG 2), gender equality (MDG 3) as well as health related issues (MDG 4-6).1 But despite millions of people already being served by microfinance institutions (MFI) and despite impressive growth rates in microfinance customers worldwide of between 25 and 30 percent annually over the past five years, 400 to 500 million households still lack access to sustainable microfinance services.2 The reasons for the persisting demand-supply gap, particularly at the village level, are manifold and are found on all three levels of the financial sector: micro, meso and macro. On the macro level hindrances consist of a lack of comprehensive microfinance strategies, enabling legal environments and regulatory frameworks. A limited capacity of supervisory authorities represents another challenge in safeguarding small depositors’ money and the stability of the financial system. On the meso level it is necessary to create a diverse financial and non-financial infrastructure comprising technical service and training providers, rating agencies and auditors, professional networks and associations, credit bureaus, transfer and payment system operators, and IT providers to support MFI in providing their services more efficiently and sustainably. On the micro level the major problem is weak human and institutional capacity. As retail institutions represent the ’backbone’ of any financial system, the key bottleneck in extending financial services to poor and low-income households is the shortage of strong institutions and managers.3 The following figure shows the three levels of microfinance systems and the various stakeholders.

1 Examples include GTZ “Der Beitrag von Mikrofinanzierung zur Erreichung der Millennium Development Goals (MDGs) und des Aktionsprogramms Armut 2015 - Die Erfahrungen der GTZ”, Eschborn, 2005 and UNCDF “Microfinance and the Millennium Development Goals – A reader’s guide to the Millennium Project Reports and other UN Documents”, 2005 2 UNCDF “Basic Facts About Microfinance” (online) http://www.uncdf.org/english/microfinance/facts.php 3 (CGAP 2004), p. 11


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Figure 1: Financial System Approach

Source: (Helms 2006), own figure

2.2 Capacity Building as a Core Element of Technical Cooperation The international community has played – and should continue to play – an important role in promoting microfinance: each year donors spend an estimated US$ 800 million - 1 billion (bn) per year on microfinance.4 Due to the overwhelming importance of institutional development in the framework of microfinance development, the CGAP Pink Book recommends that donors should focus their support on building capacity.5 Over the past two decades microfinance has evolved from government targeted and subsidized credit schemes to a market-based and -driven provision of a range of financial services to poor and low-income households. This development, known as the paradigm shift, not only changed the view on microfinance itself but also on the roles the various stakeholders should play. Governments and central banks increasingly see support for capacity building as their key tasks rather than provision of cheap credit.

4 (CGAP 2004), p. vii 5 (CGAP 2004), p. 1

Clients


11

Not only the provision of microfinance services but also the provision of technical assistance through the international community has to become more demand-driven and customer-oriented.6 Donors should fully commit themselves to support the development agenda of their recipients, i.e. the partner governments. Capacity building in the area of microfinance has become a high priority on the development agenda of governments and central banks. Therefore, services of technical assistance providers should meet these demands. Only through such customer orientation and the provision of tailor-made solutions, can partner governments be convinced to provide funding to buy services from technical assistance providers on a consultancy basis in the future. From a donor’s perspective it can be strategically important to support capacity building efforts. The provision of services in the area of institutional and human resource development has in the past often proved to be a good ’door-opener’ for donors. Once a donor has proven its ability to develop effective capacity building systems and has established itself as a knowledge center in the area of microfinance, partner governments often also demand support from the respective donor in other areas, such as the development of microfinance strategies and policies. This allows the donor to apply a systematic approach in developing the microfinance sector and ensures that support for capacity building will not become an isolated intervention but rather an integral part of a comprehensive microfinance development strategy.7

2.3 A New Paradigm in Capacity Building For decades, starting from the 1950s and 1960s, capacity building was viewed mainly as a technical process, involving the simple transfer of knowledge, development and roll-out of training courses by international experts. Most of these capacity building efforts have not been successful in the long run due to the lack of ownership and non-sustainability of projects once donor support was withdrawn. In the 1980s, awareness of the importance of countries’ capacities to manage their own development agenda grew and, thus, the ownership of the change processes. Only then was it recognized that capacity building would be ineffective as long as it was not part of an endogenous process of change, getting its main impulse from within the system. In the 1990s new initiatives, such as the Comprehensive Development Framework (1998), the PRSP initiative (1999) and the Rome (2003) and Paris (2005) Declarations on Aid Alignment and Harmonization have consolidated this emphasis on increasing country ownership and leadership.8 This paradigm shift is reflected in the fact that towards the second half of the 1990s, GTZ has no longer considered its interventions as its ’own’ projects but rather as support of its partners’ projects. Box 1: Capacity Development in the 2005 Paris Declaration

6 “Customers” (of technical assistance services) here refers to governments, central banks and other financial sector stakeholders of partner countries. Later in the document the term “customers” (of training systems) will refer to microfinance practitioners. 7 As will be shown later this has been the case for the certification system CERTIF. Through the strong position held by ProFI in the microfinance sector, both the establishment of the capacity building system CERTIF and the development of an Indonesian microfinance strategy and policy were carried out simultaneously and were beneficial to each other. 8 (OECD/DAC 2006), p. 11ff


12

The capacity to plan, manage, implement, and account for results of policies and programs, is crucial for achieving development objectives from analysis and dialogue through implementation, monitoring and evaluation. Capacity development is the responsibility of partner countries with donors playing a supportive role. It needs not only to be based on sound technical analysis, but also to be responsive to the broader social, political and economic environment, including the need to strengthen human resources. Partner countries commit themselves to: Integrating specific capacity strengthening objectives in national development strategies and pursuing their implementation through country-led capacity development strategies where needed. Donors commit themselves to: Aligning their analytic and financial support with their partners’ capacity development objectives and strategies, making effective use of existing capacities and harmonizing support for capacity development accordingly. Source: 2005 Paris Declaration on Aid Effectiveness This new consensus was also reflected in the guidelines for the microfinance movement, the CGAP Pink Book: “Whatever the intervention, donor support should emphasize local ownership to guarantee the continued existence of the service after donor support phases out. Donor support at the meso-level should aim to extend these services to the microfinance sector, to include it in the mainstream rather than marginalize it.”9 Besides recognizing the importance of ownership of partner countries the focus of capacity building became broader, too. Capacity building was re-defined as the creation of an enabling environment with appropriate policy and legal frameworks, institutional development, including community participation (of women in particular), HRD and the strengthening of managerial systems while recognizing that capacity building is a long-term, continuing process in which all stakeholders participate.10 However, even though the new consensus lays more emphasis on creating an enabling policy environment for capacity building and establishing training systems, the approach of most donors up to now has been to establish or support selected training institutions or networks. This, possibly, leads to market distortion and unfair competition between donor-supported and unsupported training facilities. Therefore, the CGAP Pink Book recommends building markets for support services (rather than supporting single institutions).11

2.4 Why Establish a Certification System? Creating a certification system is a more complex and delicate process than just supporting single training providers and requires a comprehensive support strategy which binds substantial financial and personnel resources. The reasons such an approach makes sense are manifold:

1. The changed view on development cooperation in general and capacity building in particular,

2. The evolution of the financial systems approach and the paradigm shift in microfinance,

9 (CGAP 2004), p. 15 10 (IHE/UNDP 1991) 11 (CGAP 2004), p. 15


13

3. The new emphasis on demand by and the needs of beneficiaries, 4. The emergence of strong private sectors, 5. The new focus on quality assurance and consumer protection, and 6. The emergence of the information society.

The listed reasons are explained in more detail hereafter. Figure 2: Reasons for Establishing the CERTIF System

Source: own figure

2.4.1 Systems, not Institutions Capacity building is more than developing materials and a roll-out of classroom training. The challenge is to design a training management system that includes training needs assessment, design of training modules, organization of quality trainings, evaluation of trainings, and evaluation of training impact. The aim of such a system is to maintain the

The information society requires MFI to present a professional and competent

image

Quality assurance

leads to provision of high quality

training

Competitive capacity building

markets are created through participation of private sector

Needs of beneficiaries are better reflected in

demand driven capacity building

systems

Paradigm shift in microfinance

calls for a systemic approach

New perception in development

cooperation calls for

partners in the driver’s seat

CERTIF System


14

quality of training. Thus, one major task of technical cooperation is to design training management systems and to support their institutionalization.12

2.4.2 Market-driven Capacity Building Over the past decades a shift from donor-, i.e. supply-driven provision of training towards development of demand-oriented training systems has taken place. The new challenge is to create and/or support the development of market- and demand-driven capacity building systems with partner countries in the driver’s seat. Principles of good practice that facilitate such development include:

1. Training must respond to the client's demands rather than the demands of the donors, NGOs or other suppliers of training.

2. Training must address the clients’ immediate needs to ensure a high degree of relevance.

3. The supplier of the training must know his/her clientele and the training must be provided in a participatory manner.

4. Programs should charge fees for their services. Clients' willingness to pay is an indicator of the training’s relevance to real needs and demands.13

Microfinance managers and staff are the clients of the training providers, and their needs must be transformed into demands for services. However, demand must often be stimulated as target groups themselves do not necessarily recognize the needs that are identified by various service providers (or other stakeholders). This requires investment in marketing, a demonstration of the benefits and opportunities that the training will help to gain and access, maintaining proximity to the clients in order to respond to their emerging needs, and linking training to tangible benefits.14 The key issues are to identify the skills and competencies needed by practitioners for carrying out strategic planning as well as day-to-day management of their microfinance institutions and to design training materials and methodologies which help the people working in microfinance to acquire the skills and competencies needed. The main methodological difference from traditional forms of capacity building is the recognition that maybe not all people working in the same area of expertise need the same training but rather that they all need the same (minimal) skills and competencies for carrying out their businesses. This implies that a market- and demand-driven capacity building system can be developed around the setting of standards for an industry, market-oriented provision of training by competing providers which support professionals in acquiring the skills and competencies needed, and certification of microfinance managers and/or staff through a specialized testing facility (certification institute).

2.4.3 Role of the Private Sector The goal of modern capacity building efforts must be to create a competitive capacity building market where both private and public sector institutions provide high-quality and cost-efficient training services. Of importance here is private sector participation: the new consensus on capacity building puts a major emphasis on the role of the private sector as

12 These considerations were the starting point for the design of the capacity building component of the ProFI program: See GTZ (ProFI project document) “ProFI Baseline Survey – Bank Perkreditan Rakyat (BPR) in East Java, Bali & Nusa Tenggara Barat”, Denpasar, 2000, p. 150 13 (ILO 2002), p. 15f 14 (ILO 2002), p. 15


15

an agent of change as well as a major source of funding.15 Thus, when designing training and capacity building systems, alliances and/or business relations with a broad range of strong and capable private sector partners are desirable.

2.4.4 Quality Assurance Since the paradigm shift in capacity building from supply-driven towards demand-driven provision of training, the aspect of ‘consumer protection’ has increasingly become an issue. Consumers in this case are the learners who need to be protected from the risks of misinformation, low-quality training provision, and qualifications of limited validity. Strong approval, quality assurance and accreditation systems should guarantee that learners are safeguarded from dubious providers and are acquiring qualifications that are meaningful and valid. Qualifications should be readable and transparent in order to increase their international and national validity and portability and to ease the work of recognition arrangements and credential evaluators. By developing principles of good practice and their own standards of professional quality, quality assurance and accreditation agencies should guarantee that they themselves are trustworthy, that dubious accreditors can be identified and that professional standards of provision and qualifications are safeguarded. 16

2.4.5 Image and Perceptions In times of increased transparency and easier access to information, players in highly competitive markets – such as the microfinance sector in Indonesia – have to be very aware of the image they project: consumers of professional services want to have full confidence in the knowledge and skills of qualified professionals. Therefore, the professions and the skilled segments of the economy largely depend on trustworthy and high-level qualifications. Opportunities to earn low quality credentials may in the long run affect the trust put in professional qualifications and in the quality of professional labor as such.17 Image is important in the relations with both the general public and business partners. The general public and, thus, current and prospective customers make their choice on where to deposit their money and where to get their loans from based on their perception of the many competing microfinance institutions. In the Indonesian context where small microfinance service providers have to compete with microfinance units of large commercial banks (which, in general, have a good reputation among microfinance clients) perceptions by the public are of utmost importance for their survival. They have to acquire the image of professionally run institutions with qualified management and staff.18 Image is also important for the relationships microfinance institutions have with other financial and non-financial services providers. Refinancing arrangements between microfinance institutions and commercial banks or other financial institutions largely depend on whether the management of MFI is assessed as competent and knowledgeable during the due diligence process. The same holds true for strategic partnerships and alliances with providers of other financial or non-financial services.

15 (OECD/DAC 2006), p. 18f 16 (OECD 2003), p. 6f 17 (OECD 2003), p. 6 18 Of course, management and staff of microfinance institutions need to not only acquire the image of being professional, but also the skills and competencies that make them professional. Image thus becomes just a marketing tool to show the public the competency of the institution.


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3 The Establishment of the Certification System for Microfinance Managers in Indonesia

3.1 Microfinance in Indonesia

3.1.1 Overview of the Sector The microfinance sector in Indonesia is made up of a large variety of microfinance services providers, both public and private. Additionally, microfinance is provided through a number of government programs, both targeted credit programs and poverty alleviation efforts with microfinance components (and both usually subsidized). Considerable financial resources were provided by the Indonesian government in the past decades, often in the form of grants, revolving funds, heavily subsidized credit and semi-commercial credit. Unfortunately, many of these government interventions have failed or have not been sustainable.19 There are 70 programs for poverty alleviation under various Ministries, many with a micro-credit component, with funds allocated in 2002 of US$1.8 bn. Another 16 programs address poverty under a more long-term strategy of the government, mostly supported by donors, and these projects account for a total budget of US$332 million. Many of these programs have wastefully expended resources on the creation of institutional arrangements that have no long term future without continued project or budgetary funds.20 The Government of Indonesia and BI have recognized the shortcomings of these policies and have vowed to establish a more market-based and sustainable microfinance system.21 Institutional microfinance22 is provided by a broad range of institutions: microfinance units of commercial banks (BRI, DSP, etc.), BPR, financial cooperatives (USP, KSP, BMT, credit unions), and several types of, mainly, village-based microfinance institutions (LDKP, BKD, UPK). Furthermore, the state-owned pawnshop Perum Pegadaian serves more than 15 million customers with more than US$ 700 million in disbursed loans.23

19 An exception here is the RIGP/P4K project (BRI/Ministry of Agriculture). 20 (ADB 2003), p. 36ff 21 See Paragraph 3.2.1 later in this report 22 The term is used in distinction from program microfinance, i.e. most of the government programs mentioned. 23 For a map of the Indonesian microfinance landscape see GTZ-ProFI website: http://www.profi.or.id


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Table 1: Overview of Relevant Types of MFI

Deposits Loan Portfolio MFI Family

Date Number of units

Number of members Accounts

in ,000 Amount in

Rp bn Accounts

in ,000 Amount in

Rp bn BRI Units 06/2000 3,694 - 24,883 18,055 2,627 6,713 12/2004 4,046 - 30,924 29,990 3,311 21,335 BPR 03/2000 2,427 - 4,837 2,252 2,197 2,632 06/2005 2,062 - 6,330 12,280 2,740 14,005 LDKP 06/2000 1,603 - 871 342 500 337 2005 - BKD 06/2000 4,566 - 600 24 726 148 06/2005 4,482 - 466 51 395 210 KSP 12/2000 1,186 517,771 n.a. 186 n.a. n.a. 12/2004 1,596 689,318 551 326 884 1,157 USP 12/2000 37,224 10,957,394 n.a. 1,586 n.a. n.a. 12/2004 36,435 11,298,529 5,015 1,452 10,440 13,466 Credit 12/1999 1,105 251,989 n.a 118 n.a. 134 Unions 12/2004 1,041 479,531 n.a. 339 n.a. 958 BMT 11/2000 879 - 175 46 73 37 (reporting) 2005 1,100 - - - - 836 UPKK 2000 - - - - - - (reporting) 2005 842 - - - n.a. 272 UPKD 2000 - - - - - - (NTB/ Bengkulu)

2005 598 - n.a. 3 n.a. 96

Source: (Holloh and Prins 2006)

3.1.2 Challenges and Constraints Despite the impressive number of microfinance institutions and customers served, a large demand-supply gap persists, particularly at the village level. This can be attributed to four major constraints. Firstly, no clear vision and strategy for microfinance development has been endorsed by the Indonesian government so far. This leads to uncoordinated support efforts by various government and private sector institutions, resulting in market distortions and inefficiencies in the microfinance industry. Cheap government funds are channeled through project units or institutions crowding out public or private investment in sustainable MFI servicing the village economy. Secondly, the current legal framework is too restrictive and does not allow for sustainable growth of, in particular, village-based microfinance institutions. Many MFI operate without having obtained a proper legal status which both reduces their chances of accessing refinancing funds and prevents the savings-based growth of these institutions. Thirdly, apart from BPR, the various microfinance families referred to above are not subject to adequate regulation and supervision and are not part of any deposit protection scheme. This poses a risk to the stability of the microfinance sector and to their customers. And last but not least, over the past decades not enough attention has been paid to human capacity building and institutional development, particularly in


18

government programs.24 This has resulted in governance problems and unsound management of microfinance institutions.25

3.2 Prerequisites for the Approach in Indonesia

3.2.1 Yogyakarta Communiqué and Beyond Indonesia has come a long way in microfinance: from the establishment of the first village banks over a hundred years ago and the subsequent development of a broad microfinance landscape, to the successful transformation of BRI into the largest provider of microfinance services worldwide during the 1980s, and to the Asian financial crisis in 1997/98. This longstanding and, at times, troubled history has led to the emergence of numerous government efforts to promote microfinance. While a number of programs are still supply-led and/or targeted, Indonesian policymakers are more and more recognizing the importance of establishing demand-driven and sustainable microfinance systems integrated into the financial sector and the economic development agenda. In particular BI has redefined its role, as Governor Bapak Burhanuddin Abdullah pointed out on the occasion of the High-Level Policy Meeting on Microfinance and Rural Finance in Asia, Yogyakarta, from February 26 to 28, 2004: “In line with the enactment of the new central bank law, the role of BI in supporting microfinance has shifted from a developmental role to a promotional role.”26 Also at this meeting, new regional guidelines for micro and rural finance development in Asia were agreed upon and published as “The Yogyakarta Communiqué 2004”. Box 2: Yogyakarta Communiqué 2004

“The Yogyakarta Communiqué 2004”

We, the Governors and Deputy Governors of Central Banks and high-level officials from Ministries of Finance and other authorities from 10 Asian countries present at the High-Level Policy Meeting on “Microfinance and Rural Finance in Asia” held in Yogyakarta from the 26th to 28th February 2004 identified appropriate strategies for Central Banks and Governments to promote Microfinance and Rural Finance. Recognizing ● the co-existence of the conventional and the new paradigm in Microfinance and Rural Finance in many countries along a continuum between these different approaches, ● the longstanding and successful experience with commercially-oriented Microfinance and Rural Finance in Asia, already providing millions of low-income households with financial services on a sustainable basis, ● the shortcomings of interventionist, directed and subsidized credit policies, which are very costly, do not generally achieve significant outreach and compromise the sustainability of poverty alleviation efforts,

24 For example, of the 2003 Budget Allocations for four major government programs which amounted to Rp3 bn, only 4.7% was spent on capacity building while 18% alone was spent on administration costs. 25 (GTZ 2005a), p. 11f 26 (Bank Indonesia/GTZ 2004), Annex 7


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● the imperative to focus our attention on poverty alleviation in order to meet the challenges arising from the Millennium Development Goals, ● the importance of market-based, effective Microfinance and Rural Finance Institutions for poverty alleviation, ● the need for a conducive regulatory framework for competitive Microfinance and Rural Finance Institutions to realize their potential outreach and impact on low income households to effectively reduce poverty, ● the desirability of financially self-sufficient provision of institutional capacity building in the long run, while in the short and medium run smart subsidies may be necessary, We, the Governors and Deputy Governors of Central Banks and high-level officials from Ministries of Finance and other authorities, will integrate Microfinance and Rural Finance as a powerful tool for poverty alleviation in development strategies of our countries and commit ourselves to apply in present and future actions the following principles of good practice: 1. We will work towards a conducive environment for commercially-oriented Microfinance and Rural Finance. The key issues to be addressed comprise liberalizing interest rates and enabling deposit-taking as well as non-collateralized lending to facilitate institutional sustainability, deregulating market entry barriers to foster competition, and providing appropriate mechanisms for the exit of unsuccessful institutions. 2. We will work towards putting in place an appropriate regulatory and supervisory framework to enable an effective oversight on activities of microfinance institutions, in ensuring the adoption of best practices for microfinance and stability of the financial system. 3. We will promote cost-effective and efficient ways to regulate and supervise the Microfinance and Rural Finance sector to protect small savers and create a level playing field among deposit taking institutions. 4. We will strive for market orientation. We are aware that interest rate subsidies endanger institutional sustainability and undermine deposit mobilization. Only if markets clearly fail, temporary subsidies may be justified. Subsidies must be implemented transparently and phased out gradually. 5. We will assume an active promotional role in Human Resource Development and Institutional Capacity building. 6. We will extend the regional dialogue and co-operation among our countries to disseminate our rich and diverse experience with market-oriented and sustainable Microfinance and Rural Finance institutions, which are integrated in the formal financial sectors and serve large numbers of low-income households in Asia. 7. We will continue the dialogue commenced in Yogyakarta and discuss the critical issues presented today and the principles of good practice agreed upon today with stakeholders in our countries. All participants welcome the excellent co-operation achieved at the High-Level Policy Meeting in Yogyakarta, in particular the progress of practical work in the countries represented and the constructive discussions that have taken place and the Central Bank and people of Indonesia for their gracious hospitality as well as GTZ and the German Government for their professional support and generous co- funding of the event.

Declared in Yogyakarta, 27th February 2004 Source: (BI/GTZ 2004)


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During the UN Year of Microcredit 2005 and the corresponding Indonesian Year of Microfinance, this new regional policy consensus on microfinance was geared to the Indonesian context. A draft policy and strategy for microfinance development in Indonesia has been elaborated which shifts the focus of government support from the provision of targeted and/or subsidized credit towards the creation of a conducive environment for viable microfinance, the improvement of regulation and supervision, and the creation and support of institutional development and capacity building. While the policy recognizes the need for smart subsidies in the short and medium term, it calls for financially self-sufficient provision of human resource development in the long run.27

3.2.2 Diverse and Developed Microfinance Industry The large number of microfinance service providers has resulted in stiff competition for this customer segment, particularly on the islands of Java and Bali where population density is the highest.28 BPR or village owned microfinance institutions such as Lembaga Perkreditan Desa (LPD) in Bali are facing competition from microfinance units of large commercial banks, primarily BRI, the largest provider of microfinance services with 30.9 million savings and 3.3 million credit customers. These commercial banks have a number of advantages vis-à-vis small microfinance institutions: economies of scale (this includes lower per-unit costs for the development of training courses), easier access to various sources of finance, a better image as they are more professionally managed and a safe haven for deposits. A broad variety of microfinance providers - as it is found in Indonesia - boasts one major advantage: it allows for the servicing of a wide range of customer groups through the closest and most suitable financial institution. However, one big drawback of such a fragmented sector with thousands of independent institutions is that there is no ‘one-stop shop’ that can provide high-quality, demand-driven and cost-effective training in microfinance.29 Thus, in 1999 the BI/MoF/GTZ program ProFI initiated deliberations on how to overcome this constraint. These stakeholder discussions resulted in the design of a capacity building component under the umbrella of ProFI and the establishment of the training and certification system CERTIF starting in 2002.30

3.2.3 Potential of the Training Market There is clearly a demand-supply gap for the provision of high-quality training for staff of microfinance institutions in Indonesia. Looking at the demand side, tens of thousands of microfinance institutions employing hundreds of thousands of practitioners are in need of capacity building and training. This training market is far too large to be covered by any single training institution, particularly when taking into consideration the weak condition of most training providers. Additionally, most training providers cater to a certain family of microfinance institutions only, e.g. the training centers of the BPR association (Perbarindo) service BPR almost exclusively. In 1999, ProFI conducted an assessment of the existing microfinance capacity building infrastructure: back then, training was provided by the Micro Credit Project (MCP) of BI, the

27 See draft “National Policy and Strategy for Microfinance Development”, (online) http://www.profi.or.id/engl/downloads/Microfinance%20Policy%20and%20Strategy%20Indonesia.pdf 28 Based on data from the Central Statistics Body (BPS) population density in Java was 919 people

per km2 and in Bali 559 people per km2. See (online) http://www.bps.go.id 29 (ADB 2003), p. 41 30 For more on information on the program see (online) www.profi.or.id


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Project Linking Self-Help Groups with Banks (PHBK), the Financial Institutions Development Project (FID), Regional Development Banks (BPD) and regional governments, BI branch offices, Perbarindo Regional Center in East Java, Bank Rakyat Indonesia (BRI) (for their own microfinance units only), Ukabima Jakarta, the Indonesian Bankers’ Institute (IBI)31, the Tazkia Institute Jakarta, and the Kertiawan Practice of Banking & Finance Course.32 Not included in this list are the training programs provided for the numerous government microfinance projects by the respective line ministries. Two major shortcomings of the system were that a) the quality of training was low and varied between different providers, and b) training was mostly provided either by projects (with limited duration) or government institutions (unprofitable and, thus, unsustainable). Both constraints were thought to be addressed through the establishment of the CERTIF system: the first shortcoming by developing high-quality training materials and methodologies and establishing a quality assurance centre (the CERTIF institute), and the second constraint by institutionalizing project and/or government training providers, by supporting existing or potential training providers in their institutional development and by creating a demand-driven and competitive training market.

3.3 The Establishment Process

3.3.1 History and Milestones

3.3.1.1 Strategy Development (September 1999 – June 2001) The establishment of the national certification system CERTIF is a direct outcome of the joint BI/MoF/GTZ program ProFI.33 The starting point for the development of CERTIF was the recognition that the low quality of human resources is one of the core problems, if not the main one, of many MFI. BPR were chosen as the core intermediaries, since the BPR industry already had an impressive outreach through its more than 2,000 institutions. The BPR sector shows a large growth potential if a number of key constraints (such as lack of capacity) are tackled. A large majority of BPR employees lacked the necessary skills and competencies to efficiently run a microfinance institution. This could partly be attributed to the fact that almost half of the directors and most of the other staff had no banking experience before they joined the BPR.34 In September 1999, a mission on defining key elements of a future training infrastructure concluded that demand for BPR training was high as was the awareness of BPR directors on the positive impact of training on business development. The latter was of particular importance as BPR were already increasingly facing competition from commercial banks and informal financial institutions. Lawmakers and the regulatory and supervisory authority in charge of BPR, BI, also recognized the need for HRD by increasing professional requirements for BPR staff.35 31 IBI was during the establishment process split up into YPPI as the holding company and its subsidiary LPPI as the training provider 32 (GTZ/Bankakademie 2000), Annex 6 33 As primary target groups of ProFI were BPR and LPD, the certification system was, as a first step, developed for staff of these institutions. However, expansion of the system to other segments of the microfinance industry at a later stage was part of the plans from the beginning. 34 (Holloh 2000), p. 149 35 See Banking Law no.10 from 1998 which amended the Banking Law no.7 of1992


22

A strategy was defined to introduce a national BPR certification scheme that would ensure standard levels of skills, knowledge, and practical experience. During a pilot phase the scheme would be introduced to BPR directors in East Java and Bali, and at a later stage would be replicated in the rest of the country. The certificates would be developed as a professional qualification rather than an academic degree. Participation in the certification scheme was planned to be voluntary which would put the BPR association Perbarindo in the driver’s seat to set their own industry standards in accordance with BI regulations.36 A training needs assessment was carried out which identified demand from various categories of BPR personnel: managers, clerical staff, owners, and supervisors. Besides functional areas, like ALMA, credit analysis, internal control, etc, training needs were, in particular, identified for strategic and management processes, e.g. MIS, business planning, HRD, professional ethics and a code of conduct. Apart from providing technical and management skills training, improving soft skills such as service culture, customer care and business attitude were considered equally important.37 Material development was designed to be based on both national and international existing materials which could be adapted to the BPR context. Implementation would be decentralized as much as possible with both training material development and ToT largely being carried out through existing institutions with good track records. The system was planned to make use of existing infrastructure and training providers after they had been accredited by a Standards Board (serving as the highest authority in the system). The Standards Board would be established under the umbrella of Perbarindo. IBI and ProFI would be additional members and BI an observer. The defined tasks of the standards board were to:

• Issue skills and competence catalogues • Approve training materials • Accredit trainers and training institutions • Define examination standards • Approve examination boards • Define requirements for re-training/refresher courses38

3.3.1.2 The Pilot Phase (July 2001 - June 2004) In July 2001, the outline of the pilot project concerning the establishment of the certification system was prepared. The four main results produced during this initial phase were:

1. Sensitization of stakeholders for the need of a standardized training and certification system

2. Development of a concept for the Standards Board39 3. Identification and accreditation of regional training institutions and trainers 4. Development of a viable strategy to finance the training system40

Due to lengthy administrative procedures, implementation was delayed and the pilot project was not officially launched until September 2002. However, in November 2001 the first ToT

36 (GTZ/Bankakademie 2000), p. 3ff 37 (GTZ/Bankakademie 2000), p. 25f and Annex 7 38 (GTZ/Bankakademie 2000), p. 3f and Annex 7 39 Development of curricula and training materials was defined as one activity area herein. 40 (GTZ/Bankakademie 2001)


23

on interactive learning methods as well as in various technical areas had already been carried out and a pool of highly skilled trainers developed. On September 12, 2002, a national workshop on BPR Training Certification was held. Participants came from BI, the BPR industry, the training industry, and GTZ. The main recommendations from this workshop were:

1. A National Task Force (NTF) would be established from which the Standards Board was to emerge with BI as the chair.

2. A Circular Letter would be issued by BI requiring BPRs to reserve 5% of personnel expenditure on training.

3. For an initial phase BI would provide financial support to participants of training courses. While smart subsidies in the start-up phase through BI were deemed to be acceptable, BPRs should increasingly finance operational costs as the training certification system needed to become sustainable in the medium-term.

BI quickly followed up on the second recommendation and issued regulation 5/14/PBI/2003 in May 2003 which required all BPR to spend 3% (in 2004) and 5% (every year thereafter) of their personnel costs on staff training. In November 2002 the NTF was established as the national-level ruling entity for the implementation of the project ’BPR Training Certification System Development’. The mandate of the NTF was to define roles and functions of a (certification) Standards Board to be established later. The NTF consisted of ten members: two from the Directorate of BPR Supervision (DPBPR), one from the Directorate of Syariah Banking (then Bureau Bank Syariah), two from IBI, one each from Perbarindo at the national level and the regional chapters in East Java and Bali, and two from GTZ. The NTF had decision making power for the following areas:

1. Membership composition, meeting procedures and frequency, and voting rights 2. Approval of work plans for the pilot project 3. Formulation of mission statements, specific mandates, and budget compositions 4. Definition of certificate target group(s) 5. Formulation of the certification structure 6. Approval of identified modules, their topics and specific training materials 7. Approval of training methods 8. Definition of trainer accreditation requirements, and, subsequently, approval of

accredited candidates 9. Approval of regional examination board composition 10. Approval of examination questions 11. Issuance of certificates 12. Development and implementation of a quality assurance system 13. Development and approval of costing and pricing models aimed at creating a

sustainable certification system The 1st NTF meeting was convened on November 19, 2002 in Jakarta. A major emphasis was put on creating a pool of qualified and motivated accredited trainers.41 The pilot project was administered from Malang by a small team consisting of an international expert and team leader, one national expert, support staff and a team of five (later eight) core writers and trainers. These attended the ’Pre-Core Team Preparation for 41 The former BI Governor, Hon. Syahril Sabirin, related the failure of a previous certification scheme for commercial banks and blamed it on the absence of a well-established pool of accredited trainers.


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ToT’ workshop, from December 10 to 21, 2002, where training methodologies and material development skills were elaborated. The NTF assigned to the core trainer team the following tasks42:

1. Develop together with international short-term experts a selection and accreditation system for local trainers;

2. Carry out the train-the-trainer program of local trainers; 3. Develop jointly with the pool of local trainers the training design for the core

curriculum; 4. Develop jointly with the pool of local trainers the training materials for the core

curriculum; 5. Develop jointly with the pool of local trainers quality assurance systems for capturing

participants' and trainers’ feedback; 6. Develop exams jointly with the pool of local trainers; 7. Provide coaching and backstopping support to the pool of local trainers; 8. Jointly with the pool of local trainers, carry out the first cycle of training modules on a

pilot basis; 9. Participate in training courses of local trainers as observers.43

During the workshop in December 2002 the group of potential core team members developed a draft curriculum of 14 modules covering all aspects needed for managing a microfinance institution. During the 3rd NTF Meeting in Bandung on February 14, 2003, the scale of the training program was significantly reduced. It was decided to develop two training programs, one comprising of 27 days and one of 20 days. The latter program would focus on directors of BPR with experience in that position while the former would target senior officers preparing for directors’ positions. The following table summarizes the evolution of the training program. Table 2: Evolution of the Training Program 2002 - 2003

October 2002 December 2002 February 2003

Senior Officers Directors

12 modules 14 modules 14 modules 9 modules44

n/d 41.5 days 27 days 20 days

n/d 332 sessions at 60 min.

217 sessions at 45 min.

160 sessions at 45 min.

n/d 19,920 min. 9,765 min. 7,200 min. Source: (GTZ/Bankakademie 2002)

42 The team was still called Pre-Core Team. 43 (GTZ/Bankakademie 2002), p. 5 44 During the 8th NTF Meeting held on January 8, 2004 in Malang, the inclusion of an additional module on “Best Practices in Microfinance” was agreed upon. The training program for BPR Directors now comprises ten modules which are delivered during a 20-day course which lasts for 120 hours.


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During a workshop on training material development from February 18 to 21, 2003, the basic procedures for developing training manuals were defined. The strategy would be to use a three-step approach:

1. Firstly, skills and competency catalogues that defined the learning objectives for each module were developed.

2. Secondly, the outlines for the modules were written: these included definitions, an overview of training material (examples, exercises, group work), and text descriptions.

3. Thirdly, the session guides, the respective training materials used (including transparencies and handouts) and a set of additional checklists and questionnaires were prepared.

This three-step approach was chosen in order to allow for multiple quality checks whilst taking into account the still limited capacity of the writers’ and trainers’ pool at that time. It was already clear that this approach would be fairly time-consuming, particularly as substantial backstopping and technical input would be required using this approach. Unfortunately this support was mainly provided in English while training materials were, of course, developed in Indonesian. This led to redundancies and the translation process proved to be lengthy. Figure 3: Components of the Training Modules

Training Module

Training Material as Part of Training Module

Session Guide

Checklists for Logistics++ Participants‘ List

+ Evaluation Questionnaire

+ ...

Training Manual Source: (GTZ/Bankakademie 2002)


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The bulk of the training materials were developed in 2003. Finalization of the training modules, however, took until mid 2004. Finalization here means that training materials were fit to be delivered to the target groups. It is understood that continuous updating of materials based on feedback from participants as well as the inclusion of new developments in microfinance are core processes of any training/certification system. This is one major reason why institutionalization of such a system is of the utmost importance. Otherwise, as with many other donor interventions, the end of the pilot project would also mean that no further updating of training materials is carried out. The training course development process was lengthier than expected as the goal to provide high-quality training materials made it necessary to go through a number of revisions performed by the different stakeholders. Bankakademie conducted an assessment in November 2003 which concluded that substantial improvements to the training course still needed to be made. After a final review conducted by GTZ in spring 2004 the training materials were finally deemed to be of high quality and state of the art.

3.3.1.3 The Institutionalization Process (July 2004 – date of writing) During the implementation of the pilot project in East Java and Bali, besides the development of the training materials, necessary steps for the envisaged institutionalization of the certification system were taken. As the certification institution would be the only provider of certification in the microfinance sector, a for-profit legal form such as a company with limited liabilities was found to be an inappropriate legal form given the monopolistic position of such an institution. Thus, the two options for the institutionalization discussed were both not-for-profit, namely a foundation, or an association. The option to establish an association with participation of all relevant stakeholders was not pursued as BI cannot, due to Central Bank legislation, directly participate in the equity of such an institution. Furthermore, as an association is not a legal body recognized in Indonesian law, CERTIF could not have entered into binding legal arrangements with other institutions. At the 9th NTF Meeting held in Surabaya on April 28, 2004, it was agreed to institutionalize CERTIF under the umbrella of Yayasan Pengembangan Perbankan Indonesia (YPPI) - Foundation for the Development of the Banking Sector in Indonesia. The institute would have the status of a lembaga (institution), which according to Indonesian legislation is not a legally recognized entity but rather an informal organization. Thus, in order to guarantee CERTIF’s independence from its founding institution YPPI, clear stipulations in its statutes and other relevant documents were made concerning CERTIF’s autonomy in organizational and management matters. The main reasons for choosing this institutional set-up were:

1. Inclusive financial sector approach: by including microfinance training in the commercial banking training system, a clear signal on the status of microfinance as an integral part of the overall financial sector is set.

2. Independence: YPPI has an excellent reputation in the banking sector as an independent research and training facility for the banking community. Independence is aimed at safeguarding the independence of CERTIF so that neither the supervisor, BI, nor the industry itself can interfere in business decisions exceeding the powers


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assigned to them in the statutes.45 Most importantly, a certification institution must have the authority to set quality standards without interference from any side.46

3. Reputation: YPPI has a good track record as a professionally managed institution providing high-quality services to its customers in the banking community. For a newly established institution like CERTIF, being associated with such an organization is highly advantageous.

4. Finance: founding a new institution requires considerable start-up investment and, maybe, the covering of financial losses in the first year(s) of operation. YPPI was able to provide sufficient initial capital (Rp 50 million) and take on the responsibilities associated with establishing a new venture.

The inauguration of the new CERTIF institute and system took place simultaneously in Jakarta and Malang on July 12, 2004. In his opening speech the Governor of BI, Burhanuddin Abdullah, elaborated on the importance of the BPR industry for the Indonesian economy and its role in the financial sector. “The professional certification program for rural banks is part of the national banking policy set out in the Indonesian Banking Architecture (API). The program is aimed at building the capacity and institutional strength of rural banks, which in turn will improve the competence and professionalism of bankers in their management of these institutions,” explained the Governor.47 Following the opening ceremony the 1st training course for BPR directors was held in Malang. While the CERTIF certification system was being developed, the Ministry of Manpower and Transmigration developed new policies on capacity building and human resource development which took into account WTO stipulations on the liberalization of cross-border trade in services (mode 2) as well as on the temporary movement of individual service suppliers (mode 4).48 The respective law, Act No. 13 of 2003 concerning Manpower, was promulgated in March 2003. The law includes stipulations on the creation of a national certification system. Article 18 provides for the establishment of one certification institute per industry to be accredited by one national certification authority. On April 7, 2005, CERTIF was awarded the status of a Professional Certification Institution (Lembaga Sertifikasi Profesi – LSP).49 LSP CERTIF was one of the first institutions in Indonesia to obtain such a license. In August 2004 the Indonesian government issued Regulation No. 23 of 2004 concerning the National Body for Professional Certification (Badan Nasional Sertifikasi Profesi – BNSP) which transferred responsibilities formerly held by the Ministry of Manpower and Transmigration (most importantly the approval of the skills and competency catalogue prepared by the respective sector institutions) to the newly established BNSP. On May 11, 2006, BNSP licensed CERTIF with decision KEP-20/BNSP/V/2006 as the professional certification institute for MFI (LSP LKM CERTIF).

45 Bank Indonesia and BPR industry representatives are both members of the supervisory board and can, by this means, participate in the strategic management of the institution. However, all operational matters are handled solely by CERTIF management. 46 For this purpose the CERTIF institute has set up quality assurance mechanisms and established organs such as the Supervisory Board and the National Curriculum Committee (NCC). 47 Bank Indonesia press release No. 6/82/BGub/Humas from July 12, 2004 48 Interview held with Dr. Endang Sulistyaningsih, Head of the Center for the Administration of International Cooperation, Ministry of Manpower and Transmigration, in Jakarta on April 4, 2006. 49 Decree from the Ministry of Manpower and Transmigration KEP-77/MEN/IV/2005


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3.3.2 Challenges and Hurdles to Overcome

3.3.2.1 Conceptual Discussions From the very beginning, the development process included all relevant stakeholders. This is essential when trying to establish a sustainable and institutionalized capacity building system. However, this also requires balancing out the interests of all parties involved, namely, in the case of CERTIF, BI, the new owner YPPI, the BPR industry represented by Perbarindo and the training providers (mainly Perbarindo subsidiaries carrying out training programs and YPPI/IBI). Perbarindo in particular faced a number of internal and external conflicts of interest during the establishment process: as the representative of the BPR industry they strived to keep training course fees low. At the same time, as the main provider of the training they had to ensure that these fees would cover their own costs. Understandably, Perbarindo would have preferred to have been the only provider of the training and so far it has also managed to keep entrance barriers for other training providers high. This position has at times led to tensions between Perbarindo and other prospective training providers such as LPPI, PNM and MercyCorps. Table 3: Stakeholder Matrix

Role Internal conflict of interest

External conflicts of interest

BI Regulator and supervisor of the BPR industry

Changed role of the central bank creates uncertainty amongst BI staff on their role

-

Perbarindo BPR representation and service provider

The need to keep training costs low for their members conflicts with the profit goals of their own training institutes

With YPPI concerning course costs; With YPPI concerning ownership of CERTIF; With YPPI and other training providers concerning competition

YPPI Supporter of the banking industry and owner of the CERTIF institute

- With Perbarindo concerning course costs, ownership and competition

GTZ Development partner - - Source: own table BI in its role as regulator and supervisor of rural banks requires key actors within BPR to pass a ’Fit and Proper’ test in order to assess these individuals’ suitability for guiding and/or managing their respective banks. The ’Fit and Proper‘ test regulations apply to:

1. Proposed Controlling Shareholders and Candidate Managers of Rural Banks 2. Controlling Shareholders and Managers of Rural Banks 3. Executive Officers of Rural Banks, if indications exist that the parties concerned have

a role in formulating policies and operational activities that affect the business of the rural bank.50

50 Bank Indonesia Regulation No. 6/23/PBI/2004 concerning the Fit and Proper Test for Rural Banks, enacted on August 9, 2004


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The ’Fit and Proper’ test for BPR managers assesses the integrity, competence and financial reputation of the candidates. During the establishment process it was discussed at length whether CERTIF would replace the ’Fit and Proper’ test, be a component of it or be complementary to it. Additionally, a decision had to be taken as to whether to make participation compulsory in training programs or only in examinations. It was finally agreed that certification would become mandatory for all BPR directors without replacing the ‘Fit and Proper’ test. The rationale behind this decision is that CERTIF itself has been established as the capacity building system promoting increased professionalism within the BPR industry through standardization and benchmarking, while the BI test aims at safeguarding the integrity of the system and customer protection. For the first four examinations, all candidates with a minimum of two years experience as a director of a ’sound’ BPR (based on BI rating) were allowed to directly participate in the examinations while all other candidates had to participate in the training first. The former group was deemed to have already demonstrated the possession of the skills and competencies needed to successfully run a microfinance institution. In this instance, CERTIF is merely a tool to certify their capabilities to the outside world and to provide benchmarking for other directors. For the majority of BPR directors, CERTIF was designed to raise their awareness of the skills and competencies needed in their profession and to provide them with high quality training programs through which they can acquire these capabilities. At the 13th Supervisory Board meeting on April 17, 2006, the decision was made to prescribe participation in the training for all directors. Unfortunately, this somehow undermines the whole CERTIF system, the purpose of which is to guarantee that all directors possess the skills and competencies needed to successfully run their institution, not that all directors participate in training. Thus, the new requirement does not take into account the vast differences in human capacity between the many BPR: quite a number of directors from sound BPR have acquired - either through formal training or through experience - the skills and competencies needed to provide good financial services to their customers. Requiring these able and knowledgeable directors to participate in training only negatively affects their financial situation as the training will not increase their skills beyond the level they have already reached.

3.3.2.2 Sustainability Closely linked to the questions discussed above on the set-up of the system was the challenge to design a financially viable business model. The issue here is the sustainability of the certification system as a whole, not of the CERTIF institute alone: the certification institute needs to cover not only operational expenses but also costs for improving existing and developing new products, while training providers need to generate profits from their CERTIF training activities. It is equally important, however, to keep the financial burden for the target group as low as possible. For Perbarindo in particular these discussions created a conflict of interest: on the one hand they are the advocates of the BPR industry and on the other hand they own most CERTIF training partners and deliver CERTIF trainings. Thus, keeping the training and certification costs low for BPR directors could possibly turn provision of CERTIF training into an unprofitable business for Perbarindo itself. In many stakeholder discussion rounds, the interests of CERTIF and its owner YPPI, BI and


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Perbarindo could be balanced out and a financing model developed which benefits all parties involved. The following two-step strategy for tackling the long-term sustainability issue was developed:

1. By making certification mandatory for all BPR directors and the training mandatory for a majority of them, a captive target market of more than 4,000 managers was created. BI Regulation No. 6/22/PBI/2004 concerning Rural Banks, Article 64 (2), stipulates that at least one member of the Board of Directors shall be certified no later than December 31, 2006, and that the remaining members of the Board of Directors shall be certified no later than December 31, 2008. As of December 31, 2005, BPR numbered 2,009 and had two directors each. This gave the newly established institute a sufficiently large number of customers to set up the system and to expand its business in a sustainable way.

2. The organizational structure of the CERTIF institute is kept as lean as possible. During the first months after its establishment, management support and continuous organizational development (OD) input through ProFI helped to keep expenses low. CERTIF management has also introduced its ’Triple E and E’ policy which focuses on efficiency gains.51

3.3.2.3 Training Material Development Development of training materials took more than one and a half years before completion (September 2002 to May 2004). To some extent, this lengthy process was part of the strategy as it allowed the continuous build up of the capacity of local training material writers. During this time a core team of twelve writers was trained and further supported by ProFI. Two members of the core team are now in managerial positions of the CERTIF Institute. Other core team members continue to work as resource staff for CERTIF or as trainers within the CERTIF system. Some have managed to use the skills acquired from CERTIF to develop new non-CERTIF training courses. Thus, one outcome of the strategy applied is to have established a pool of local training material writers which continues to benefit the Indonesian microfinance industry. A clear weakness of the development process was to have had backstopping and technical input provided mainly in English. This together with the various built in feedback rounds required the translation of training materials from Indonesian to English and vice versa many times. This occasionally led to confusion as at certain moments more than one version of the materials existed resulting in loss of information and delays in the development process. One lesson learned here, is to have in place clear procedures for the writing of training materials, feedback rounds and quality assurance before starting the development process.

3.3.3 Conducive Factors

3.3.3.1 Strong Policy Support BI has long played an important role in promoting sustainable and market-oriented microfinance in Indonesia and has – as such - gained the respect of the international and, particularly, the Asian microfinance community. As one of the co-authors of the Yogyakarta Communiqué 2004, BI has taken on the challenge to implement the policy recommendations given therein. They have assumed an active promotional role in HRD and 51 “Triple E and E” stands for: Effective, Efficient, Excellent, and Equal.


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institutional capacity building by supporting the establishment of the CERTIF system both technically and financially. During the strategy development and pilot project phase substantial technical input was provided by BI staff and logistical support has been provided both by BI headquarters in Jakarta and staff from regional branches in the pilot provinces of East Java and Bali. BI has been chairing the NTF and is now presiding over the Supervisory Board of CERTIF. In particular in establishing a conducive regulatory framework for HRD and the certification system, BI has, naturally, taken the lead. Besides its technical advice and guidance, they have also financially supported the CERTIF system through smart subsidies. These subsidies are ’smart’ as they are provided to the BPR directly rather than to CERTIF or a single training provider. BPR directors are free to choose where to get their CERTIF training from and this means distortions in the training provider market are avoided. BI has vowed to contribute 50% of the training course cost for one director per BPR.52 By applying this policy BI recognizes the desirability of financially self-sufficient provision of institutional capacity building in the longer term, while providing smart subsidies in the short and medium term in order to allow for the certifications system to be set up. The provision of subsidies ends in 2006 when at least one director of each BPR is certified. BI’s support was crucial in the establishment process as only they had the regulatory authority, the technical know-how and human capacity as well as the financial resources needed to support the creation of this certification system.

3.3.3.2 Technical Cooperation Partnership The strong partnership in the field of microfinance between BI and GTZ was established in 1989. Through the implementation of a very successful linkage program between self-help groups and banks, mutual trust and respect had been built up. In particular when developing such a new approach as this certification system a longstanding relationship helps to overcome difficult situations which invariably arise during such an establishment process. The strong BI-GTZ partnership was key in guiding the consensus building processes. Of great importance for the success was the approach taken: after the conceptual input for the strategy development, ProFI provided substantial technical input during the pilot phase in East Java and Bali from September 2002 to June 2004 and during the “hot” months after the inauguration of the CERTIF Institute in July 2004. The pilot project was executed through two experts and support staff based in Malang. Guidance and extensive technical input was provided from the ProFI team based in Jakarta. During the first six months after the inception of CERTIF one ProFI member was seconded to the Institute to provide hands-on support for setting up organizational structures and management procedures. Additionally, during the first four months of operations from September to December 2004 GTZ covered a third of CERTIF’s costs, in particular set-up costs, to get the institution up and running. Starting in January 2005, management assistance was phased out and input is now mainly provided through guidance and backstopping. An organizational development (OD) expert accompanied the institutionalization process until April 2006 and overlooked the assignment of a number of concise technical inputs from short-term experts. GTZ still plays an important role in strategic development planning as a member of CERTIF’s Supervisory Board.

52 As BPR have two directors each, BI is effectively subsidizing 25% of total CERTIF training cost per BPR.


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GTZ has provided a comprehensive package of technical support for strategy development, curriculum and training material development, capacity building for material writers and trainers, institutionalization, and management support over a period of almost four years. This strategy required the provision of considerable financial and human resources. However, without a serious commitment over a period of time and support in various stages of such a project, success will not come. To initially provide a comprehensive technical assistance package and to phase out support has proven to be an efficient and cost-effective support strategy. The consensus arising from the Yogyakarta Communiqué is that governments in the partner countries have to play an active role in promoting capacity building systems. But as the example of CERTIF shows, technical assistance providers will continue to have an equally important role to play here.

3.3.3.3 Conducive Legal Framework for Certification The establishment of a national certification institute for microfinance was a process initiated by ProFI independently from the simultaneous development of the legal framework for a national certification system by the Ministry of Manpower and Transmigration (through Act No. 13 of 2003 concerning Manpower). In its authority as regulator and supervisor of the BPR industry BI is empowered to issue regulations concerning the educational level of BPR directors and the skills and competencies required to run such microfinance institutions. For a number of reasons, the issuance of the new law by the Ministry, which deals with professional certification among other manpower concerns, was very conducive for the establishment of the CERTIF system:

1. Ownership: The granting of the status as a certification institute for professionals (LSP) was the culmination of the long establishment process and marked the end of the transition from a pilot project to an independent institution. In particular, to CERTIF personnel this signaled that the newly established institute was not a transitory phenomenon but rather a long-term venture, resulting in workplace certainty. This, in turn, was instrumental in increasing the staff’s sense of ownership and personal commitment.

2. Legitimization: By putting the microfinance certification institute in the context of the national certification system, CERTIF’s authority to issue certificates has been put beyond doubt. CERTIF is more than a mere control instrument of the regulator BI. It assesses the skills and competencies of microfinance managers as part of a national effort to increase human capacity in Indonesia.

3. Image: CERTIF has been granted the LSP status as one of the first institutions in Indonesia. Even the commercial banking sector has no comprehensive certification program so far.53 This shows the microfinance industry’s determination to increase professionalism and human capacity in their institutions and, thus, improves the image of the industry.

4. Benchmarking: By being included in the national certification initiative, CERTIF has the opportunity to benchmark its performance against those of other certification institutes and to share experiences with them. Given the excellent performance during its 1st year of operation and the well structured organizational and management procedures, CERTIF is considered by BNSP to be amongst the most advanced certification institutions in Indonesia.54

53 Bank Indonesia Regulation No. 7/25/PBI/2005 concerning Risk Management Certification for Management and Officers of Commercial Banks requires only staff dealing with risk management to be certified. 54 Interview held with Bapak M. Moedjiman, Chairman of BNSP in Jakarta on April 5, 2006.


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5. Sustainability: CERTIF is the only authority in Indonesia assigned to issue certificates in the area of microfinance which gives the institute a quasi-monopolistic position. From a financial point of view this makes sense as CERTIF has already developed microfinance training materials and certification and can easily adapt the existing product range to types of microfinance institutions other than BPR.

Even though the CERTIF system could have been established without being part of a national certification system covering all industries and sectors, being so has increased the visibility and credibility of the CERTIF Institute and contributed to the strengthening of the legal foundation of the system.

3.4 The System Today

3.4.1 Legal Structure, Ownership and Governance

3.4.1.1 Statutes The Institute was established through Notary Act no. 3 of July 23, 2004, by Bapak Tamtomo Endropranoto. CERTIF is established by YPPI as a subsidiary for an undefined period based on the resolution of the NTF meeting held on March 8, 2004 in Surabaya. YPPI is an independent foundation, founded by Bank Indonesia in 1977 to support the development of the banking sector. YPPI is the founder of two additional institutions, Lembaga Pembangan Perbankan Indonesia (LPPI) and the Indonesian Banking School (IBS). The CERTIF office is located in Jakarta, within the LPPI complex in Jakarta. The purpose of CERTIF as defined by Article 5 is to increase professionalism in the microfinance industry, to enhance the quality and capacity of staff of microfinance institutions and to encourage the emergence of a training market for MFI. In Article 6 CERTIF’s activities are defined as follows:

a. To organize the certification systems for the owners, management, and staff of MFI. b. To provide accreditation to training Institutions and trainers. c. To set training material standards. d. To carry out examinations and issue certificates. e. To conduct seminars, research, and consultations in line with the tasks of the

institution. f. To define training, examination, certification, and accreditation fees. g. To define income that should be obtained by CERTIF from providing certification to

participants and accreditation to training institutions and trainers. h. To enter into cooperation with other institutions - domestic or overseas - that have

similar objectives. i. To merge with or buy other institutions that have similar objectives.

The initial capital provided by YPPI is Rp 50 million. Article 7 stipulates that capital can be increased through donations or non-binding grants from agencies or individuals - domestic or overseas - who are interested in supporting the purpose and objectives of the Institution. Articles 8ff. define the three organs of the Institute and their respective roles:

1. The Supervisory Board (also called the Certification Board): the Certification Board is the highest organ in charge of determining policy directives of the Institution.

2. The National Curriculum Committee: the role of the National Curriculum Committee is to periodically revise the training curricula and incorporate feedback into the


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training materials. The National Curriculum Committee is currently being established based on a resolution of the Supervisory Board meeting no.13 held in Denpasar on April 26, 2006. The Committee will consist of three members: one practitioner proposed by Perbarindo, one CERTIF trainer and one external consultant.

3. The Management Board: the Management Board is the organ with the task and responsibility to organize all activities for achieving the purpose and objectives of the Institute.

The relationship between CERTIF and YPPI, in particular the division of tasks between the Supervisory Board and YPPI is laid out in Articles 26f. YPPI is the founder of the Institute and can exercise the following powers:

a. Amend/revise the statutes; b. Elect and discharge the Management Board; c. Validate annual business plans and budget plans; d. Validate and accept annual reports; e. Divest and liquidate the institute; f. Increase the capital of the institute.

When exercising its authority YPPI will request consideration from the Certification Board.

3.4.1.2 Governance CERTIF is governed by its Supervisory Board, which sets policies and supervises institutional performance, as executed by the Professional Management Board. The Supervisory Board is composed of seven members, all of whom serve ex officio55:

a. Head of the Bank of Indonesia BPR Supervision Directorate b. Head of the Bank of Indonesia Syariah Banking Directorate c. Head of YPPI d. Head of DPP Perbarindo e. Head of Perbamida f. Head of the Central Java Chapter of Perbarindo g. Program Director of GTZ ProFI

This composition of the Supervisory Board was chosen in order to reflect the various stakeholders’ views, namely of the regulator and supervisor (BI), the microfinance industry (Perbarindo, Perbamida, and, in the future, Asbisindo), the training provider industry (YPPI/LPPI and, again, Perbarindo as the owner of currently eight CERTIF training partners) and the technical partner (GTZ). The inclusion of the Head of the Central Java Chapter of Perbarindo is intended to bring an additional regional perspective onto the board.. The composition of the Supervisory Board reflects the establishment history of CERTIF as a ProFI pilot project for rural banks. Out of seven (in the future, eight) members, five (six) deal with rural banks only. In order to be able to fulfill its mission to enhance capacity in the microfinance sector in general, the composition of the Supervisory Board will need a revision and, likely, the inclusion of members representing microfinance cooperatives and non-bank non-cooperative MFI. The most important tasks of the Certification Board as defined in Article 11 of the statutes are as follows:

55 At the Supervisory Board meeting no.13 held in Denpasar on April 26, 2006, the inclusion of an additional member was agreed upon. The head of the Syariah Banking Association (Asbisindo), currently Bapak Wahyu Dwi Agung, will in future be the 8th member of the board.


35

a. To guarantee the implementation of the certification system by defining overall policies as well as procedures aimed at achieving CERTIF’s purpose and objectives;

b. To recommend nomination and dismissal of Management Board members to YPPI; c. To nominate and dismiss National Curriculum Committee members; d. To evaluate the performance of the Management Board; e. To approve discipline, administration, and salaries/honoraria proposed by the

Management Board; f. To approve annual business plans and budget plans proposed by the Management

Board; g. To supervise the task implementation by the Management Board.

The Supervisory Board meets on a regular basis, according to the established CERTIF statutes and the specific needs of the institution. The work of the Supervisory Board is governed by its working procedures manual which is a complementary document to CERTIF’s statutes. Decisions are to be taken jointly and unanimously. In case no joint decision can be reached, a simple majority of present members of the Supervisory Board is required. The quorum consists of half of the members plus one.

3.4.2 Mission and Vision, Goals and Objectives

3.4.2.1 Mission Statement CERTIF’s mission is to build the capacity of and set standards of skills and competence for personnel of microfinance institutions in order to increase outreach and assure quality of services to the low-income communities throughout Indonesia.

3.4.2.2 Vision CERTIF is an independent Professional Certification Institution, recognized as a much needed partner to build and develop systems for conducting training programs, carrying out examinations and setting standards of skills and competence for MFI to further contribute to the improved soundness and service outreach of MFI.

3.4.2.3 Goals and Objectives CERTIF’s goals and objectives are as follows:

1. To provide an appropriate, effective and respected management standard for the microfinance industry;

2. To build capacity of microfinance managers; 3. To offer all microfinance professionals the opportunity to become certified; 4. To create a strong, professional and financially viable CERTIF Institution.

3.4.3 Management and Organizational Structure

3.4.3.1 Organizational Set-up CERTIF has now grown to 20 employees and will likely employ more staff to allow for further business expansion. The following figure shows the organizational structure as of May 2006: Figure 4: Organizational Structure of CERTIF


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Source: LSP LKM CERTIF, own figure The CERTIF Management Board comprises the following five positions:

1. Director 2. Standardization Manager 3. Verification Manager 4. Certification Manager 5. Administration and General Affairs Manager

Staff and management meetings are held once a week. The terminology to be used for the various departments and their respective tasks has been prescribed by BNSP.56 The Standardization Department would - according to BNSP regulations - only be in charge of developing and updating the skills and competency catalogue. The concept behind the Law on Manpower and the national certification framework is that the certification institutes would develop skills and competency catalogues in their respective work area or industry and that based on this catalogue the various training providers would then develop their own course materials. In the case of CERTIF, however, the capacity of the training provider market is still too weak. One of the objectives in setting up the CERTIF system was to build up the capacity of local training material developers. Thus, for the time being CERTIF sets not only the certification standards but also the training material standards by developing the training courses themselves. Besides, CERTIF also depends on the license fee of 15% of total course costs which all training providers have to pay to the institute.

56 Standardization, Verification and Certification are direct translations from the Indonesian standardisasi, verifikasi and sertifikasi. The terminology prescribed by BNSP is a bit unfortunate as e.g. the verification department is in charge of accrediting training providers and trainers but is not allowed to use the term ’accreditation department’. According to their logic, BNSP itself ’accredits‘ certification institutes while certification institutes only ’verify‘the training providers’ capacity.

CERTIFICATION BOARD

NATIONAL CURRICULUM COMMITTEE

Certification Department

Administration & General Affairs

Department

Verification Department

Standardization Department

MANAGEMENT BOARD

Organizational Secretary

Quality Management Department


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The verification department deals with the CERTIF training partners. It organizes ToT, prepares and supports training institutions and, monitors and evaluates the quality of the training program implementation. In this department it is decided whether training partners and individual trainers fulfill the CERTIF verification, i.e. accreditation, requirements. The Certification Department prepares and implements all matters concerned with examinations: examination questions are developed here and test question conferences organized. The examinations are organized and monitored by this department. Grading of candidates also falls within the responsibilities of this division. All other tasks which are not directly linked to the above described duties are performed by the Administration & General Affairs Department. Office management, HRD, IT, marketing as well as MIS are carried out here. The financial officer and accountant report directly to the director. Through an internal control system with checks and balances, the soundness of the financial management is assured. For the time being, quality management and assurance is carried out by the director. It is foreseen that a quality manager will be employed in the future.

3.4.3.2 Processes The management has introduced its ’Triple E & E’ guidelines which form the basis of all managerial and organizational procedures. Triple E & E stands for: • Effective • Efficient • Excellent • Equal

All procedures within CERTIF are standardized and laid out in manuals and handbooks. Manuals in use are:

1. Standard Operational Procedures (SOP): This is the main document for all organizational matters of CERTIF; all other documents and manuals build on the SOP. The document serves as an up-to-date guide on the activities, policies and procedures of CERTIF. The purpose of the manual is to assist CERTIF staff and partners, including training partners, trainers and other stakeholders by clearly and consistently presenting the program and its requirements and practices. The manual also outlines the responsibilities and tasks of CERTIF as a certifying body. The manual is updated on a regular basis to reflect decisions by the CERTIF Supervisory Board and management to ensure that all information contained is correct and current. Up-to-date forms and key documents are also included in the manual as attachments.

2. Training Partner Manual: The purpose of this manual is to assist CERTIF training partners in delivering the CERTIF course successfully and according to CERTIF guidelines and procedures. CERTIF currently works with nine training partners throughout Indonesia, delivering the course hundreds of times to thousands of participants. In order to maintain high quality training delivery and to ensure the collection of consistent data, CERTIF has standardized the training process including the collection of feedback. The Training Partner Manual serves as an up-to-date compilation of all the forms needed for training partners to deliver the CERTIF course, along with a description of when and how they are to be used.


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3. Examination Manual: The CERTIF Examination Manual outlines all policies, procedures, and activities connected to the implementation of examinations. It outlines the tasks and assigns responsibilities for the various tasks to CERTIF staff. Particular emphasis is put on security aspects and data integrity.

4. Accreditation and Certification Manual: This manual outlines all policies, procedures, and activities connected to accrediting training providers and trainers, and the issuance of certificates to successful examination candidates. The manual is directed at CERTIF staff and, partly, also at training providers and trainers.

5. Employment Handbook: This document stipulates CERTIF’s employment policy. The Employment Handbook consists of the terms and conditions of service for all employees. It regulates the employment conditions and sets forth the duties, responsibilities and rights of the employees of CERTIF. The Employment Handbook is written in accordance with the labor laws and regulations of Indonesia. Any subsequent change in the laws and regulations of Indonesia also affects the Employment Handbook and requires that appropriate changes are made.

6. Financial Manual: The CERTIF Financial Manual serves as an addition to the CERTIF Operational Manual regarding handling of financial matters. The purpose of the manual is to assist CERTIF staff by clearly and consistently formulating the rules and procedures of CERTIF financial management. Particular emphasis is put on internal control aspects.

An additional manual concerning training material development has been drafted but still needs to be approved by the Supervisory Board. Procedures for training material development already follow standardized procedures as has been shown in Paragraph 3.3.1.

3.4.4 Service Delivery57 The CERTIF system includes three main components: 1) training course development, 2) training delivery support; and 3) examination and certification. This is reflected in CERTIF’s organizational structure with its three main operational departments: standardization, verification and certification.

57 The descriptions in the following chapter are based on the policies and procedures outlined in the respective manuals as listed in Paragraph 3.4.3.


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Figure 5: Service Delivery Structure

Source: own figure

3.4.4.1 Training Course Development One aim of the certification system is to raise the capacity of microfinance managers by introducing professional standards for skills and competencies. CERTIF, as the quality assurance entity in the microfinance industry, sets standards not only concerning skills and competencies of microfinance managers themselves but also for the training provided to them. As long as the capacity in the training provider market is still weak, CERTIF not only provides certification but also prepares training courses in order to enable microfinance managers to acquire the necessary skills and competencies. By developing training courses and materials, conducting ToT and supervising the delivery of training, CERTIF can safeguard adherence to high-quality standards. CERTIF designs training materials based on defined ’skills and competency’ standards approved by its Supervisory Board, in consultation with industry stakeholders. The catalogue has to be approved by BNSP to fit into the national certification framework. Training materials are then drafted by the standardization manager, his staff and other national experts who have undergone training for material developers. The training materials are pilot tested and undergo intensive evaluation during the ToT and initial deliveries, before they are considered finalized. CERTIF’s first product was the BPR Directors Course which consists of ten modules. This 20-day course has since been used as the basis for the development of other products, namely: BPR Director Candidates Course, BPR Syariah (BPRS) Directors Course and LPD Managers Course. In the case of the BPR Director Candidates Course four additional modules had already been conceptualized during the development of the BPR Directors course to form a comprehensive 27-day program covering all aspects of MFI management. For the BPRS course, five modules on banking based on Islamic principles were prepared using existing materials as the starting point. The LPD course also used the BPR materials as a basis but downscaled the program as these institutions tend to be smaller and less complex in their business compared to rural banks.

Standardization Department

Verification Department

Certification Department

Training Course Development

Training Delivery Support

Examination and Certification

Management Board

Main Tasks

Unit


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Table 4: CERTIF Training Materials Product Range

Product Number of Competency Modules BPR Director Training Materials 10 BPR Director Candidate Training Materials58 4 (+10) BPRS Director Training Materials 5 LPD Bali Training Materials 8 Source: LSP LKM CERTIF, own table

3.4.4.2 Training Partner Support CERTIF ensures access to its courses and examinations for MFI personnel throughout Indonesia. However, the Certification Institute does not deliver its training materials directly. Rather, CERTIF works with a group of established training institutions, or training partners, throughout Indonesia that deliver the course on CERTIF’s behalf. The training partners are institutions working on a national or regional scale that have demonstrated capacity to implement training programs and have successfully completed the CERTIF assessment process for training partners as outlined in the accreditation and certification manual. Once a training partner has been identified by CERTIF, it is supported in preparing the first course deliveries during a three-day workshop on administrative and logistic matters. A second two-day workshop on technical issues of the training is held immediately before the first delivery at the training site. Training partners must successfully complete a series of deliveries under close supervision and meet specific performance criteria before they are deemed “Accredited Training Partners”. Training partners may only use CERTIF-approved trainers for delivery. Once a year CERTIF holds a workshop for managers of its training partners to share information and experience, and to collect feedback. CERTIF enforces a highly standardized process of training delivery, outlined in the training partner manual, which includes a strong evaluation component to guide the continuous improvement of the system. CERTIF supports and monitors training delivery performance according to these established policies and procedures. During initial deliveries, CERTIF resource staff are continuously present, to support new trainer preparation and delivery, and to ensure that all policies and procedures are correctly understood and followed. Once trainers and training partners have met specific performance criteria, they become accredited by CERTIF and may deliver the materials without direct supervision, but with continuing support and evaluation. CERTIF also identifies experienced trainers for each subject area and conducts ToT which includes tests on training methodology, material content and practical delivery. Trainers must pass these examinations for each training module in order to be certified to deliver.

58 The BPR Director Candidates Course builds on the BPR Directors Course; thus, participants go through 14 modules altogether.


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Table 5: ToT conducted by CERTIF

No. Dates No. of participants

Total participants

Accepted trainers

Target group

1 February/March 2004 17 BPR 2 April 2004 15 BPR 3 October 2004 61 BPR 4 December 2004 29 BPR 5 September 2005 27

149 111

BPR 6 April/May 2006 19 19 17 BPRS

Source: LSP LKM CERTIF, own calculation After successfully participating in the ToT, trainers have to deliver at least two training courses under supervision of CERTIF staff. Only after a positive evaluation are trainers accredited by the CERTIF supervisory board or a special accreditation committee assigned by the supervisory board. Training providers seeking CERTIF accreditation have to fulfill a number of criteria whereof the following are the most important:

1. Results from training evaluation forms must be higher than 3.5 (on a scale from 1 to 5) in the areas of logistics, communication and facilities.

2. An MoU between CERTIF, BI and the training provider outlining each party’s rights and responsibilities must be signed.

So far, no training partner has been accredited since CERTIF itself had to be licensed by BNSP first. Table 6: CERTIF Trainers and Training Providers

Trainers for BPR Directors Trainers that meet accreditation criteria

111 87

Trainers for BPRS Directors 17 Trainers for LPD Directors/Chairmen 24 Number of active Training Provider Institutions

Training Providers that meet accreditation criteria 9 9

Source: LSP LKM CERTIF, own table As of March, 2006, the nine training partners - supported by CERTIF - have carried out 60 training courses for BPR Directors and issued 1,543 attendance certificates.

3.4.4.3 Examination and Certification CERTIF offers certification to microfinance managers who meet the following criteria:

1. Experience: At least two years management experience in a BPR or other type of microfinance institution (MFI);

2. Education: D3 or higher (five years management experience in a sound BPR or other MFI may substitute for this component)59;

59 Higher education in Indonesia is offered through diploma and bachelor’s degree courses. Colleges offer one, two, three and four year diploma courses (D1, D2, D3, and D4), while universities offer four


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3. Examination: Pass the CERTIF Examination with a score of 60% or higher (Certificate of Distinction awarded for those who pass with 80% or higher);

4. Ethics: Have signed and act in conformance with the CERTIF Code of Ethics. Examinations are developed by the certification manager, its staff and other local experts in the field of test question writing and microfinance management. Test questions are reviewed during formal test conferences, by teams of experts (appointed by the Supervisory Board) who make recommendations for final Supervisory Board approval. Test questions are written to demonstrate that candidates for certification have command of all aspects of the CERTIF skills and competency catalogue. The examination lasts ten hours over a two-day period, covering topics from the ten subject areas of the BPR Directors Course. The examination is not designed to test course learning, but rather to demonstrate practical skills and competencies. The following figure shows the examination procedures. Figure 6: CERTIF Examination Procedure

Source: prepared by Mr. Volker Steimle of the Business School of Finance and Management (HfB) in Frankfurt Examinations are delivered throughout the year at regional BI offices, under the direct management and supervision of CERTIF staff, with support from trained local BI staff. The process is highly standardized and follows the schedule outlined hereafter.

year bachelor’s degree courses (S1). Higher education also includes post-graduate programmes (S2) and doctoral programmes (S3).


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Figure 7: CERTIF Examination Process

Source: prepared by Mr. Volker Steimle of the Business School of Finance and Management (HfB) in Frankfurt In order to guarantee the integrity of the system and eliminate any possibility of collusion, all data processing is automated to a high extent. Special software and data management systems have been developed for CERTIF. One database has been set up for managing test questions and generating tests, and a second system has been developed to manage the data of candidates. The following figure shows the data process: In the Test Question Database (TQDB) questions from the test question pool are randomly selected for each module (1). Each question is assigned a difficulty ranking. The program assembles an exam with an even distribution of easy, medium difficulty and hard questions (2) The number of questions per module is proportionate to the time assigned to each module during the training course (3). Through one interface candidate information is fed into the examination process (4). This information is coded through a personal identification number (PID). For data which has to be entered manually by CERTIF staff (e.g. answers from the examination sheet of each candidate have to be keyed in manually into the system), quality and data input checks are performed. The program then automatically generates the score for each candidate (5). The system also generates individual and aggregated reports on the examinations (6). These reports are used by the CERTIF Examination Department to assess the quality of the questions and whether the difficulty ranking assigned before the examination was correct.


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Figure 8: CERTIF Exam Data Process

Source: prepared by Mr. Volker Steimle of the Business School of Finance and Management (HfB) in Frankfurt, own additions Up to May 2006, four examinations had been delivered and 1,317 directors had passed the test. Table 7: Number of People Certified until March 31, 2006

Numbers of examinations carried out for BPR Directors 4

Number of BPR Directors who participated in examinations 1,554

Certification: Number of BPR Directors who received (or are eligible to receive) a certificate of competence

1,317

Pass Ratio: Percentage of BPR Directors who successfully passed the examination

84.7%

Average examinations score 68.6%

Percentage of BPR Directors with pass grade “satisfactory” or higher

49.2%

BPR Industry coverage: a. Percentage of BPR with at least one certified director b. Percentage of BPR with certified management (two directors)

59.3% 32.8%

Source: LSP LKM CERTIF, own table


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3.4.5 Financial CERTIF opened its books on September 1, 2004. During its first four months of operation only five training courses and no examinations were held. Due to set-up costs, investments in office furniture and equipment, and the organization of a ToT workshop, income for this period was not enough to cover all expenses. This required that BI and GTZ each bore a third of CERTIF’s budget. CERTIF occupies office space on the premises of LPPI in Jakarta. The office is fully outfitted with necessary ICT equipment and all employees have their own computer. Software which fulfils the security requirements of a certification institution has been developed for CERTIF. The structure of the organization is kept lean, and fixed and other (intangible) assets totaled only 3.7% of total assets at the end of 2005. The financial management of the institute is sound as demonstrated by the unqualified audit report of 2005 by the accounting firm Hadisoeryo & Maharani. The following figure shows CERTIF’s 2005 balance sheet. Table 8: 2005 Balance Sheet of CERTIF

ASSETS Rp EURO (€) Current Assets Cash and Bank 1.699.643.998,32 146.101,40 Accounts Payable 163.200.000,00 14.028,67 Paid Advances 10.880.731,00 935,31 Total Current Assets 1.873.724.729,32 161.065,38 Fixed Assets Investments 118.764.900,00 10.209,03 Accumulated Depreciation (59.382.450,00) (5.104,52) Total Fixed Assets 59.382.450,00 5.104,52 Other Assets Investments 24.750.000,00 2.127,51 Accumulated Amortization (12.375.000,00) (1.063,76) 12.375.000,00 1.063,76 TOTAL ASSETS 1.945.482.179,32 167.233,65 LIABILITIES & EQUITY Rp EURO (€) Current Liabilities Liabilities with other Institutions 137.275.000,00 11.800,16 Tax Liability 222.570.800,17 19.132,19 Received Advances 188.073.000,00 16.166,76 Expenses to be paid 306.660.413,00 26.360,53 Total Current Liabilities 854.579.213,17 73.459,63


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Equity Initial Capital 531.338.834,40 45.673,89 Current Year's Profit 559.564.131,75 48.100,13 Total Fixed Assets 1.090.902.966,15 93.774,02 TOTAL LIABILITIES & EQUITY 1.945.482.179,32 167.233,65

Source: CERTIF 2005 Audit Report by Hadisoeryo & Maharani, own calculation During its first full year of operation CERTIF’s profit after taxes totaled €48,100, which is a very good financial result for any newly established institution, particularly in the area of capacity building. CERTIF’s return on total assets (ROA) was 28.76%. However, the picture given in the financial statement is too positive because support through GTZ should not have been included under operational income. After adjustments, total profit in 2005 would amount to approximately €22,500. 50% of CERTIF’s income derives from examination fees; this activity is certainly the institute’s ’cash cow’ as direct expenses associated with the examinations are only Rp 586.84 million compared to an income stream of more than Rp 2 bn. With this surplus CERTIF internally cross-subsidizes the capacity building measures for training providers and ToT. Table 9: 2005 Profit & Loss Statement of CERTIF

Rp EURO (€) Operational Income Income from Trainings 1.435.272.300,00 123.376,01 Income from Examinations 2.037.250.000,00 175.122,01 Cost-sharing for Development of BPRS course 129.053.980,00 11.093,48 Cost-sharing for ToT by PNM 6.880.000,00 591,40 Cost-sharing for ToT by GTZ 175.533.146,00 15.088,83 Other GTZ Support 238.117.978,00 20.468,62 Total Operational Income 4.022.107.404,00 345.740,35 Operational Expenses Direct Operational Expenses (1.745.883.397,00) (150.076,14)Indirect Operational Expenses (1.533.895.122,00) (131.853,62)Total Fixed Assets (3.279.778.519,00) (281.929,76) TOTAL OPERATIONAL PROFIT 742.328.885,00 63.810,59 Other Income/Expenses 34.956.046,92 3.004,82 TOTAL PROFIT BEFORE TAXES 777.284.931,92 66.815,41 Income Tax (217.720.800,17) (18.715,28)


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TOTAL PROFIT BEFORE TAXES 559.564.131,75 48.100,13 Source: CERTIF 2005 Audit Report by Hadisoeryo & Maharani, own calculation CERTIF’s fee structure is regularly adjusted for inflation and, if necessary, other increases in expenses. As of June 2006 directors of both BPR and BPRS have to pay Rp 250,000 (app. €21) per module of the examinations. Thus, BPR Directors pay a total of Rp 2.5 million (10 modules) while directors of BPRS pay Rp 1.25 million (five modules) in total. The cost structure for the LPD products still needs to be defined. The 20-day training course for BPR Directors currently costs Rp 9.8 million (app. €830). The largest cost is for accommodation, followed by the honoraria of trainers. 15% of the course fee has to be channeled to the CERTIF Institute for its support and the provision of training materials. Table 10: CERTIF Fee Structure

Rp Rp Operational Income Examination Training BPR Directors Course 250,000 per module 9,800,000 BPRS Directors Course 250,000 per module 5,500,000 LPD Directors' Course not yet defined not yet defined

Source: LSP LKM CERTIF, own table

3.4.6 SWOT Analysis Given the number of people trained and certified so far and the strong institutional and financial performance of CERTIF in 2005, the institute is clearly outperforming its business plans. By identifying areas for improvements and by capitalizing on new business opportunities, CERTIF’s performance can even improve further. The following table gives an overview on the strengths, weaknesses, opportunities and threats identified for CERTIF. Table 11: CERTIF SWOT Analysis

Strengths

• Sole provider of certification for microfinance managers, giving CERTIF a quasi-monopolistic position

• Good reputation amongst stakeholders, customers and general public

• High quality products • Committed and skilled staff • Organizational set-up and procedures

are clearly defined and laid out in manuals

• Strong financial performance in first year of operation

Weaknesses

• Commitment of Supervisory Board for expansion to other microfinance institutions is questionable

• Long-term sustainability not yet secured • Strategic planning and business

development is still weak • Due to image sensitivity, reliance on

training partners is problematic • Low level of competition between training

partners


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Opportunities

• Deepening of product portfolio within existing client group, i.e. BPR

• Expanding the product range to staff of other microfinance institutions

• (International replication)

Threats

• Microfinance policy not yet endorsed • Plans of the Ministry of Cooperatives,

Small- and Medium-Sized Enterprises (MoCSME) to establish a second certification institute in charge of microfinance cooperatives only

• ’Overheating of the system’

Source: own table

3.4.6.1 Strengths

CERTIF’s unique selling proposition (USP) is to be the sole provider of certification for microfinance managers. Through the legitimization given by the Act No.13 of 2003 concerning Manpower and the LSP status granted by BNSP, only CERTIF has the authority to issue certificates for a market of thousands of microfinance specialists. Due to its strong performance after its inception, the high quality of service provision and the swift accreditation by the Ministry of Manpower and Transmigration, CERTIF has managed to build up a positive reputation as a professional, independent and integral provider of certification and complementary services. A transparent governance and management structure and standardized procedures are important features of CERTIF. The lengthy development process with many feedback rounds has resulted in a high-quality and state of the art product. The certification program imparts the knowledge needed by BPR Directors in their positions. CERTIF has put quality assurance mechanisms, such as the National Curriculum Committee (NCC), in place in order to safeguard the high standards set and to continuously improve its products. Through the extensive training and support provided by ProFI, CERTIF management and staff have acquired the skills and competencies needed to develop curricula and training material, to prepare and hold examinations, and to manage a certification institute. Three key personnel, namely the director, the training partner manager and the training development manager have been involved in the establishment process from the very beginning. Other important positions, such as the examination manager, the manager in charge of administration and general affairs, and other technical staff, have brought in complementary knowledge. Hiring is based on a clearly defined staffing plan and job descriptions which reflect the needs of the institute. All matters concerning personnel are outlined in the employment handbook. The organizational structure and set-up of CERTIF clearly defines the responsibilities of each team member and the division of tasks between them. All procedures are standardized and documented in manuals. Checks and balances (four-eye principle, segregation of


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various functions, dual control of assets, double signatures, cross-checking, and review) are built in at various levels of the institution in order to assure quality in all processes. In order to keep costs for the target group low, CERTIF relies on a very lean management structure. Through the OD input provided by ProFI and CERTIF’s own ’Triple E & E‘ guidelines, the institute managed to keep costs low and generate a surplus in its first year of operation. Financial management is sound, procedures are defined and internal control mechanisms in place. The auditors gave CERTIF an unqualified opinion in 2005.

3.4.6.2 Weaknesses CERTIF has already expanded its product range to microfinance institutions other than the target group of the pilot project, namely BPR Directors. For reasons of risk diversification and income generation, this expansion will continue in the years to come. While management is fully committed to CERTIF’s mission to provide certification to the microfinance sector as a whole, the composition of the Supervisory Board does not yet reflect this reality: three out of seven board members are BPR representatives, while two other members (including the Chair) come from BI which by law is only in charge of BPR but not of other microfinance institutions. Even though BPR staff will likely continue to be the single most important customer segment, other microfinance families will also need to be represented on the board. The good financial performance in 2005 has to be partly attributed to the favorable regulatory framework and support from BI. While the financial outlook for 2006 to 2008 is bright due to CERTIF’s captive target market of more than 4,000 BPR Directors, a viable long-term business strategy has still to be developed. However, current new product developments for BPRS and LPD Directors, and the BPR Senior Management Course, are new sources of income that will strengthen CERTIF’s financial position. Given the sheer size of the untapped training market for microfinance institutions, CERTIF’s long-term sustainability does not appear to be at risk. CERTIF day-to-day management is organized in such a way that certification and training support tasks are carried out efficiently, and goals set in the annual business plans are achieved. However, due to the workload deriving from very ambitious targets set by BI, little capacity is left for non-operational tasks. Even though a MIS system is in place, data analysis and MIS-based decision making are not being carried out.60 ProFI supports CERTIF in working on this identified weakness and will also, in the future, provide technical input here. Even though CERTIF is only a certification body, customers usually associate the provision of training with the institute itself. Even though CERTIF has developed the training materials, trained trainers, prepared the training institutions and overseen the quality of the training programs provided, the quality of the training ultimately depends on the providers themselves. Therefore, CERTIF closely monitors feedback from training participants to identify weaknesses of training providers and, with them, to improve the quality of training 60 For example, while data on the pass rates of BPR Directors who attended the training courses and those who directly took examinations are available, no significant difference between these two groups concerning the pass rate percentage can be found. However, no analysis has been carried out so far as to whether this is due to low quality of the training courses or due to a selection bias (only directors from ’sound‘ BPR can directly attend examinations). This analysis is necessary to assess whether the current product is suitable for the intended knowledge transfer to BPR Directors.


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programs. In worst cases, CERTIF can revoke the accreditation of certain providers if the quality of their training programs does not meet the stipulated requirements. These quality assurance measures are necessary as inevitably low-quality training programs shed a bad light on CERTIF itself. The certification system is part of a comprehensive financial sector development strategy with the goal of strengthening the training market for microfinance in Indonesia assigned to CERTIF. The Institute develops certification courses plus the respective training materials which are then provided by a number of training providers. The concept is to create a certain level of competition in the training provider market in order to increase the customer and service orientation which will eventually lead to lower costs for the target group. For the BPR directors course CERTIF works with nine training providers throughout Indonesia. However, only one provider per region has been found so far and all but one are affiliated with Perbarindo.61 This is due to the still low capacity in the training provider market and the strong position of the BPR association in the CERTIF system. This has - so far - prevented any competition and fees for the training courses are therefore still fixed by the CERTIF Institute. After expanding the CERTIF product range to other microfinance institutions, more training providers will be joining the system. This will eventually lead to more competition in the market. CERTIF will support this development by providing capacity building support for training providers other than Perbarindo subsidiaries.

3.4.6.3 Opportunities The strong position of CERTIF as the sole authority to issue microfinance certification gives the Institute access to a huge untapped market for capacity building. When the new National Microfinance Policy will be endorsed, a massive increase in funds earmarked for capacity building can be expected.62 CERTIF needs to conduct a proper market assessment in order to identify new business opportunities and to design appropriate products. A comprehensive certification program such as the current BPR Directors Course is not needed for all microfinance families. In less developed microfinance sub-sectors than the BPR industry the training aspect might be more important than the certification aspect. Nevertheless, even in those cases the existing CERTIF products can be used as a starting point for product development and CERTIF structures can be used as implementation set-up. The success of CERTIF has raised interest from various parties internationally and possibilities to replicate the certification system approach in other developing countries are currently being explored. Even though this might not benefit CERTIF financially, unless CERTIF staffs are used as consultants, the image gain within Indonesia would be considerable and would strengthen CERTIF’s market position even further.

3.4.6.4 Threats The draft National Strategy and Policy on Microfinance Development foresees a reorientation of the government’s role: programs, interest rate subsidies and targeted credit schemes will be phased out and the freed funds will be earmarked for creating and supporting institutional development and capacity building. CERTIF will certainly benefit

61 The exception is Jakarta province with two providers: LPPI and the Jakarta chapter of Perbarindo. 62 With Presidential Instruction No. 3 of 2006, from February 27, 2006, the Ministry of Finance is assigned to finalize the National Strategy and Policy on Microfinance Development until October 2006 (has not yet materialized by the end of 2006).


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from this development. However, as long as the Policy is not endorsed, the development of new products for many microfinance families has to be put on hold. In particular, uncertainty concerning the future evolvement of capacity building provision for microfinance cooperatives remains. The MoCSME which is in charge of microfinance cooperatives organized a workshop on standardization and certification in the area of capacity building for microfinance cooperatives on September 29, 2005, in Jakarta. On that occasion representatives from the ministry expressed their interest in increasing human capacity through approaches similar to CERTIF’s. By decree, CERTIF is the sole provider of microfinance certification; the certification legislation foresees only one provider per industry or sector (defined by type of service). In the case of microfinance this is CERTIF regardless of the legal form of their customers (microfinance banks, microfinance cooperatives or other types of non-bank non-cooperative MFI). Especially as major investment has flown into CERTIF and the system is already up and running, it would be cost-saving to use this structure for microfinance cooperatives as well. Unfortunately, the MoCSME has already indicated that it wants to establish a certification institute of its own. CERTIF has - in a timeframe of one and a half years - managed to hold four nationwide examinations, to train a total of 111 trainers, provide capacity building and other support to nine training institutions and to oversee 60 training programs with a total of 1,543 trainees. Targets for the years to come are equally ambitious. At the same time CERTIF has to develop new products and carry out other non-operational tasks. This creates a massive workload for CERTIF staff and bears the risks that either:

a. Core business activities are not executed with the necessary care which would negatively affect CERTIF’s reputation; or

b. Market research and development of new business is not conducted properly endangering long-term sustainability.

A balance between core business activities and strategically important issues has to be maintained here.

3.5 The Way Forward for the Certification System

3.5.1 The System as Work in Progress CERTIF is a well-established institution with a good first year track record. Organizational structures are in place and management processes are standardized and carried out in a professional way. However, institutionalization is a long process and even though CERTIF has so far performed well, many challenges lay ahead. Integration of MIS, IT and internal control into the regular management process is still not complete. While the technical skills of CERTIF staff concerning developing training materials, holding examinations and other technical tasks are already good, all these processes still need further fine-tuning and minor improvements. Additionally, knowledge and experience acquired during the past years has to be documented in order to institutionalize these assets. The BPR Directors Training Course was finalized in spring 2004. However, training materials always have to be updated to reflect new developments in the microfinance business and to incorporate feedback from participants and other stakeholders. In the future, the NCC will provide guidance on this issue. Improving training materials is a core function in any training system. Any demand-driven capacity building system has to factor this in as only the most up-to-date materials will sell on the market. Experiences in many countries have shown that in projects where not enough emphasis had been put on the


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institutionalization aspect, training materials were quickly outdated and, thus, not in demand by the target group.

3.5.2 Expansion and Deepening Despite CERTIF’s good financial performance of the first year, more has to be done to ensure its long-term sustainability. CERTIF needs to carry out market research and look for new business opportunities without compromising the quality of its current product portfolio. Business expansion means both deepening its product range for existing customer segments and approaching new customer segments.

3.5.2.1 Vertical Deepening CERTIF has almost finalized its new course for designated BPR Directors. This is basically an added-on version of the BPR Directors’ Course. CERTIF might want to explore the possibilities to provide training materials and certification for single modules. In the commercial banking sector, certification in certain defined work fields such as risk management is even prescribed by the regulator.63 In the future, this might also be an option for CERTIF. The Directors’ Course focuses on the strategic and management aspects of certain work areas while staff might need deeper technical knowledge in the same areas. Single module certification might be particularly interesting for staff rather than the directors. Demand for this product might also become greater as one important outcome of the BPR Directors’ participation in the CERTIF system is their increased awareness of the importance of training, not only for themselves but also for their staff. They are now more likely than before to send their employees for further training. 64

3.5.2.2 Horizontal Expansion New courses for staff of other types of microfinance institutions are currently being developed. The BPRS Directors Course is finalized and the first ToT was conducted from April 28 to May 4, 2006, in Jakarta. Unfortunately the BPRS number only 94 and their market share is very small compared to conventional BPR and negligible in the overall financial market. Furthermore, not much growth is expected from this segment in the future.65 However, the market for Islamic microfinance services in general is much bigger and the further expansion of CERTIF to other Syariah-based MFI might be an option worthwhile to explore. In particular Baitul Maal wat Tamwil (BMT) is a dynamic market which still has growth potential: according to information obtained from PINBUK, there are now 100 BMT with assets larger than Rp 1 bn and about 1,000 other BMT with assets larger than Rp. 200 million.66 Also currently being developed are courses for managers of village-based MFI based in Bali, the LPD. The LPD industry with its 1,328 units (07/2006) is already a sizeable market in itself. Moreover, Indonesia boasts a large variety of other village-based and/or community-owned MFI which do not have any high-quality training programs tailored to their needs. The newly developed LPD Course might be easily transferred to these target groups as well. After the endorsement of the new National Microfinance Strategy and Policy, a

63 See Bank Indonesia Regulation No. 7/25/PBI/2005 concerning Risk Management Certification. 64 See Paragraph 4.2.3 later in this report. 65 (Seibel 2004), p.35f 66 (Holloh and Prins 2006), p.63.


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conducive political framework for capacity building will have been created. Funds redirected from subsidized and targeted credit schemes will then be available for development of MFI staff. An open question remains with regard to microfinance cooperatives. Courses for these institutions could easily be developed using CERTIF materials as a starting point, but new modules e.g. on governance and other issues particular to cooperatives, would then have to be developed. This would save time and money compared to the idea of establishing a separate institution in charge for cooperatives. Besides, the legal framework on certification also inhibits this option.

3.6 Lessons Learned and Main Recommendations Table 12: Do’s and Don’ts

Do Do not

• Embed capacity building into a broader sector development strategy: Capacity building is only one, however important it might be, aspect in developing a sound microfinance sector. However, other issues have to be tackled simultaneously which also increases the impact of the capacity building system.67

• Ensure enough time for conceptual discussions: Particularly when developing a new approach as with the certification system, it is important that all stakeholders jointly develop the concept and buy-in. It is equally important to include a broad range of stakeholders, even those who do not have a specific role in the institute during the start-up but might have later on.

• Leave opportunities open: The CERTIF system has been started as a pilot project for rural banks only. However, opening up the system to a broad range of microfinance providers has from the beginning been part of the concept. Unfortunately, this aspect has not been sufficiently reflected in the governance structure so far.

• Ensure independence of the system: Probably the biggest asset (which can

• Be too comprehensive: It is more efficient to develop one product first and later expand when product development mechanisms have been established and local capacity has been built up.

• Forsake institutionalization for operational tasks: Due to the ambitious goals set by BI, the institute had to provide most resources to roll out the training support and examinations. Not enough time and capacity has - at times - remained for further fine-tuning of the system and processes, and for introducing necessary technical tools (test question database, MIS, etc.)

67 For example, one objective of the CERTIF system is to improve the BPR image of the financial sector in order to strengthen business links between the two industries. BI also implements a linkage banking program whereby business relations between these two groups are fostered. These two measures complement each other.


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become a liability, too) of a certification institute is its reputation. Setting up an institute under the umbrella of a respected organization with a good track record in capacity building which has a certain degree of independence from both the regulator and supervisor as well as from the financial sector helps build up reputation. A well-defined governance structure and transparent procedures are important, too. And the key factor is certainly the integrity of the personnel involved.

• Ensure enough resources for institutional development: Technical issues such as training material development are the comparatively easy part vis-à-vis the institutionalization process. Substantial resources over a prolonged period of time are needed for institutional and organizational development.

• Use ‘smart’ subsidies: Financial support might be needed during the start-up phase in order to ensure the profitability of the system. This requires setting a clearly defined time frame wherein support can be phased out.. Support should come as direct support to the beneficiaries of the system who can then choose at which training institute to take courses. Through this voucher system, market distortion is avoided.

Source: own table A final very simple but nevertheless very important lesson is that action at certain points of such a project is needed: even though it is crucial to prepare the ground through careful planning, not everything can be factored in right from the beginning. In the case of CERTIF, the establishment process really took up steam after the formal inauguration on July 12, 2004, and the performance of the institute has since exceeded all expectations.


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4 Certification as a New Mode of Service Delivery of Modern Development Cooperation

The way development cooperation is implemented has changed over the past decades. At the 1992 UN Conference on Environment and Development in Rio de Janeiro 178 countries agreed on a concept for sustainable development, on a global partnership for economically viable, socially equitable and ecologically sound development. The new partnership was further refined in the Millennium Declaration and the Millennium Development Goals (2000), the Monterrey Consensus (2002) and the Johannesburg Plan of Implementation (2002).68 The three main characteristics of modern development cooperation are:

1. New modes of delivery and partner diversification 2. Focus on results and impact 3. Efficiency

A certification approach - as in the case of CERTIF - has advantages in all three of these categories compared to more traditional capacity building efforts.

4.1 Modes of Delivery

4.1.1 The Right Tool Mix The new understanding of development cooperation evolved over the past one and a half decades has led to a changed view on how capacity building should be implemented. The new paradigm is not to directly provide training programs or to support single training institutions but rather to facilitate the creation of a capacity building market which is embedded in a broader development strategy. This new systemic approach requires interventions at the macro, meso and micro levels and to a diversification in project approaches. Support in the area of capacity building might now comprise, but is not limited to:

1. Facilitation of change and development processes through establishing joint stakeholder forums and guiding discussions;

2. Policy advice on how to create a conducive framework for sector development and the inclusion of capacity building as one integral element in these development strategies;

3. Technical input on regulations dealing with human resource development and capacity building;

4. Sharing of knowledge and training of key staff on technical issues such as curricula and training material development through international and/or national experts;

5. Provision of direct management support through international and/or national experts;

6. Technical input on organizational development through international and/or national experts;

7. Provision of financial resources to cover start-up costs of systems and institutions, including the funding for ToT;

8. Provision of smart subsidies to pay for training of the target groups in order to support the capacity building system and to not create market distortion;

9. Supervision and guidance on strategic issues through membership in organs of capacity building institutions;

10. Access to national and international knowledge networks and facilitation of linkages 68 (GTZ 2005c), p. 1f


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to twinning partners. The challenge in developing capacity building systems is to select the right mix of support measures. In the case of CERTIF most listed modes of delivery have come into action. The development process was kick-started based on reports on the capacity building market commissioned by ProFI. Team members initiated stakeholder forums and participated in the joint consultations and discussions throughout the establishment process. In the area of policy advice the project has contributed to the development of the draft Indonesian Microfinance Policy and Strategy wherein a focus shift regarding government support towards more capacity building is proposed. Certification as one element of capacity building is explicitly mentioned in the implementation plans of the Policy and Strategy, and ProFI supports further standardization efforts in the area of capacity building by other political partners, such as the MoCSME in the area of microfinance cooperatives. Due to its recognition by national and regional supervisory authorities, ProFI was invited to contribute to the drafting of regulations for BPR and LPD respectively dealing with human resource development. The relevant BPR regulations which were issued in 2003 and 2004 stipulated that all BPR had to set aside 5% of personnel costs annually for HRD and that management of BPR had to be certified until 2008. During the establishment period ProFI provided technical assistance in a number of ways: concept studies, market research and training needs assessments, legal opinions, trainings for key personnel of CERTIF and trainers alike, management support, organizational development and backstopping. All this was provided using various modes of delivery: tasks were carried out by GTZ itself, by ProFI staff seconded to CERTIF, by their subcontractor or independent consultants. Financial contributions were not as substantial as technical inputs but were essential during the first months of operations as otherwise activities would have been delayed for several months and the momentum would have been lost. Smart subsidies were provided by BI under the umbrella of ProFI. Of particular interest in the context of CERTIF is the membership of GTZ in the supervisory board: it is often argued that donors should refrain from taking official roles in institutions set up by projects in order not to undermine local ownership. The certification system has from the beginning been very high on the development agenda of all stakeholders involved, but the difficulty was that too many partners wanted to take ownership of CERTIF. Through its membership on the Supervisory Board GTZ can continue to facilitate the stakeholder discussions and balance out interests of the various parties involved. When the legal framework for national certification was set up by the Ministry of Manpower and Transmigration, ProFI supported CERTIF through becoming part of this system and in establishing relationships with other certification institutes for the sharing of experiences and benchmarking. In the future, international transfer of knowledge through twinning arrangements might become a task of ProFI. In particular, if other countries should adopt the CERTIF approach, GTZ could be instrumental in establishing linkages between certification institutes in different countries.


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The success of the CERTIF system was made possible only through the comprehensive support effort by GTZ over an extended period of time. In times of increased budget support through the international community and raised skepticism vis-à-vis technical cooperation, the example of CERTIF shows that the latter is still a much-needed and effective instrument: public budget support, financial assistance to institutions and technical cooperation are - and should remain - three equally important modes of delivery in the area of development cooperation. Within the area of technical cooperation a variety of support measures have evolved which are listed above. The challenge is to select the right mix of instruments and to possibly integrate elements of the two other major modes of delivery, i.e. public budget support and financial assistance to institutions.

4.1.2 Outsourcing of Technical Assistance CERTIF is an example for of the modern concept of development cooperation for a second reason besides the diversified mix of instruments and inputs provided by the donor-supported ProFI program. CERTIF itself is a new mode of delivery: technical assistance to training providers is carried out by the institute, and, thus, ’outsourced’ from ProFI to a local institution. This boasts a number of advantages: • Firstly, from a donor’s point of view it significantly reduces costs and frees resources

that can then be utilized for other project or program activities. • Secondly, technical assistance and support is ultimately paid for by the beneficiaries,

i.e. the training providers. In the case of CERTIF, this is done through cross-subsidization: CERTIF provides support and guidance to training providers for free. However, the latter have to transfer to the institute 15% of the training fees they collect for CERTIF courses.

• Thirdly, the market shows the fair value of technical assistance: only training providers which can generate enough income through the CERTIF courses to sustain their own activities and to pay the license fee to CERTIF will be interested in being a training partner of the institute and receive its support. Only if CERTIF manages to provide its support at low cost for itself and at the same time of such quality that training partners are enabled to provide their training more efficiently, will provision of technical assistance be profitable and thus sustainable in the long run.

Here, again, it is important to note that the right mix of instruments is the key factor for success. Outsourcing is but one element within a comprehensive development strategy for a sector.


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Figure 9: Modes of Delivery of Modern Development Cooperation

Source: own figure

4.2 Focus on Results A Development cooperation that uses taxpayers’ money must plausibly demonstrate that it is making effective use of the funds at its disposal, thus making a relevant contribution to the economic and social development in partner countries. The new understanding of development cooperation has shifted the focus from ’quality at entry’ (input) increasingly towards ’quality at exit’ (results).69 Impact assessment of training programs or systems faces a number of inherent methodological problems, which are common to all impact assessments but which are exacerbated in many training systems because of the modes of training delivery. Attribution problems are intensified because of the many different dimensions of any training system. It may not be the training content per se, but some particular aspect of the training which produces benefits or fails to have an impact, such as perception changes. Moreover effects of training provision can hardly be isolated from those of other interventions or influences.70 The following figures underline these methodological difficulties.

69 (GTZ 2004), p. 4 70 (Mayoux 2006), p. 41ff.

Modes of Delivery for Technical Cooperation

Development Cooperation

Budget Support Financial Cooperation

Technical Cooperation

Change Management

Policy Advice Input on R&S Training of Trainers

Management Support

Organizational Development

Supervision & Guidance

Networking & Linkages

Outsourcing to Local Partner


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Figure 10: Results and Impact Model

Source: (GTZ 2004) The following figure relates the above results model to the CERTIF case. It shows the comprehensive support strategy and the output as well as their use. Figure 11: Results Chain of CERTIF


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Source: Own figure based on an exemplified results chain in “Results-based Monitoring - Guidelines for Technical Cooperation Projects and Programmes”, GTZ, 2004 Timing of assessments is also an important factor: most assessments are made very shortly after the training course, or even based on participant evaluations at the end of the training. However it may take quite some time for the impact of the training to become apparent as trainees are increasingly able to manage their institutions and to make decisions based on sounder knowledge. 71

4.2.1 Scope of Results Assessment The CERTIF system was designed to generate results on different levels of the financial sector, namely:

1. Microfinance customers; 2. MFI; 3. Training provider industry; 4. Financial institutions and other business partners of MFI; 5. Microfinance policymakers.

The focus of the assessment hereafter is on the level of microfinance institutions as direct benefits are to be found at this level, mainly through enhanced performance and image. The indirect benefit or impact ultimately lies at the level of the customers. The attribution gap, i.e. the difficulty to directly link impacts on the beneficiaries to the input and activities of a project, is a major hindrance in assessing the indirect benefits. This is worsened as not enough time has elapsed since the first examinations for interpolation and regression data to be available yet.

4.2.2 Results at the MFI Customer Level Ultimately, the intended impact of the CERTIF system is to improve access for poor and low-income households to high-quality financial services and, by this means, to contribute to increases in employment and income. A demand-supply gap for microfinance services still persists in Indonesia. Closing this gap depends not only on an improved supply of services but also on the demand for adequate products by the customers. Demand is closely linked to the level of satisfaction customers feel with their microfinance providers and their products. The assumption in connection with CERTIF is that through improved capacity within the BPR industry, customer satisfaction rises and demand for financial services increases. ProFI carried out a BPR and LPD customer satisfaction survey at the end of 2005. Unfortunately, only 11 out of the 219 BPR (5%) included in the results assessment of the MFI level were also part of the customer satisfaction survey sample. This number is by no means sufficient to provide any empirical evidence for the impact of CERTIF which could stand as a statistical test. Moreover, as the customer satisfaction survey has been carried out for the first time, no comparison of changes in customer satisfaction over time can be conducted. Results of the survey show that for a sample of 149 BPR with the total number of customers who replied amounting to 5,529 the mean satisfaction score is 3.07 with a margin of error of ± 0.01. 72 For the sample of the 11 BPR where at least one director passed the first CERTIF examinations in March 2005 the score is 3.06. Due to the

71 (Mayoux 2006), p.41ff. 72 (REDI and Johnston), p.18. Satisfaction is measured on a scale from 1 to 4, with 1 meaning ‘dissatisfied’ and 4 meaning ‘very satisfied.


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methodological problems described above no conclusion on the impact of CERTIF on customer satisfaction can be drawn at this point. As customer satisfaction surveys are planned to be carried out yearly, more empirical evidence will be gathered and comparisons between BPR managed by certified directors and BPR managed by non-certified directors will be made.73

4.2.3 Results at the MFI Level So far, 1,554 BPR directors have taken the CERTIF exam, out of whom 1,317 have passed (a pass rate of 84.7%!).74 Four examinations have been carried out since March 2005. During the first exam held on March 26 and 27, 2005, 323 BPR Directors participated out of whom 219 (67.8%) passed. A result assessment is most likely to produce valuable insights for this group only, as the time span is too short for other directors certified to show concrete improvements and results. Three methodological difficulties, however, remain:

1. The timeframe is still very short, and increased knowledge as well as changed views and perceptions only result in actions and, consequently impacts after a certain time gap. Therefore, even though both qualitative and quantitative analyses were carried out, more time is needed to see measurable impact on the performance of the institutions.

2. The results are likely to be biased towards better performing BPR as only directors managing good-performing BPR were allowed to participate in the exam without attending training. Additionally, it can be assumed that amongst the directors who participated in the first training program and then attended the exam a substantial proportion also manages better-performing BPR.

3. The BPR industry is still struggling with governance issues. Even though BI regulations clearly stipulate the respective rights and obligations of directors, commissioners, and owners, in reality the latter two often still interfere in the daily management of the BPR. Thus, even though BPR Directors might have improved their skills and knowledge through CERTIF, they might lack the authority to introduce new management techniques and tools.

A result assessment of the certification system was carried out through a questionnaire distributed to 75 BPR Directors who took part in the first CERTIF examination in March 2005. Four dimensions were considered in the questionnaires, namely:

1. The personal level; 2. The institutional level; 3. The institution’s environment and clients; and 4. The institution’s business partners.

62 directors participated in the assessment (collection rate for the questionnaires: 82.67 %). Thus, 28.31% of all directors who participated in the 1st exam also contributed to the assessment. Overall satisfaction with the CERTIF program was 2.16 (on a scale from 1 “very good” to 5 “not needed at all”). Directors who did not attend the training (14) were slightly more critical of the system with satisfaction levels at 2.33 while directors who attended courses (48) rated CERTIF with 2.15.

73 Conducting an own customer satisfaction survey targeted at BPR with certified directors was deemed to not be justifiable concerning costs as a) the next regular customer satisfaction survey will be carried out later this year, and b) results on the institutional level described in the paragraph below do not yet suggest high levels of impact of CERTIF on BPR performance so far. 74 No examinations for managers of other MFI types have been held up to date.


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4.2.3.1 Personal Level Almost all respondents (98.39%) felt that they could increase their knowledge through participating in the CERTIF program and indicated they had subsequently implemented changes in their institutions. 85.48% of the directors stated that while preparing for the examinations they identified areas where their knowledge was not yet sound and where they subsequently invested an effort to improve in these fields. While this figure is quite understandably higher for directors who attended the training first (89.58%), the majority of directors who prepared for the exams by themselves also confirmed this statement (69.23%). The areas which were of most interest to the certified directors are shown below (multiple answers possible). Although modules related to core business activities - such as asset and liabilities management (ALMA), business planning and credit risk management - were mentioned most, all modules are of relevance to directors. Figure 12: Relevance of Modules by CERTIF Participants

0

5

10

15

20

25

ALMA

Busines

s Plan

ning

R&S

Costing

& Pric

ingCRM

HRD

Intern

al Contr

ol

Marketi

ng MIS

Microfi

nance

Source: own calculation Two interesting conclusions can be drawn here: firstly, many directors only identified weaknesses in certain areas while preparing for the exams (or during the training). This implies that a comprehensive training course covering all aspects of MFI management is the right tool as long as directors do not have a clear picture on which skills and competencies are needed in guiding their institution. In particular, directors tend to be biased towards training in operational areas while neglecting the importance of other management processes such as HRD, MIS or internal control. Secondly, the answers also show that directors mostly identified one to three areas where they felt the need to improve. This opens up the possibility of splitting up the comprehensive program and providing support in single modules. Directors could first do a self-assessment based on a questionnaire to be developed by CERTIF aimed at helping them to identify key weaknesses in their skills and


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competencies. They would then attend courses in just those areas. Another option would be to allow all directors to participate in the exams without prior training but to require them to take courses in those modules which they fail during the examinations. An overwhelming majority of all asked directors (89.58%) recommended making the training compulsory. Even eight out of eleven directors (72.73%) who did not attend the training beforehand suggested this. This shows that for the majority of directors the training aspect is far more important than image and perception reasons.

4.2.3.2 Institutional Level Also of particular interest is that 98.38% of the directors stated that their awareness of the importance of constantly improving their skills and knowledge had been raised. This holds true also for directors who prepared for the exams by themselves and realized they had weaknesses in certain fields of expertise. 26 out of 62 directors (41.93%) have conducted in-house training or sent staff to external training after participating in CERTIF as they felt that not only themselves but also their staff should increase their capacity. This raised awareness will also be of advantage to the CERTIF Institute itself when designing new programs for non-executive staff as certified directors seem more likely to send their employees to further training after first participating in CERTIF training themselves. When asked whether participation in CERTIF helped them in better managing their institution 96.72% replied positively. Concrete measures implemented are found in all areas of their businesses with most examples given in credit risk management (37), HRD (35), costing and pricing (34), and both business planning and marketing (31). Figure 13: Number of Concrete Improvements after CERTIF

0

5

10

15

20

25

30

35

40

ALMA

Busine

ss Plan

ning

R&S

Costin

g & Pric

ingCRM

HRD

Intern

al Con

trol

Marketi

ng MIS

Microfi

nanc

e

Source: own calculation


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In the area of ALMA most actions taken were on optimizing and/or diversifying sources of funding and deposits based on increased knowledge on time matching, liquidity schedules, cash ratio, etc. This has, according to the directors’ own assessment, led to more accurate and detailed liquidity planning and management. Improvements in the area of business planning were manifold: a number of BPR only introduced proper business planning exercises and annual work planning after participating in CERTIF. Analysis of the previous year’s business plan and monitoring of current plans was also not a standard in some institutions. More strategic use of business plans through developing a vision and mission statement and through setting of goals and targets - both short and medium to long term -was also mentioned. In general, CERTIF seems to have contributed to changing directors’ perspectives on their management style. The importance of more teamwork: to include their staff in business planning was also an innovation introduced by some directors. Better understanding of regulation and supervision helped BPR increase their ratings as they are now familiar with the components of the CAMEL system used by BI and the factors influencing it. Through getting to know more about the ’Know Your Customer’ regulation, improvements in credit risk management were also implemented. Costing and pricing was one of the areas were directors felt their competency had improved most. Optimized price calculations based on acquired knowledge of the various funding cost elements and skills to calculate base lending rates was - overall - one of the most mentioned improvements. In many institutions pricing is still often based on what other institutions charge for their products rather than looking at the in-house cost structure. This improvement will certainly give BPR a much stronger market position and a competitive edge in the future. A broad range of concrete actions taken after participating in CERTIF was mentioned in the area of credit risk management: introduction of new credit policies, more meticulous credit screening based on the ‘6C principles’75 and credit committees, improved credit monitoring and loan tracking, and use of different options to collect overdue loans. As raised in the beginning of the paragraph, the single most important improvement in the area of HRD is that directors have more of their staff participating in further training either given by themselves (thus, making use of their own increased knowledge) or by external providers. Introduction of employment handbooks, both changes in the organizational structure as well improved and more transparent recruiting based on job descriptions, and the introduction of incentive and job rotation systems were amongst the answers given. Internal control improved in a number of BPR due to the introduction of new policies and manuals based on the four-eye principle and a system of checks and balances. Changes were also made concerning the organizational structure and reporting lines. Market analysis and segmentation helped BPR to better tailor their products to their customers’ needs and better marketing of their services. Developing a marketing strategy using a wide range of communication channels was also mentioned as was the introduction of quality assurance mechanisms due to an increased customer and service excellence orientation. Actions taken in the area of MIS mostly centered on introduction of improved hard- and software but also included the development of new databases and reporting requirements. The module on microfinance best practices helped directors to re-focus their institution on their core business and to develop appropriate products for and incentives to their major target group, i.e. poor and low-income households. More than 70% of the directors attributed concrete improvements in their institutions to CERTIF. However, this progress was mostly connected to better performance and/or

75 5C + 1C: Character, Capacity, Condition of business, Capital and Collateral, + Cash flow projection.


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management of the institution in general. Only a few directors saw a direct relation to e.g. higher returns, lower NPL, better BI rating, increases in assets and customers. Quantitative data analysis reveals that the ROA for BPR with certified directors have even decreased in 2005 from 3.77% to 3.59%. However, the ROA for the BPR industry as a whole have dropped even lower during the same timeframe. ROA for private commercial banks also decreased from 3.46% in 2004 to 2.55% in 2005.76 No statistically valid assumption on whether CERTIF has contributed to the comparatively lesser decline in ROA can be made at this point, particularly since the data also shows that directors who attended the first examinations are also running institutions that showed a better performance than the average BPR in the years before the introduction of CERTIF. Figure 14: ROA for BPR with certified Director

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%

2003 2004 2005

Year

CERTIF BPRAll BPR

Source: BI data, own calculation Also the loan portfolio quality of both BPR with certified directors and the BPR industry as a whole worsened in 2005. The NPL ratio even increased more for BPR with certified directors than for the average BPR. Nevertheless, NPL figures for BPR with certified management were still considerably lower than those of the overall BPR industry.

76 Data for private commercial banks and the BPR industry is taken from BI Perbankan Indonesia Vol.4, No.5, April 2006.


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Figure 15: NPL for BPR with Certified Director

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

2003 2004 2005

Year

CERTIF BPRAll BPR

Source: BI data, own calculation The quantitative analysis has not shown any significant difference in the performance of BPR with certified directors and those without certified management. This can partly be attributed to the short time span since the first examinations which has not allowed the directors to implement changes or, if they introduced new practices, has not yet resulted in concrete improvements. Additionally, CERTIF is only one factor in the complex BPR environment: both the BPR industry and the commercial banking sector were facing a number of challenges in 2005 which resulted in weak performances in terms of ROA and NPL. Certainly, CERTIF alone is not sufficient to reverse these negative trends.

4.2.3.3 Environment and Clients 70.49% of the directors in the survey believe that participation in the CERTIF program increased the public’s perception of them personally and their institution. However, they mostly did not attribute this to the CERTIF brand as they felt that most customers did not know about the certification system itself. Directors rather saw an indirect link between the better management and performance of their institution due to CERTIF and improved customer relations.

4.2.3.4 Business Relations 83.87% of the participants were of the opinion that they could improve their image vis-à-vis other financial institutions after passing the CERTIF test. 56.52% of the directors asked believe this helps them enter into business relations with other financial institutions, mainly through the BI linkage program. However, only a few respondents could already give examples of concrete results, i.e. newly signed-on lending agreements, etc., which they would attribute to CERTIF. Nevertheless, the importance assigned by commercial banks to the CERTIF program is shown below; this supports the assumption that through an enhanced image of the BPR industry the financial sector will be more willing to on-lend through these MFI.


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4.2.4 Results at the Training Industry Level CERTIF trainings are carried out through nine training partners. All but one (LPPI) are subsidiaries of Perbarindo. Questionnaires were sent to all institutions but only five participated in the evaluation. All institutions stated that being a CERTIF partner has contributed to increasing their own capabilities and to improving their service quality. An overview of their answers is given hereafter. Table 13: Assessment of the CERTIF System by Training Partners

Impact Level Bali Greater Jakarta

Central Java South Sulawesi

North Sumatra

Institutional What kind of support did you receive from CERTIF in preparing the courses?

Checklists, trainer preparation, program preparation

Trainer preparation

Administrative support

Course preparation

Technical support for timing of the training and preparation of trainers and materials

Have the management processes concerning training roll-out been improved due to CERTIF support?

Yes Yes Yes Yes Yes

Which concrete actions did you implement based on CERTIF’s. advice?

Training spot selection, quality of trainers

Training schedule

Increased efficiency

More planned and systematic training provision

Improved management, supervision, technical management of training

Which advantages/ disadvantages has being a CERTIF training partner brought for your institution?

Knowledge of certification (+)

Strong market position (+), limited range of products (-)

Capability to carry out trainings (+)

Experience and increased knowledge about profitability (+), less time (-)

New experience (+), at the beginning limited financial resources (-)

Has the support given by CERTIF also helped you in developing and/or organizing other training?

Yes Yes Yes Yes Yes

What influence has being a CERTIF partner had on your income/ profitability situation?

Increased income

Increased income, but still negligible

Increased income

Increased income

They already had fair income

Where in the partnership do you still see room for improvement?

Program for non-directors

Program for commissioners and managers

No accreditation by CERTIF yet

Capacity of facilitators should increase

Cooperation with other training providers

Trainers


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Which skills could trainers who participated in CERTIF acquire?

Inter-personal skills, increased knowledge, orientation towards banking sector

Better training delivery

Training delivery skills, modules knowledge, interaction with participants

Increased commitment and cooperation of trainers

Did this contribute to improvements in your overall business (design of new non-CERTIF training materials, etc.)?

Yes Not yet (only one product so far)

Yes Yes Yes

Could trainers who participated in CERTIF improve their personal position (better jobs, etc.) due to their new skills?

Increased performance and reputation

Yes No Yes Yes

If CERTIF trainers left for new jobs, did this have negative side-effects on your institution?

The possibility exists as they needed to train new trainers

No No Yes as the number of trainers is limited

No

Environment/ Clients

Has your participation in CERTIF improved your institution’s image amongst potential clients?

Yes Yes Not yet Yes Yes

Has this created any competitive advantages compared to other training providers?

Yes Yes Not yet Yes Yes

Source: own table Financial data is available for only two institutions. For both institutions, income increased by more than five times after they were included as CERTIF training partners and profits rose by 176% and 2,453% respectively.

4.2.5 Results at the Financial Sector Level One declared target for the introduction of the CERTIF system is to improve the image of the BPR industry and, by this means, to increase their chances for entering into business relations with other formal financial institutions. Of particular interest here are commercial banks which participate in BI’s linkage program. Through the linkage program, the commercial banking sector which is over-liquid is encouraged to lend to micro-, small and medium-sized enterprises via the BPR industry. In 2005, 25 commercial banks participated in the linkage program and disbursed credit through BPR amounting to Rp 1,530 bn.77

77 See Bank Indonesia press release 8/3/PSHM/Humas of January 26, 2006.


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Interviews with the three most important linkage banks, namely Bank Mandiri, Bank Niaga and BII, were conducted to assess their level of knowledge about the CERTIF system and to find out whether their view on the BPR industry has changed due to the introduction of CERTIF. Table 14: BPR Linkage Banking Partners

Bank BPR Partners Business Volume Program since Bank Mandiri78 1,100 ~ Rp 800 bn 2003 Bank Niaga79 138 Rp 331.3 bn 2001 BII80 108 Rp 213.7 bn 2003 Source: Bank Mandiri, Bank Niaga, BII, own table For all three banks the capacity of the management is one decisive factor when selecting partner BPR. However, both Bank Mandiri and Bank Niaga state that in some BPR the capabilities of owners and/or commissioners are more important than those of the directors. This is due to governance problems in some BPR: even though formally owners and commissioners only have supervisory roles, they often interfere in day-to-day management. All three banks know about the CERTIF program and they are aware that the system assesses the capabilities of BPR management. CERTIF has acquired such a reputation that the by far largest provider of linkage bank services, i.e. Bank Mandiri, will make certification of key personnel in BPR a selection criterion when assessing BPR. The following table shows in more detail the linkage banks’ perception of CERTIF: Table 15: Assessment of the CERTIF System by Linkage Banks81

Bank Mandiri Bank Niaga BII What are the main factors when selecting BPR partners?

Soundness rating from BI; Performance of past two years; Working capital needs as deriving from the business plan; Management (director or owner)

Assessment based on CAMEL

Soundness rating from BI; Net NPL; Management

How important is the level of knowledge/education of the directors of the BPR when selecting partner BPR?

Very critical: Based on their surveys, most directors have no background in economics, accounting or management. Experience in a financial institution can compensate, though.

Quite important: One of Bank Niaga's assessment criteria is that the key personnel in the BPR should have experience in the banking sector of at least three years.

Very important

78 Data as of December 2005. Information provided by Bapak Agus Santoso, Team Leader of Bank Mandiri Micro Banking Sales Group 79 Data as of March 2006. Information provided by Ibu Vietrina Hafriany, Bank Niaga Low End Commercial Business Development Division, Business Development Group 80 Data as of March 2006. Information provided by Ibu Etiko P Kasdi, Bank Internasional Indonesia (BII) 81 Information obtained from questionnaires filled in for Bank Mandiri, Bank Niaga and BII by Bapak Agus Santoso, Ibu Vietrina Hafriany and Ibu Etiko P Kasdi respectively.


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What is more important: the knowledge/experience of the director or of the owners/commissioner when selecting partner BPR?

First of all the director's capabilities are of importance as he is in charge of day-to-day management. However, also the owner must be factored in as he makes sure that the BPR meets its targets.

It depends on who the key personnel in the respective BPR is: sometimes it is the director; in other cases the owner or commissioner has more influence on the management of the BPR.

Director

Do you know about the CERTIF program for BPR directors?

Yes Yes Yes

What do you think of the CERTIF program?

CERTIF is a powerful tool to assess the capabilities of key personnel managing the BPR

Although Bank Niaga has no detailed information, they know that directors have to pass the exam to qualify for their position. The perception is that CERTIF is similar to the ‘Fit & Proper’ test by BI

BII has a positive impression of CERTIF as it encourages BPR directors to improve their capacity in order to maintain the quality of the services in their BPR

Is it important for you to know whether your partner BPR participate in CERTIF?

Yes Yes Yes

When analyzing new possible partner BPR, do you ask whether the directors already have passed CERTIF examinations?

Yes - in future, Bank Mandiri will require that partner BPR have certified directors

Not Yet Yes

Source: own table The fourth-largest commercial bank in Indonesia in terms of assets, i.e. BRI, is also one of the main competitors for BPR in the microfinance sector. This largest provider of microfinance services worldwide has learned about the certification program and approached CERTIF for developing a course for its microfinance branches. This clearly shows the positive image CERTIF has acquired amongst financial sector players.82 The largest non-bank financial sector institution dealing with BPR is the national investment company PT. PNM. As one of the most important supporting institutions for the BPR industry PNM has been involved in the establishment process of CERTIF for a long time and participated in many stakeholder discussions. Besides the conceptual input and technical advice given at these occasions, a number of PNM’s staff is part of CERTIF’s trainer pool. Being a major provider of training for BPR itself, PNM is very aware of CERTIF and actively 82 For the time being, CERTIF can not fulfill this request as it faces the already mentioned risk of overheating. Additionally, while from a sustainability point of view generating this kind of additional income would be highly desirable, CERTIF focuses on other types of microfinance families first as they would otherwise have no chance to develop their own training materials. Due to its size, BRI could also develop in-house training and certification.


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promotes the certification system. Part of PNM’s mission is to increase access to finance for financial and non-financial institutions in order to create opportunities for employment and to enhance social welfare. PNM implements both credit and capacity building programs for micro-banks, microfinance cooperatives and other MFIs. In doing so PNM sees CERTIF as a strategic partner in enhancing capacity in the microfinance sector. All this would also make PNM an ideal addition to CERTIF’s supervisory board in the future.

4.2.6 Results at the Policy Level CERTIF has become the flagship of capacity building efforts in the Indonesian microfinance sector. Policymakers and other important stakeholders in ministries, BI and lobbying organizations are aware of the certification system and the benefits deriving from it. Clearly, BI as one of the drivers in the establishment process has played a pivotal role in bringing certification and standardization in capacity building to the policy agenda. The CERTIF system has been institutionalized in two regulations issued in 2004 and is part of BI’s development strategy for the banking sector (API). CERTIF is bound to become an important pillar of the development strategy currently being drafted for BPR and scheduled to be issued later this year. This breaks down the general strategy outlined in API to rural banks. Through its participation in microfinance policy discussion forums such as FoMFI83, BI also brought the issue of quality assurance and standardization in capacity building to the attention of other policymakers in the area of microfinance. Thus, one outcome of CERTIF is the increased awareness of policymakers of the importance of high-quality capacity building and the possibilities a certification and standardization system offers to assure the quality of training provision and an increase in human capacity. Another important lesson learned from CERTIF is that such a system comes at a certain price: thus, the draft National Policy and Strategy shifts focus of government support from direct provision of credit towards investment in capacity building. The most visible effects of the CERTIF system are the discussions currently underway in the MoCSME. The envisaged introduction of a standardization system will have a huge impact on the capacity of personnel in tens of thousands of cooperatives dealing with microfinance. CERTIF has clearly changed the way many policymakers look at the issue of capacity building. While this is already an important outcome of the project, it is still too early to assess any impact as neither the BPR development strategy nor the Microfinance Policy and Strategy have been issued and the discussions within the MoCSME are still in the early stages. Nevertheless, the impact of CERTIF in Indonesia will certainly be felt over the next couple of years.

4.3 Increased Efficiency Efficiency is a must in modern project approaches, particularly in times of shrinking budgets for technical assistance. Together with the evolution of result-oriented development

83 The Discussion Forum on Microfinance Policy Issues in Indonesia (FoMFI) was initiated by ProFI in August 2004, and is a stakeholder forum which has prepared a draft on microfinance policy and strategy. This draft is currently being revised under the lead of the Ministry of Finance and should have been finalized by October 2006, which has not been achieved, though. The forum is composed of BI, the relevant ministries, important financial sector stakeholders, microfinance representatives, and the international community.


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cooperation84, initiatives to make more efficient use of available resources were started a) at the project level, b) within development agencies, and c) for development cooperation in general. For the latter, the Millennium Declaration calls for more cooperation between development agencies and further harmonization of their efforts. On an institutional level, efficiency gains and synergies can be created through internal reorganization aimed at leaner management structures, bundling of small projects into larger programs, and other restructuring efforts. At an individual project’s level, efficiency is hoped to be gained through more flexible use of personnel and financial resources as well as a broader range of instruments and tools. As already shown, ProFI used such a flexible approach during the establishment process of CERTIF which allowed for the tailoring of support measures to the needs of the newly established system and Institute. The success of CERTIF was achievable only because ProFI invested considerable financial resources into the establishment of the system over a period of four-and-a-half years from January 2002. Over the period from September 2002 to December 2006, ProFI will have spent €1.34 million on consultancy input, implementation of the pilot project and support for the CERTIF Institute. International consultants’ assignments amounted to 39 man months. Input provided concerned:

1. Concept and strategy development 2. Market assessment and business development 3. Curricula and material development 4. Institutional set-up: legal issues and statutes, organization, working procedures 5. Management support 6. Institution building and organizational development

Additionally, ProFI has sponsored ToT at a cost of more than Rp 392 million (app. €33,000). During the pilot phase in East Java the local Perbarindo chapter and its training subsidiary were supported with over Rp 650 million (app. € 55,000). This brings the total amount for support measures to €1.43 million. This figure does not yet include the considerable input provided directly by ProFI personnel. Clearly, due to the fact that the certification approach was a very new concept and a number of hurdles had to be overcome on the way to the establishment of the system, the process has taken quite some time. In particular, the original training course development was too lengthy. There is certainly scope for increased efficiency within this and other processes when replicating such a system elsewhere. Today, CERTIF is a very lean system and organization where attention is paid to not incurring any unnecessary expenditure as this would harm profitability and long-term sustainability. From a technical cooperation agency’s point of view the CERTIF system has entered a stage where high impact at low cost can be achieved: support has been phased out over the past months and only a few concise short-term inputs on technical matters are scheduled for the months to come. Participation in the Supervisory Board is neither cost- nor labor-intensive. Additionally, technical assistance to the training providers has been outsourced to the certification institute itself so that the system of today is a very efficient and effective way for technical cooperation agencies to support capacity building.

84 The development of result-based monitoring systems is a necessary prerequisite for increasing efficiency as only now are impact and benefits deriving from interventions measured accurately and, thus, cost-benefit relations can be scrutinized.


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5 Replication of the Model

5.1 Where and When does Replication make Sense? Based on the preliminary findings, the certification approach applied in Indonesia to increase human capacity in the microfinance sector can be considered a success. Thus, replication of this model is an interesting option for other countries where the microfinance sector faces similar challenges. The question is, in which countries is replication suitable and what are the main issues? As has been shown in Chapter 3.2 the three main favorable conditions identified for the CERTIF approach are:

1. A favorable political environment 2. A developed (and segmented) microfinance market 3. An established training provider market

All three aspects have to be dealt with but do not necessarily represent prerequisites for the establishment of such a system. They can also be addressed simultaneously with the capacity building efforts. As has been shown, capacity building should be embedded in a broader microfinance sector development strategy. Policymakers, microfinance stakeholders and the international community can jointly develop a conducive microfinance policy while establishing the system. Main features of such a policy would include highlighting the importance of HRD including microfinance training, and the provision of the necessary resources focusing on the development of a demand-driven microfinance market, and using smart subsidies to support the establishment of a sound and viable capacity building system. Establishment of a certification system through a joint stakeholder effort makes most sense when the microfinance market consists of a large number of individual MFI which are not able to develop their own training due to their small size. However, in microfinance environments which are dominated by one or few very large providers, a certification system might also be applied as it allows for internal human resource management based on skills and competencies proven in examinations. Additionally, other outcomes of the system such as the improved image of microfinance institutions and the impact at the policy level also justify establishing such models in mono- or oligopolistic microfinance environments. In most countries, capacity of the training provider market is very weak. Also in the case of CERTIF a number of training providers had to be supported comprehensively in order to prepare them for the provision of high-quality training. Thus, also in situations with no or only few training providers and capacity of existing institutions being very weak, a certification system can make sense if at the same time sufficient support for the establishment of and/or support for training providers is made available. One advantage of the CERTIF system is that at one point in time the certification institute itself can take on this technical assistance role. The following figure shows the establishment process of a certification system. During the preparatory phase the policy environment, the microfinance market, and the training provider market need to be assessed and actions taken accordingly. Project implementation then follows the basic outline of the establishment process of CERTIF as described in Chapter 3.3.


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Figure 16: Flowchart for the Establishment Process of a Certification System

Source: own figure

Yes

Yes

Yes

No

No

Yes

Yes

No

No

MF sector fragmented?

Develop training program with mono/oligopolistic microfinance

provider/s

Microfinance policy in place?

Work on microfinance policy that puts emphasis on capacity

development

Training market exists?

Support development of training provider market

No

Establishment of a certification system

Form discussion group with all relevant

stakeholders

Capacity development for the microfinance sector

Prepare legal and regulatory basis for the

establishment

Agree on core goals of the system (standard setting,

skills and competency base, quality assurance)

Proj

ect I

mpl

emen

tatio

n

Embed certification system into existing

institutional set-up and support integration

Found and set-up new institution and invest in

organizational development

Develop mechanisms and procedures for course development, partner

preparation and exams

Institutional home exists?

Develop first product, select training partners

and prepare them through ToT and workshops

Develop and hold first examinations

Are operations running

smoothly?

Expand product range

Low capacity has been identified as a key weakness of the sector

Fine-tune processes and continuously improve

product range


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5.2 How to Make Use of Lessons Learned? Valuable lessons have been learned during the establishment process which can be translated into an even more efficient implementation of this approach in other countries. As shown in Chapter 3.6, experience shows that it is important to:

• Embed capacity building into a broader sector development strategy; • Provide enough time for conceptual discussions; • Leave opportunities open; • Ensure independence of the system; • Provide enough resources for institutional development; • Use ’smart’ subsidies; • Not be too comprehensive; • Not neglect institutionalization for operational tasks; and • Set visible signs.

Of course, a lot more has been learned as the curricula and training materials were developed, manuals and guidelines were prepared, and knowledge and experience acquired. The local stakeholders, most of all the people from the CERTIF Institute themselves, and the technical cooperation partner GTZ will gladly share their skills and competencies on how to successfully establish a certification system for microfinance managers and will contribute to efficient and effective replication of the CERTIF approach.


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6 Bibliography ADB (2003): Commercialization of Microfinance – Indonesia, Manila, Asian Development Bank BI/GTZ (2004): Proceedings of the High-Level Policy Meeting on Microfinance and Rural Finance in Asia, Yogyakarta, Indonesia 26-28 February 2004, Jakarta, BI/GTZ Helms B. (2006): Access for All – Building Inclusive Financial Systems, Washington, CGAP Holloh D. (2000): ProFI Baseline Survey – Bank Perkreditan Rakyat (BPR) in East Java, Bali & Nusa Tenggara Barat, Denpasar, GTZ Holloh, D. and H. Prins (2006): Regulation, Supervision & Support of Non-bank, Non-cooperative Micro-Finance Institutions, Jakarta, GTZ CGAP (2004): Building Inclusive Financial Systems – Donor Guidelines on Good Practices in Microfinance, Washington, World Bank GTZ (2004): Results-based Monitoring - Guidelines for Technical Cooperation Projects and Programmes, Eschborn, GTZ GTZ (2005a): Background Paper on Microfinance Policy and Strategy, Jakarta, 2005, GTZ GTZ (2005b): Der Beitrag von Mikrofinanzierung zur Erreichung der Millennium Development Goals (MDGs) und des Aktionsprogramms Armut 2015 - Die Erfahrungen der GTZ, Eschborn, GTZ GTZ (2005c): Sustainable Development, Eschborn, GTZ GTZ/Bankakademie (2000): The Establishment of a BPR Training System in Indonesia, Frankfurt, ProFI Project Document, GTZ GTZ/Bankakademie (2001): Design, Planning and Implementation of a Training System for Small Financial Institutions BPRs/LPDs in Indonesia as a Specific Component within the ProFI program, Jakarta, ProFI Project Document, GTZ GTZ/Bankakademie (2002): Train the Trainer Program for the Core Trainer Team, Frankfurt, ProFI Project Document, GTZ IHE/UNDP (1991): A Strategy for Water Sector Capacity Building, Proceedings of the UNDP Symposium, Delft [The Netherlands], 3-5 June 1991. IHE Report Series No. 24., Delft, UNDP ILO (2002): Training and Skills Acquisition in the Informal Sector: A Literature Review, Geneva, ILO Linda Mayoux (2006): Learning and Decent Work – New Directions in Training and Education for Pro-poor Growth, Draft Discussion Paper, ILO


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OECD (2003): Enhancing Consumer Protection in Cross-Border Higher Education: Key Issues related to Quality Assurance, Accreditation and Recognition of Qualifications, Trondheim, OECD OECD/DAC (2006): The Challenge of Capacity Development: Working Towards Good Practice, Paris, OECD REDI and D. Johnston (2006): 2005/2006 BPR & LPD Customer Satisfaction Survey, Jakarta, GTZ Seibel, H.D. (2004): Islamic Microfinance in Indonesia, Eschborn, GTZ (updated 2005) UNCDF (2005): Microfinance and the Millennium Development Goals – A Reader’s Guide to the Millennium Project Reports and other UN Documents, New York, UNCD

Skills & Competence Catalogue for Sitting Managers

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7 Annexes Annex A CERTIF Skills and Competency Catalogue for BPR Directors

Professional Certificate for BPR Sitting Managers

Skills & Competence Catalogue

Objective: The Skills & Competence Catalogue defines the minimum scope of skills and competences that a person must have who receives a CERTIF BPR diploma. The skills and competences are formulated as learning objectives that a BPR manager must have achieved - verified through proper examinations.

Elements to be taken into account when defining the Skills & Competence Catalogue: Since the CERTIF diploma(s) are envisaged to replace the "Fit"-component of the "Fit&Proper" Examinations of BI, the minimum skills and competences that BI requires for BPR managers must be taken into consideration as the basic framework. This has several implications for the definition of the skills & competences, i.e. learning objectives, for each module:

• BI is particularly concerned about proper risk management in BPRs. Therefore, each module should present the respective technical area from a risk management perspective.

• BPR managers should not only understand basic risk management concepts but be able to implement them in practical terms. Therefore, all modules must have a clear focus on implementing practical instruments and methods that can be immediately applied. These practical tools and methods should help to mitigate risk and solve existing or potential problems in BPRs.

• Since the skills & competences, i.e. learning objectives, must be able to be tested and verified with each CERTIF participant, it is recommended to formulate them already in such a way that examination questions can be directly deducted from the catalogue.

Against this background, the CERTIF project team has reviewed the learning objectives as elaborated in a draft version in the December workshop. The CERTIF project team has built on this initiative and appreciates the excellent work done so far. The basic framework of the learning objectives for each module have been kept. Additionally, the CERTIF project team has elaborated suggestions for (i) reformulating some learning objectives to reflect even better the points mentioned above, (ii) amending some new learning objectives where considered appropriate. Modifications or amendments have been marked in bold& italics.


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Outlook: At present, the Skills & Competence Catalogue for BPR managers exclusively focuses on technical or subject-matter areas. This focused approach is appropriate given the current objective of the CERTIF diploma to enhance technical skills.

In other countries further more general management skills & competences are included as a separate more generic category. These general management skills & competences for example include presentation skills, reporting skills, team-building skills among others. Though incorporating these elements might be worth considering in the future, these should be taking into account when preparing the training materials. In this perspective, the development of the session guides and training materials should open opportunities for the participants not only to learn about technical subject matters, but also to enhance their general management skills. Therefore, there should be room for preparing individual and group presentations, situational role-plays, preparing little write-ups and promoting concrete decision-making for solving real-life problems.


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After participating in the CERTIF course, participants must be able to ....

1 BPR Business Planning and Annual Work Plan Preparation

1. Define the vision/mission of a BPR 2. Assess the environment impacting on BPR

business operations, including market potential, competition, legal environment

3. Carry out a BPR SWOT analysis 4. Define a market positioning and growth

strategy 5. Define financial products to be offered and

their respective conditions (interest rate, term structure, repayment conditions, collateral requirements)

6. Define business targets and develop projections for the loan portfolio and deposit products

7. Define efficiency (workload) and risk parameters (anticipated loan loss)

8. Develop an investment plan 9. Project financial statements based on the

assumptions 5-8) 10. Carry out a sensitivity analysis of the

business plan and annual work plan 11. Assess the financial performance for

different scenarios and identify necessary risk mitigating techniques

12. Prepare annual workplan as required by BI

After having attended this module, you ... will be able to prepare a business plan and annual workplan for your BPR.


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2 Credit Management 1. Define appropriate credit policies to mitigate loan loss risks

2. Understand the risk profile of different loan types (consumer loans, working capital loans, investment loans)

3. Assess sector risks and develop an appropriate risk mitigating strategy

4. Assess loan applications and coach loan officers during loan processing

5. Implement appropriate loan monitoring

6. Handle problem loans and get engaged in loan work-out

7. Assess the loan portfolio quality and define appropriate benchmarks

8. Develop appropriate techniques for controlling delinquency

9. Implement appropriate loan loss provisioning and write-off policy

10. Define and implement appropriate loan portfolio management techniques

After having attended this module, you ... will be able to ensure high loan portfolio quality in your BPR.

3 Asset-Liability-Management

1. Explain basic concept of ALMA, relation between return and mismatch risks

2. Analyze financial statements

3. Assess the profitability structure (cost of funds, administrative costs, provisioning/write-off, yield on performing assets)

4. Define and assess maturity GAP (liquidity risk, interest rate risk)

5. Define and apply sound treasury policy with benchmarks

6. Identify when it is appropriate to set up an ALCO and how to implement an effective ALCO

After having attended this module, you ... will be able to assess different risks and price these risks accordingly for your BPR.


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4 Marketing BPR Products

1. Understand client needs of different market segments

2. Explain basic marketing concepts

3. Develop and implement marketing strategies for promoting the BPR as an institution

4. Develop and implement marketing strategies for promoting BPR products and services

5. Strengthen sales capacity among front-office staff

6. Know and apply customer relationship management techniques (service excellence)f

7. Plan and implement product refinement and the development of new products

8. Develop a marketing plan and draft a marketing budget

After having attended this module, you ... will be able to make a marketing plan for your BPR. 5 Market Analysis 1. Know and apply different market information

collection instruments 2. Analyze relevant market information for

target market 3. Assess market potential for BPR growth and

range of products (old and new) 4. Assess the level and structure of

competition in the market 5. Develop an appropriate market positioning

strategy

After having attended this module, you ... will be able to assess the market potential for your BPR and position your BPR appropriately in the market.


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6 Assessment of Desa-Kota Potentials with the RRA

1. Understand the basic concepts of RRA

2. Identify for what purpose which RRA tool generates the most cost-effective result

3. Apply a variety of RRA tools to assess the market potential for a BPR

4. Crosscheck RRA results with other information sources

5. Prepare a workplan for RRA studies

6. Analyze RRA results and develop an action plan

After having attended this module, you ... will be able to plan a RRA study.

7 Legal Aspects Credit Management and Business

1. Define the legal subjects of a loan contract

2. Know the minimum requirements for a legally perfect loan contract

3. Register collateral (moveable and non-moveable, personal guarantors, pledges) appropriately

4. Know the minimum requirements for safeguarding/storing legal documents

5. Understand and follow the legal procedures of foreclosing a loan

6. Understand key elements of the current business law and ist implications for loan appraisal (cluster risk through related parties, collateral base)

After having attended this module, you ... will be able to prepare proper legal documents for lending.


84

8 Management Information System (MIS)

1. Understand and analyze the different information needs in a BPR (manager, head of department, loan officers, board of directors)

2. Define the minimum standards for collecting reliable data on time

3. Develop MIS report templates for different levels

4. Define MIS indicators and respective benchmarks

5. Define a MIS reporting system, indicating frequency of MIS reports and responsibilities

6. Analyze MIS reports and take subsequent decisions

7. Understand the current availability of integrated MIS software

After having attended this module, you ... will be able to design a proper MIS for your BPR.

9 Management Accounting

1. Understand the basic accounting principles

2. Explain and use the standard chart of accounts

3. Identify/capture gross accounting mistakes and fraud

4. Apply accrued-based accounting principles for the administration of income/expenses

5. Control the preparation of BPR financial statements

6. Administer sources of funds

7. Place excess liquidity

8. Prepare BI compulsory reports

After having attended this module, you ... will be able to prepare BI compulsory reports.


85

10 Costing and Pricing 1. Understand the relation between cost and income

2. Explain different cost categories

3. Understand the cost structure of a BPR

4. Identify cost-saving potential regarding administrative expenses in a BPR and take respective measures

5. Calculate total cost of funds (for various funding sources)

6. Calculate loan interest rate

7. Calculate break-even for new products or new branches

After having attended this module, you ... will be able to price the savings and loan products of your BPR profitably.

11 Managing a BPR applying Bank Ethics Code of Conduct and Good Governance Principles

1. Understand bank ethics and code of conduct

2. Understand the role and function of the Annual Assembly, the board of directors, supervisory board and bank management

3. Define appropriate rules and regulations for assuring good governance

4. Analyze dilemma situations and take appropriate decisions

After having attended this module, you ... will be able to promote good governance in your BPR.


86

12 Internal Controls and Auditing

1. Understand the objectives and functions of internal control

2. Explain internal control principles and apply them to BPRs

3. Implement a monitoring system to assure that the internal control system operates effectively

4. Explain internal auditing principles and procedures

5. Develop an internal audit plan 6. Define the minimum requirements for

different types of internal audit reports 7. Analyze internal audit reports and define

appropriate follow-up actions

After having attended this module, you ... will be able to develop a comprehensive internal control system and draft an internal audit plan.

13 Bank Regulation and Supervision - BI Reporting

1. Explain key elements of BPR law and regulations

2. Explain the objectives of BPR supervision

3. Explain the supervisory procedures

4. Explain under what circumstances and how BI might intervene in BPR

5. Apply the BI rating criteria in practice 6. Analyze the reasons for an unsatisfactory

rating and develop suggestions for improving BPR's performance

After having attended this module, you ... will be able to rate your BPR according to BI standards.


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14 General Management and Human Resource Management

1. Develop an attractive, motivating compensation package for BPR operational staff (training, promotion, performance-based remuneration system, other fringe benefits etc.)

2. Recruit good staff, place and train new staff

3. Evaluate staff continuously and provide necessary feedback

4. Identify ineffective staff and implement appropriate retrenchment procedures

5. Manage his/her time more efficiently 6. Organize the BPR back-office most

effectively and efficiently 7. Develop regular workplans and monitor the

achievements of results appropriately 8. Understand and practice different leadership

styles

9. Manage conflicts constructively

After having attended this module, you ... will be able to attract and retain qualified staff and manage your BPR most efficiently.

Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) Gmbh

German Technical Cooperation Dag Hammerskjold Weg 1-5

65726 Escborn / German T: +49 61 96 79 – 0

F: +49 61 96 79 – 11 15 E: [email protected]

I: www.gtz.de

ProFI JakartaBank Indonesia Radius Prawiro Building, 2nd Floor Jl. MH. Thamrin No. 2 Jakarta 10110 / Indonesia T: +62 (0) 21 386 6384 F: +62 (0) 21 235 49156 E: [email protected] I: www.profi.or.id