Breaking the Barriers: Market Expansion through Micro and Small Enterprise Lending
Introducing Individual Lending (IL) is often an important step towards delivering market-led microcredit. However in most cases, microfinance institutions (MFIs) introduce IL product as a reactive strategy. This note discusses the benefits of IL, the target clientele and challenges MFIs need to consider in developing the product. The features of IL product are distinct vis-à-vis group lending product in terms of loan size, loan repayment, collateral requirement, and loan sanctioning process. This note explains the reasons for which mature clients do not continue with group lending and also explains how IL is offered by MFIs to retain these customers. The note proposes that the IL can help MFIs to foray into new market segments for expansion and increase portfolio size and profitability. The note with the help of case studies explains the way IL can help MFIs in diversification of portfolio at risk and cross-selling of other financial products. The note further explains the challenges faced while targeting the group clients for IL and also discusses the challenges faced while getting fund support from the banks. The note proposes IL to MFIs for not only growing and improving profitability, but also to reduce portfolio concentration risk.