The briefing note discusses the shift towards a market led approach in microfinance. It raises several questions relating to clients’ shifts in preferences, their exit and switching over to competitors’ products. This note identifies three components of market led approach—the client-product nexus, linkages between clients and institutions and the client’s financial landscape. It concludes with highlighting the emerging trends in microfinance which bring out some operational benefits that enable MFIs to lower service delivery costs, attract new clients and retain existing ones, all factors that contribute to long-term sustainability.
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Signposts to the provision of market-led microfinance services
This paper lists the following signposts to the provision of market-led microfinancial services that reflect MicroSave’s experience with its Action Research Partners:
Vision and mission statements: They focus on profitability by designing, developing and delivering quality customer responsive financial services. A competent board that prevents mission drift and supports a customer-focused agenda. The executive function: Focus on the customers; Ensure balance between the functions of marketing and operations; Hire and develop competent senior management; Plan the future; Be aware of the competition. Development and retaining of customer-focused staff by investing in: Training on delivering client focused services; Effective internal communication; Building staff capacity; Staff incentive schemes. Retaining customer-focus in the front-office operations through: A marketing department that maintains a customer-focus in all activities; A research department that looks into customer requirements; A strong brand; A feedback loop that welcomes suggestions from customers; A pleasant banking environment; Branch managers, who are knowledgeable about their local community. Support from back office operations in continually improving products and processes by: Pilot testing major changes; Actively managing risk; An information technology (IT) department that develops customer-friendly IT solutions; An internal audit aimed at ensuring efficient service delivery and customer satisfaction.
The paper concludes that a market-led transformation is beneficial to a financial institution in terms of increasing profitability and outreach. However, the institution needs to use great skill to take care of the resulting growth.
Lessons from Pilot Testing Financial Services – Experience of MicroSave
This briefing note presents key lessons learned from MicroSave’s work with its Action Research Partners (ARPs) on pilot testing new financial services. It also identifies key factors that lead to successful pilot testing such as detailed understanding of customer needs and creation of well-defined products that meet those needs. Moreover, it presents key lessons learned in all the ten aspects of pilot testing. The note also ascertains three major questions—What impact has pilot testing had on the Action Research Partners? Should we always pilot test new products? Should we always pilot test new products?—which are frequently asked before pilot testing.
Proactive Risk Management: Lessons for Microfinance Institutions
This note discusses the role of proactive risk management as an essential element to the long-term sustainability of a microfinance institution, which helps in early warning system for potential problems, efficient use of capital, and successful new product development and rollout. It also provides lessons relating to required organisational change, risk management feedback loop, importance of periodic risk management reviews, unforeseen events, counterparty risks, risks related to human resources, and suitable product development risks.
Strategic Marketing for MicroFinance Institutions
This note analyses the role of strategic marketing in optimising the delivery and communication systems of MFIs. MicroSave and a leading marketing company, TMS, have developed a frame of reference for the microfinance industry. The note brings out three central strategies—corporate brand and identity, product strategy, and product delivery & customer service strategy, which can help existing MFIs to increase/ retain their customer base. In the core of these strategies, the note explains that there are four key information packages which would cover the entire aspects of MFIs’ marketing strategies. These are—market analysis, customer analysis, competition analysis and PEST (political, economic, social and technological) analysis. The note concludes with the remark that strategic marketing may lead to staff satisfaction, customer loyalty, developmental impact and higher profitability.
Reducing vulnerability: Demand for and supply of microinsurance in East Africa
This paper synthesizes the findings from two studies carried out in Uganda, Kenya, and Tanzania. It examines the demand for risk management tools by the poor and gathers experience of seven institutions providing microinsurance to satisfy this demand. This paper identifies three major risks faced by poor people in East Africa: death of an income earner, illness, and property loss resulting from theft and fire. It reviews poor people’s current options for managing these risks and differences by gender and wealth levels. It then discusses implications for microinsurance, considering issues of coverage, access, timeliness, and affordability. The research findings reveal a huge opportunity for microinsurance in the low-income markets of these countries as the formal insurers cover only the top five to ten percent of the population and the rest are left to fend for themselves. The paper includes practical lessons for designing and delivering insurance products drawing on the views and experiences of clients, potential clients, and the institutions that aim to serve them.