The debate between the proponents of maximising sustainability, outreach and scale and thus serving many poor people (including poorer people) and the proponents of targeting “the poorest of the poor” continues. The polarisation between the two camps of “sustainability” and “targeting the poorest” was encapsulated by the original positions of the Consultative Group to Assist the Poorest (CGAP) and the MicroCredit Summit. The debate is essentially a healthy one and should help all of us involved in the industry clearly focused on what matters: providing financial services to poor people. The paper argues for the inclusion of the ‘non-poor’ in MFI programmes to cross-subsidise outreach to the poor. The eventual impact of microfinance on poverty and the sustainability of MFIs will ultimately depend on the organisations’ systems and products. The overall challenge is to design appropriate products and efficient systems for the benefit of both MFIs and their clients
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The Relative Risks to the Savings of Poor People
Microfinance Institutions presently are not allowed to mobilse savings as per RBI specifications. The scepticism is grounded in two major arguments. One that MFIs would pose systemic risk due to their large scale operations, given that they might default; and second, that depositors would not be entirely safe, given the weaknesses of internal management and control systems in these institutions. As far as the former is concerned, MFIs presently do not have the penetration to pose systemic risk.
MicroSave carried out a qualitative and quantitative research in partnership with other the institutions in in Uganda to assess the relative risks involved in saving informally as compared to saving through institutions in the semi-formal and the formal sector. The research led to the conclusion that large scale erosion of savings presently taking place due to the poor saving informally, i.e. in kind for lack of any option, can be avoided if they are given the option of saving through the MFIs. The research revealed:
- 99% of clients saving in the informal sector reported loss of savings, mainly due to saving-in-kind
- 15% of those saving in the formal sector also reported loss of savings which was primarily due a cooperative bank closing
- 26% reported lost savings in the semi-formal sector which was primarily due to group lending mechanisms being preferred.
The findings establish that absolute deposit protection is never possible even in the formal sector. However, 99% losses occurring due to the poor saving informally can be avoided if they are given the option of saving through the MFIs. Detailed findings of the research can be read in this thought-provoking paper.
Assessment of the Use and Impact of MicroSave’s Market Research for Microfinance Toolkit
This note presents the findings from an assessment study of MicroSave‘s market research toolkit. In addition to a detailed description of the toolkit and the Participatory Rapid Appraisal Tools, the note presents the findings of the assessment study, which confirms the very positive value and effectiveness of MicroSave Market Research for MicroFinance toolkit.
Enhancing Responsiveness to Clients through the Feedback Loop
The note briefly discusses the eight phases in Feedback Loop and its significance in responding effectively to customer information. The eight phases of the loop are—information collection, information consolidation, analysis, reporting, decision making, delegation, communication, and implementation. It also draws lessons from five MFIs, which adopted this feedback loop, some of which include—client focused product innovations, improvements in systems, and issues related to time, cost and sustainability.
Dropouts in Northern Province, South Africa
The paper examines why two MFIs in north eastern South Africa suffer such remarkably high levels of drop-out amongst their clients. The field study also seeks to improve understanding of why the current systems and services being provided by the MFIs appear (on the basis of these drop-out rates) to be failing to meet the needs and demands of the clients, and draws lessons for MFIs that wish to effect change.
Use and Impact of Savings Services Among Poor People in Zambia
In Zambia the poor people use largely the informal and to a lesser extent semi-formal savings systems to accumulate long-term lump sums in preparation for life-cycle events. This study shows the importance of savings for smoothing out peaks and troughs in income and expenditure. Death and illness were found to be the most frequent emergencies during the study. This report outlines that offering savings services to the poor represent a tremendous opportunity for microfinance institutions (MFIs) to increase their depth and breadth of outreach in Zambia. Yet in Zambia there is a legal framework that does not allow MFIs to accept deposits from the public. Although a new legal framework is now in place, it is not yet effective. It also provides specific recommendations for improving product design and methods for linking informal savings services/systems into semi-formal and formal sector financial service operations and recommendations for MFIs seeking to introduce or diversify savings products into their portfolio of services.