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Drop-outs, graduates, defaulters, and the excluded

Posted on by MSC

There is compelling evidence to support the contention that a significant majority of “drop-outs” occur because Microfinance Institutions’ (MFIs) financial services are inadequate or inappropriate to meet the needs of the clients they are trying to serve. The document reviews four such issues facing MFIs worldwide, with evidences drawn primarily from Bangladesh, the cradle of group-based lending:

  • that members leave MFIs usually because they are dissatisfied with the quality of financial services being offered by the organisation;
  • that members might “graduate” to survive without access to financial services;
  • that the single most effective deterrent for defaulters is the prospect of losing access to financial services – follow-on loans and savings facilities;
  • that it is the systems and (in particular) the financial services of the MFI which will determine whether members “self-exclude” or not.

Drop-outs and graduates – Lessons from Bangladesh

Posted on by MSC

The paper examines why the MFIs in Bangladesh suffer high drop-out amongst their clients. The study also seeks to improve understanding of why the current systems and services being provided by MFIs appear (on the basis of these drop-out rates) to be failing to meet the needs and demands of clients, and draws lessons for MFIs that wish to effect change.

The paper suggests that drop-outs are expensive for MFIs, both in terms of money already invested that is lost as the member leaves, and in terms of lost potential future business from the member. Thus, for these reasons, MFIs in quest to develop sustainable organisations should seek to improve/tailor the services they are offering in order to reduce client dissatisfaction which in turn would reduce drop-outs and aid in retaining high-value, graduating clients.