> Posted by Bobbi Gray, Research Director, Freedom from Hunger
Known as the “hardest interview you’ll have with a client,” the interview you have with a client who is leaving is also, however, one of the most important interviews for a microfinance institution – and likely any organization or company concerned about the costs of client acquisition and retention.
The latest debates on the success of microfinance have encouraged Freedom from Hunger to dig deeper into our repertoire of “impact stories” and critically review the reasons why microfinance clients whose lives were not improving were dropping out, particularly since critics often suggest that microfinance tends to result in negative outcomes among participants.
Since 2007, Freedom from Hunger has been developing and testing an “impact story” methodology to discover client experiences that are representative of the entire clientele of an MFI or even multiple institutions, ranging from success to failure and whatever is happening in between.
Thus far, Freedom from Hunger has collected over 700 client impact stories from 25 local partners located in ten countries throughout Latin America, South Asia, and sub-Saharan Africa. Six countries were visited a second time after an interval of three or four years to re-interview the impact story participants. This is a significant effort to take qualitative interviews and conduct them with a small random selection of clients and use the information for fairly meticulous research purposes.
With these impact stories, we wanted to answer some basic questions. Why are some clients successful and why are some not? Why do some clients drop out? Are all the reasons for drop-out negative and does the drop-out result in a client being worse off than if they stayed a client? Can we tell if microfinance is to blame for their negative status? What can we do to improve?
The results of the assessment revealed that often the cause of drop-out was a series of events—a spiraling down effect—where a health shock, for example, leads to business failure, which leads to group challenges, and institutional policies and procedures prove inadequately protective, and the client drops out.
And not all reasons for drop-out are equal. In fact, health shocks, business failure, and village-banking group issues (the impact story interviews were among village banking clients) were found to be both the top contributing factors and root causes of client exit.
When this paper was shared with Anne Hastings, who is the Executive Director of the Microfinance CEO Working Group, she shared that when she was leading Fonkoze in Haiti, they found that health reasons and business failure were also primary causes of drop-out and that the two were intimately linked. Soon after, those two reasons would lead to problems in the group and then to default. She shared, “In Haiti, the health issues were so deeply rooted, so complex, and so diverse that sessions on health promotion and disease prevention were rarely enough to stem the tide. And insurance was even more complicated because there were so few doctors or clinics except in a few regions that it was hard to design anything practical. We did do training on business skills to try to address the problem of failures but again the efforts never seemed to match the size of the problem.”
Caitlin Scott, Social Performance Manager from Friendship Bridge, shared that the client exit interview is the “hardest interview you’ll have with a client,” primarily because it’s a challenge to find people who often do not want to be found and because there is the question about how honest a person will be or how much they’ll reveal. Also, like Anne’s experience above, Caitlin said that even if the causes are understood, finding the right institutional response is a challenge.
Daniella Hawkins, Social Performance Manager of Microloan Foundation, found that when conducting exit interviews, “The first ‘reason’ given is usually just the tip of the iceberg and delving deeper we realize that there are usually many interconnected issues that contributed.” The data in our paper basically confirmed these reviewers’ own findings, as well as many other practitioners’ findings
Finally, two additional reviewers, Frances Sinha, Managing Director of EDA Rural Systems, and Anton Simanowitz, who is an independent consultant and author, shared with us some technical insights into understanding drop-out. Frances first pointed out that because microfinance clients are primarily borrowers, client drop-out essentially translates to clients not being able to borrow again, which points to the general inflexibility of village banking and credit-led strategies. Additionally, she noted that often, through standard MIS data, MFIs can compare the differences among reasons for drop-out by urban and rural clients, age, and economic status. In her experience, “The clients who exit are often the more vulnerable clients, and therefore, a concern to understand and address reasons for exit is integral to a commitment to work effectively with the poor. Ultimately, what I see emerging is a ‘theory of exit’, along the lines of a theory of change, i.e. figuring out what leads to what as a chain of events and assumptions.”
When Anton worked with the Small Enterprise Foundation (SEF), “We saw drop-out as a pretty insensitive lag indicator, and looked at things earlier in the client journey such as missing meetings, late attendance, decline in savings (regularity/amount) as earlier indicators of stress.” SEF also monitored the drop-out rate per field officer in order to understand what percentage of the drop-out rate was due to unavoidable issues that clients faced and what percentage was due to things that SEF had control over or impact on. Anne similarly shared that Fonkoze took a similar approach: they based the entire credit officer bonus system on the success of the credit officer’s ability to retain clients and the delinquency rate among the clients they were serving. These were the best indicators for ensuring clients were not becoming over-indebted and that they were able to make repayments on time.
In conclusion, our findings are not particularly new, yet they may provide validation for individual institutions that monitor their drop-out rates and reasons behind drop-out. What does seem important, going forward, is a more intentional debate about where the responsibilities lie for drop-out, how far institutions can and do go to prevent drop-out, and what tools and processes are the most effective at unveiling the root and contributing factors for drop-out. Personally, I would love for client drop-out to be picked up as an agenda item for the global industry–even if the primary result would be in sharing best practices for measuring and understanding drop-out as well as the trade-offs that exist for preventing drop-out.
There are many opportunities to prevent drop-out, but there are as many challenges at making interventions financially sustainable. Not every financial institution can directly address a health shock, for example, but knowing where they can is an opportunity for not just client retention, but also for protecting livelihoods and lives of our current and future clients.
*Word cloud created using words from impact story interviews conducted with ex-microfinance clients
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