> Posted by Hema Bansal and Alexandra Rizzi, India Manager and Deputy Director, the Smart Campaign
Over the past year and a half, while conducting several client protection assessments across India, I have often thought about what it takes for an institution to meet the Smart Campaign standards on appropriate products and delivery channels. Among its requirements, the Smart Campaign Certification standards state that providers design products that incorporate client characteristics – and needs, as well as customer feedback into new and existing product offerings.
From engaging with many financial institutions, I have seen that the product design and improvement process is influenced by multiple factors and can be quite complex. A particular challenge in India is the inertia of (and now regulatory emphasis on) the original Grameen lending methodology. While the Grameen joint-liability group methodology was the innovation that enabled millions without collateral to access small loans, its pervasiveness today can often overshadow additional products based on client characteristics and needs. The Grameen methodology has clear advantages for both the lender and the clients, particularly its scalability, but client needs often merit additional products in a lending portfolio. For example, products should have flexible payment options that adjust to clients’ economic and business cycles. Payment options should not limit themselves to mandatory weekly group meetings. They should encompass a wide array of payment periods (bi-weekly, monthly, quarterly, or semestral) and vehicles (pay loan officer, deposit at bank or partner intermediary, telephone payments, etc.) that are suitable to clients. Really the sky is the limit!
How can an institution move to diversify its product offering? In my experience, the will and motivation of the board and management is integral. These institutions generally recognize that they may take longer to break even or make returns compared to peers following standardized products. Managerial motivation trickles down into the MFIs’ systems and operational ability to offer new products. For instance, MFIs that create versatile back-office systems are better equipped to support product diversity. In addition, staff trainings are a key input into the successful roll-out of new products. In India, the current MFI staff training systems are not yet adequately geared toward diverse product lines. Training applies to clients, too. While most clients are able to comprehend product features of the core loan product, they are often confused by pension products, insurance benefits, or gold and housing loans. And of course, MFIs must invest in market research as well as effective client-feedback mechanisms so that products are informed by client needs and input. The combination of these activities is usually necessary for microfinance institutions to offer real product differentiation, and the absence of just one is sufficient to act as a deterrent.
All of the aforementioned activities require planning and money from a financial institution and thus the will from management must be present. While the path is not always easy, the benefits of committing to suitable products grounded in client needs are manifold. MFIs that look after individual client needs may find increased client retention, lower default rates, and perhaps most importantly, the potential to enhance client well-being.
Image Credit: Guardian/Karen Kasmauski/Getty
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