Fifteen years ago in the microfinance space you may have been able to get away with understanding very little about your clients. Without much competition, MFIs could probably still make a decent profit by offering one product to all their clients using only one delivery channel. Thankfully, those days are gone.
The base of the pyramid is no longer a hidden or forgotten market segment. In fact, according to the recently-released 2014 Microfinance Banana Skins report, the pendulum is swinging in the opposite direction. Overindebtedness once again tops the charts as the biggest perceived risk, perhaps indicating that many clients are now able to gain access to multiple services providers. In some areas, an excess of providers may now be crowding the market.
Having just returned from the MasterCard Foundation Symposium on Financial Inclusion in Turin, the clear takeaway was that financial inclusion providers need to deeply understand their clients’ needs in order to survive. There are new providers (e.g. mobile network providers, like Safaricom in Kenya) and disruptive business models/delivery channels (e.g. crowdfunding, the mobile-based savings coach of Juntos, the mobile banking services of bKash) that are game-changing in the financial inclusion space. There are also a number of organizations (e.g. ideas42, Bankable Frontier Associates, Bankable) who are effectively using data and behavioral science to provide important insights into client segments and behavior.
Given the increased competition and diverse group of providers and products racing to serve the base of the pyramid, I predict that the service providers who will survive in the future will be those who know their clients’ needs well and have an effective (cost and time) and value-based service. These factors will help allow the best providers to reach scale in a sustainable manner. Understanding your client can’t be a peripheral business function that is done once or as an infrequent “add-on.” Knowing clients needs to be an ongoing process as their needs and wants change frequently.
Business models therefore also need to be nimble and solutions-based.
The financial inclusion industry has grown up a lot, which is a good thing. It means the case has been made that the base of the pyramid is a viable client segment worth the time and effort to service. More providers/competition will ultimately lead to better and more cost effective products and services (given the necessary industry safeguards are put in place, of course). As is often true as markets develop, I think the days of MFIs actively collaborating to share client data, knowledge, and research that were longingly mentioned at the symposium are fading. Information that provides insights into client behavior or needs is quickly becoming a huge competitive advantage. I believe it will become less important whether service providers have a stated social mission and more important that they are client-centric in the very core of their business operations. May the best and most client-focused providers prevail!
Image credit: Michael Foley
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