Top 3 Strategies to Help Microfinance Get Its Groove Back
There has not been much comment on how the industry can be saved and be helped to get back on the right track where it was about 5 years ago. The comment below gives a flavor of how the microfinance industry can attempt to get back on track and continue to make an impact.
At the outset, most actors believe that microfinance does indeed reduce poverty and increase the level of financial inclusion for the unbanked. What I believe the industry needs however is hard and fast data to actually show the good that it does. Mix Market and Microfinance transparency are two organizations that have spearheaded data collection within the industry and have made some strides in getting data together that present the impact of microfinance in the lives of poor people.
These two organisations should however focus more providing data that gives more information on the quality of services given by MFIs rather than focus on numbers of borrowers reached for example. A focus on more qualitative data would help MFIs improve their products and how they interact with their clients and would also help the world see the non-financial impact that microfinance can make. They should also focus on providing more geographically representative data as my view is a lot of their data is India and Asia centric which a huge gap in African MFI space.
Innovation is a key area that the microfinance industry could explore further in order to improve its efficiency and possibly reduce its operational costs. For example, more MFIs should take advantage of mobile money for their clients which would mean that clients can settle their loans using their mobile phones and also receive payments250-265 using their phones. This would reduce the need to travel or complete numerous forms for loan disbursements. This could lead to increased efficiency and reduced staffing costs for Microfinance Institutions. This initiative has already been introduced by MTN Rwanda in partnership with other banks and financial institutions. MKESHO, another mobile money payment system has given MFIs and commercial banks in Kenya a true run for their money as the take-up by clients has been exceptionally high since its introduction.
‘Microfinance plus’ is another key area for consideration. By this I mean the additional (free) non-financial services that Microfinance institutions provide their borrowers. This could be Aids counseling, financial education, clinical services, or schools. Obviously the level and quality of the services provided will be dependent on the capability of the MFI and some small MFIs may see this as an increase in their overheads which may be unsustainable. The advantage of these non-financial services is that they go a long way in improving the lives of the existing and new borrowers and ensures that they remain loyal to the MFI. This could translate to better repayment rates for the MFI and lower levels of delinquencies.
Whilst the above 3 strategies may not create an overnight change and resolve all the issues within the microfinance industry, I believe that they are a strongST0-093 starting point to getting the industry gradually where it was a few years back when Yunus won the Nobel prize and where microfinance was referred to by the Nobel prize committee as ‘the most liberating force that exists’.
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