Who are your clients?
***
Your answers to this question will make or break your microfinance programs.
That’s nonsense! Ooopss…keep your cool.
If this is nonsense, better prepare for a dive and bang your head on a wall. It is better to toil answering this simple query than making nonsense acts to recover your capital.
***
In my previous post, I reacted to an article that enumerated some barbaric ways of micro-finance as practiced by some MFIs. These MFIs, as the writer of that article asserted, let their clients run some distances or made them jump as punishments for defaulting payments. And, how’s that to you?
***
We better have a lesson from Grameen Bank of Bangladesh…
Creating strict Credit Discipline begins with good targeting. This means that credit should be exclusively for the poor and preferably poor women. Only they (these poor women) will accept the discipline that is needed for micro-credit programs to be sustainable. They will accept credit discipline for three reasons.
- Poor women are desperate for a better life for their children;
- Credit can help many of them to reduce their poverty; and
- Usually, they have no other alternatives.
Therefore, genuinely poor women will be keen to keep the credit line open and will follow the rules and regulations carefully.
In contrast, not-so-poor women who are not desperate and may have other alternatives generally will not accept the required degree of discipline for longer period. Some of them are only good for a cycle or two but eventually, they will be the first not to repay. So, if you allow them into your microfinance programs, you are targeting troubles.
Oh huh! You may try them if you have some capital to spare for loan losses.
But,
Who are the Bankable Poor?
Credit institutions in different countries have different measures of poverty. Generally, they set their programs’ poverty line significantly lower than the official ‘poverty line’ of the country they are operating so as to minimize the risks of admitting not-so-poor clients.
You can always look for the poverty index of you country and start from there.
It is then necessary to effectively measure poverty and to clearly identify who falls within the target segments of the populations.
Effective Client Targeting, then, is the ability of the microfinance program to determine exactly who are eligible to participate in and benefit from the micro-loans offered by the MFI.
Lessons Learned
- Credit Discipline begins with Effective Client Targeting
- We must clearly define whom the target group consists of
- We must develop ways by which we can clearly identify these clients
Clear Client Definition Statement
Do yo have a clear client definition statement?
Are your clients within that client definition statement?
A clear Client Definition Statement should include:
- a statement as to the minimum income
- a statement as to the maximum acceptable assets
- a geographical target area
- gender restrictions (if you want to focus on a particular gender)
- age restriction
- project restrictions (if you want to focus on particular enterprises)
- and any other distinctions carried by your organization, your brand and products
You Client Definition Statement should be written in a clear and concise statement. The statement is clear to all your program’s staffs and prospective clients. All must adhere to the limits and restrictions contained in the statement. Any breach to the limits and restrictions can lead to the breakdown of Credit Discipline.
***
This is PART 3 of the Maintaining Credit Discipline in Microfinance Series.
PART 1: An Overview of the Essential Elements of Microfinance
PART 2: The Microfinance Egg and the Core of Microfinance
***
Now, can you can tell me honestly who should be punished, you as microfinance practioner or the defaulting members?
If you have a Client Definition Statement, kindly share with us?
Your comments, reactions and suggestions are highly appreciated. I need them to further improve our site.
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So long…
Florentino
I agree that poor credit dicipline stems from mgmt practices…the clients will be as prompt in their repayments as the MFI wants them to be…in a majority of cases
Hi Fehmeen,
Congratulations for having your own domain!
Yes, all the angst and problems of any microfinance program can be traced back to the program’s designs, from its designs dynamics to its promotions, from its vision to its implementations, from its marketing strategies to its monitoring…
Credit discipline stems from all the microfinance’s basic elements. Some can make their clients run some distances but this cannot recover their capital and this breaks their objective, i.e., poverty alleviation.
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