Why is client vulnerability a concern for MFIs?
Microfinance targets vulnerable clients. Mitigating the risk of client vulnerability will help to protect your clients and, at the same time, your MFI’s reputation and mission.
For vulnerable clients, the only certainty in life is that at some point they will experience an emergency that they are unprepared for, and which needs a sum of money larger than their income. This is because poor people have small and irregular incomes, and finding a "lump sum" of money to cope with illness, funerals, theft, natural disaster, fire (etc) is difficult at short notice.
MFIs need to understand and respond to this vulnerability effectively in order to protect their clients, and their institutions. This means:
- Thinking through how you design your strategy: SPM is about moving away from a market-based approach to microfinance, and recognising the importance of a needs-based approach. This means that MFIs seek to understand the needs of their different target client groups, and identify opportunities for meeting those needs through innovative and appropriate product design and delivery. This includes thinking through the role of non-financial services in mitigating client vulnerability, as well as having client protection policies in place. Read more about creating an appropriate strategy here>
- Having a clear response when things go wrong for clients: Inevitably, things will go wrong for clients. How do MFIs respond when they do? Do they apply "zero tolerance" policies, or do they help clients cope and build resilience to crisis over time? Your policies and procedures, and how staff relate to clients all have a role of play here. Read more about managing client crisis>