Strategy to achieve objectives
To achieve your social mission, you must have a deliberate strategy. Every aspect of your operations should be undertaken with your mission in mind, including procedures and policies on staff performance and incentives, how staff interact with clients, how Board meeting agendas are set, etc.
Here are the key questions you need to answer:
1. How do we define our target clients and ensure that we reach them?
The mission should clearly state who your target clients are. But there is still much leeway in how to define that target group. For example, an MFI that focuses on the ‘productive poor’ must not only define what is productive – e.g. an existing business of at least six months – but also what is ‘poor’.
How your MFI defines poverty depends on how it conceptualises the issue. Some MFIs (such as Fonkoze) adopt a broad view of poverty, including lack of access to health or education. They must therefore shape their service design and delivery to account for these broader definitions.
You need to be very careful when choosing the tools/benchmarks to measure ‘poor’ outreach criteria:
- consider the accuracy and appropriateness of the tool for your country context.
- ensure that the way you screen clients for eligibility does not directly or indirectly leave out the very group you want to serve
- even with the right screening, you may need to look at the incentives field staff have to reach out to the target market. For example, if field staff performance is judged in terms of portfolio size and quality, this may encourage them to focus on male clients (with perceived less risk) even though your stated mission is to serve women.
2. What do my clients need?
Distinguish between clients' needs and preferences
Applying a social lens to product development means thinking strategically about how products can be used to achieve change. Knowing what clients need requires a clear understanding of their lives. Often, you will need to conduct market research to get the right information.
When conducting quantitative market surveys, many MFIs ask about clients’ preferences for product attributes during the research phase, but rarely try to understand how the product will be used to improve the client’s life. For example: an entrepreneur has to carry her goods five miles on foot each day to market. If the MFI only asks her about what working capital loan repayment arrangement she would like, for example, it might bypass the fact that she might need a fixed asset loan, which she could use to buy a push cart to reduce her transportation burden.
You should also consider more qualitative research methods to help you fully understand the problems clients face. This could involve simple and open conversations between loan officers and clients, or a few focus groups. You may well discover that different segments of your clientele need different types of services and interventions. For example, Fonkoze uses a three-tiered approach to segment its clients (poor women) and has designed products specific to each:
- Tier 1 – those that earn US$1–2 a day and have a business or business experience – have access to a solidarity micro-lending programme
- Tier 2 – those earning US$1 a day or less, and who don’t have a business but want to start one – provides a ‘small credit’ product. It focuses on providing financial and literacy training to permit them to ‘graduate’ to Tier 1
- Tier 3 – serving the extreme poor – those lacking any productive assets. It involves skills training but also asset transfers and other intensive assistance over 18 months, with the intention of clients graduating to Tier 1 or 2 at the end.
Identify risks to your clients
Many MFIs inadvertently create barriers and increase problems for their clients. Common barriers include:
- the distance needed to travel to meetings
- the time taken from the business or family needs
- the client’s literacy level, among others.
Some MFIs have requirements such as:
- pre-existing businesses
- minimum savings balances
- collateral.
These may help reduce the risk profile of their portfolio, but it often does so by excluding those people who need their services the most. Table 3.4 outlines further the potential barriers that clients may face (related to the MFI’s own programme or the client’s situation).
The table below shows barriers that women typically face in society. Look for ways to overcome these barriers, especially if they are excluding the very clients you seek to serve.
| Factors that influence success of operations, products and delivery | Operational issues you may need to address in order to fulfil your mission |
|---|---|
| Gender | Females cannot leave their homes or speak to males, but most loan officers are unmarried men. |
| Poverty status (assets, housing, income) | The poverty assessment tool used measures poverty through housing situation, but housing is not an issue in this country – the issue is that people do not have enough to eat. |
| Education levels | Clients are required to keep their own passbooks but most of the target group cannot read. |
| Age | The MFI targets youth, but has group meetings during school hours. |
| Business/activity type | Loan officers visit fruit-seller clients in the villages on market days when they are busy. |
| Geography (rural vs. urban) | MFI requires rural clients to visit branches that are often five miles away, taking several hours of their time a month. |
| Security | The client must walk through a dangerous part of town to obtain her loan disbursement. |
| Weather / season | Monthly repayment for farmers that only have an annual harvest. |
| Other | (Government or political situation, infrastructure, time of day/week, cultural or religious factors) |
Reduce or mitigate risks
Many clients live in a very vulnerable situation in which one significant negative event can mean complete destitution. You must look for opportunities to reduce or mitigate risk for your clients. In fact, many of the strategies MFIs use to ensure financial sustainability can exacerbate the negative impacts of indebtedness, because of rapid expansion, rigid product design, and the lack of attention to local economic contexts (See the Genfinance website for more on this issue). For instance, many MFIs borrow in common world currencies, such as the US dollar or the euro, and pass on the currency risk to the client.
On the other hand, MFIs in the Philippines have begun to embrace mobile banking. This reduces the amount of cash field officers and clients have to carry, thus reducing the possibility of robbery. By reducing or mitigating the risks for its clients, the MFI’s own risk profile and reputation improves.
3. What mix of products and services will achieve your social objectives?
When you are satisfied that you understand your clients’ needs and the challenges they face, you can make strategic and informed decisions about what services you will provide and how.
In most cases, one product will not address your clients’ broad developmental needs; they will require a broad mix of services (see Fonkoze). While some MFIs choose to focus on responding to needs related to financial services (i.e. savings, loans, insurance, etc), others try to provide a broader range, such as business development, mentoring, education and other social services. You can choose to provide those services directly or through linkages with external organisations, depending on your capacity and your clients’ needs.
If you are thinking about offering a broad range of financial and non-financial services, you should consider:
- how you will offer the non-financial services and remain financially sustainable and competitive
- how you will avoid clients accessing one type of service (e.g. business training) in order to access another (e.g. a loan), without genuine motivation to learn.
It may be more beneficial to link with other providers of non-financial services, who are often best placed to offer such specialised services.