B. Designing adequate microfinance products and services
Choice of Micro-Finance Products
How to make them varied, innovative and responsive to client needs? (e.g. investment loans, working capital loans, savings schemes, group loans, etc)
A large number of MFIs that serve the poor have modified their microfinance products so as to make them more responsive to poor rural contexts. The following are only a few examples, taken from a broader study undertaken by the Microfinance Centre (MFC) in Poland:
Springboard loans from FINCA Georgia. To retain low-income clients who require uncollateralised, larger loans, FINCA Georgia has introduced its "springboard" loan. The springboard loan is a modification of FINCA's solidarity-group loan. Regular solidarity-group loans start at US$100 and increase with each loan cycle to a maximum of US$300. The springboard-loan product starts at US$200 and increases with every loan cycle up to US$1,000, a significantly larger amount for low-income entrepreneurs. This product is targeted at businesses that have high turnover, primarily in the retail sector. FINCA reports that the product has proved attractive to poorer clients and has reduced its client dropout rate. Plus, the new loan has been cost efficient due to the high volume of business and the good repayment history it has elicited.
Partnership loans from Fundusz Mikro, Poland. Fundusz Mikro has found that the demand for microloans in rural and remote areas is often dampened by potential borrowers' (usually the "new poor") lack of confidence in their ability to make their businesses succeed and, hence, to repay loans on time. In order to attract such clients, Fundusz Mikro has designed "partnership loans" (also called "partnership financing") aimed at first-time borrowers in rural areas. This is an equity-like product, based on a profit-sharing principle. The loan is offered only after the borrower produces a reasonable projection of the income stream from his or her business. The borrower agrees to share a portion of the profits with the lender as the charge for the loan. This charge is negotiated and then paid in installments, along with the repayment of loan principal. (For more details see MFC, p 49).
Automatic loans from the Kazakhstan Community Loan Fund (KCLF). KCLF, an NGO MFI in Kazakhstan, for example, no longer requires that a client's loan size increase with every new loan cycle. Clients may now take out "automatic loans", i.e. repeat loans that are the same size or even smaller than their initial loan, based on what best suits their needs.
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