the microbanking bulletin - Microfinance Information Exchange

FEATURE ARTICLESCultivating Client Loyalty: Exit Interviews from Africa and AsiaInez MurrayLosing clients is expensive. If an MFI with 30,000clients loses 20 percent of its customers peryear—that is 6,000 people. If the average loan sizeis US$150, and in a lifetime a client might borrow10 loans, the MFI is losing up to US$9 million infuture sales. Add to this the fact that many MFIs donot break even until their fourth or fifth loan 15 andthat the client who left probably told nine otherpeople about their negative experience with theinstitution, 16 and it is clear why retaining clients is akey to profitability.As the microfinance industry becomes morecompetitive, clients have more choice regardingwhere to shop. If an MFI is to remain competitive, itmust get an accurate read of clients’ satisfactionand dissatisfaction with its loan products andservice delivery. It must understand why clientsleave, why some of them go to a competitor, andwhat kind of product range it should consideroffering to retain clients throughout their lifecycle.Customers leave an organization for many reasons,some of which the MFI can mitigate and some thatit cannot. For the purpose of analysis, the formerare considered internal factors, and the latterexternal. Internal factors include:• High prices• Rigid product design• Narrow range of products• High transaction costs• Insufficient attention to customer serviceExternal factors are exogenous to the institutionsuch as illness, death, family problems, seasonalityseasonal migration patterns, natural disasters,increasing competition, and economic shocks.In the past couple of years, Women’s WorldBanking (WWB), with the assistance of MonitorGroup, has conducted intensive research intocustomer satisfaction and retention as part of astrategic positioning service for affiliates operatingin increasingly competitive markets. 17This paper shares some key findings regardingclient desertion from two affiliates, Shakti Foundationfor Disadvantaged Women in Bangladesh andthe Uganda Women’s Finance Trust (UWFT).Understanding why clients left was one small part ofthe overall research. This article is a precursor to amore comprehensive publication on the findings ofthe strategic positioning work completed in Colombia,Bangladesh, Uganda, and Bosnia-Herzegovina.The focus on why clients drop out tends to put aspotlight on areas that an institution may need toimprove. Consequently, WWB thanks both organizationsfor their willingness to share the results ofthis research as a contribution to the field.This article is divided into three sections: 1)research methodology, 2) context (description oflending methodologies, price and service deliveryattributes that are necessary to interpret results),and 3) findings and implications.Research MethodologyIn both affiliates, two populations were surveyed:active and former borrowers (dropouts). Trainedcollege graduates, fluent in local languages,conducted the interviews. Respondents were selectedbased on stratified random sampling and asufficient number of interviews were conducted togive a margin of error of +/-4 percent. 18With the sample of dropouts, several sets ofquestions were used to identify desertion driversincluding asking clients directly using both openandclose-ended questions. 19 All respondents alsoranked their satisfaction level with each aspect ofthe product and service delivery mechanism. Ingeneral, current and former clients expressed highlevels of dissatisfaction with the same product andservice delivery attributes that caused clientdesertion.15Brand, M. and J. Gerschick. (2000). Maximizing Efficiencyin Microfinance: The Path to Enhanced Outreach andSustainability. Washington: ACCION International.16Bhote (1996). Beyond Customer Satisfaction to CustomerLoyalty: The Key To Greater Profitability. American ManagementAssociation, New York, p. 60.17The Strategic Positioning Product (SPP) is a technical servicethat helps an MFI define or re-define its market position (i.e.,methodology, product menu, price, customer segments, etc.) togive it long-term competitive advantage. It is based on workconducted jointly with Monitor Group, a global family ofprofessional service firms.18Sample size: Bangladesh: survey sample size of current clients= 515 = +/- 4%; of former clients = 541 = +/- 4%; Uganda:sample size of current clients size 507 = +/-4%; of former clients= 500 = +/-4%. Two strata were used to ensure sampledispersion – branch and loan cycle.19With close-ended questions, respondents choose from a list ofoptions; in open-ended questions, the respondents reply with thefirst thought that crosses their mind.20 MICROBANKING BULLETIN, APRIL 2001