the microbanking bulletin - Microfinance Information Exchange

FEATURE ARTICLESIndustry DynamicsIn a short article it is impossible to do justice to thecontextual differences between urban Bangladeshwhere Shakti operates and the semi-urban marketsserved by UWFT. What is important to mention isthat both institutions offer loan terms and servicedelivery mechanisms that are similar to mostplayers in their market and that therefore the resultsof this research are broadly applicable to otherMFIs.Findings and ImplicationsFigures 2 and 3 summarize the main reasons whycustomers left each program. This section analyzesthese findings and discusses their implications.External ReasonsThe external factors cited for dropping out highlightthe fact that MFIs are serving a precarious marketand many unexpected events can influence acustomer’s demand for financial services.Business problems: Low profitability and businessfailure were important reasons why clients left bothinstitutions. Clients cited access to business developmentservices (BDS), particularly marketing supportand skill development, as a huge unmet need.In both countries, clients must have a businesswhen they apply for a loan, but not necessarilybefore that time. This policy allows the MFI todeepen its outreach, but it could cause an increasein attrition due to business failure.Do not need a loan right now: Some clients saidthey were not interested in another loan at thattime, others that they were tired of borrowing or, inBangladesh, some clients had found employment.Moved location: Migration was given a muchhigher ranking in Bangladesh than in Uganda,reflecting the more transitory nature of the urbanpopulation in Bangladesh. Some clients migratetemporarily to the city due to river erosion orindebtedness in rural areas, while others go back torural areas on a seasonal basis to harvest crops.Illness: Illness, of either the client or a familymember, is a reason cited in both countries, reflectingthe poor conditions in which many clients liveand the limited availability of health care forborrowers and their families.Other external reasons include their husbandsleaving, the house or business was robbed, andfamine in one region of Uganda.In sum, external desertion drivers illustrate thevulnerable nature of microfinance clients. Thesevulnerabilities, which adversely affect both retentionand repayments, highlight how important it is forMFIs to address other needs of their clients besidescredit. MFIs can either develop in-house capacityor form strategic alliances to provide voluntarysavings, microinsurance and business developmentservices. Offering access to these valuable wraparoundproducts could be an important dimensionof any client retention strategy.Internal ReasonsThe internal reasons for leaving fall into threecategories: loan-related, transaction costs, andcustomer service. In Bangladesh the key internalcauses of desertion were group meetings (frequency,duration), group guarantee, and loanrelated issues (amount, interest rate). In Uganda,the key internal desertion drivers were loan relatedissues (term, interest rate, installment amount,compulsory savings), the desire for individual loans,Figure 2: Reasons for Leaving *Bangladesh3%9%Uganda14% 29%51%31%32%31%ExternalLoan RelatedTransaction CostsCustomer Service* In response to the open -ended question: “Why did you leave the institution? Please tell me the most important reason.”22 MICROBANKING BULLETIN, APRIL 2001