Earlier this week, my colleague Akhand and I sat down with the CEO of a fast-growing microfinance institution (MFIs) in Northern India. During the conversation, Akhand brought up one of my favorite topics, whether MFIs should be a channel for providing non-financial goods that could benefit low-income clients, such as smokeless chulas and cheaper cell phones (I was a big fan!).
The CEO answered very directly that he wasn’t very interested in direct partnerships with such companies. He said something to effect of “I am all for clean cooking appliances, use of renewable energy and increased cell phone usage among our clients, but I don’t want to tie up with just one company”. Such a partnership/tie-up would mean that his loan officers and operational managers would become responsible for selling a product they knew little about, and there was also the back-end risk of the product not being top quality. What happens if the product does not work properly, will the cell phone or clean cooking stove company treat these customers well? If not, will the MFI’s clients not only be critical of the cell phone company, but also of the MFI? Even though the MFI can make quick money from such partnerships, it may not be in the clients’ best interests.
Going into the conversation, I was a big proponent of initiatives that leveraged MFI distribution channels to provide useful products to their clients (see past blog entries on anti-malarial bednets (BISWA), health insurance (SKS) ).
But, our discussion made me think more critically about the topic. Should loan officers also sell clean cooking stoves, a product they know little about? If a company wants to sell products, shouldn’t they develop their own distribution channels to this target population? Would an MFI tie-up with one clean cooking stove company discourage competition (i.e., other companies from entering a given town or village)?
I still think that microfinance distribution channels should be used in certain instances to distribute low-cost public good products (for instance I still like the anti-malarial bednets idea) and for financial product diversification initiatives (such as savings!). That said, maybe I won’t be as excited about the next MFI/cell phone company tie-up I see, which just happened to be this SKS-Nokia-Airtel partnership.
5 comments:
Yes, I think both of us were surprised by his outright denial of such services. And really impressed by the fact that the underlying motivation is client's benefits and not MFI's profits.
Surprisingly, I think if there will be some revolution, as micro-finance for financial services, for delivery of non financial services too? HLL's Shakti, ITC's e-choupal are some examples but they are more organization based models and are not easy to replicate.
Great insight in this article. It's too easy to gloss over the potential difficulties of additional products being offered by the loan officers, alongside the loans themselves. There is probably a reason why traditional banks don't sell life insurance or cell phones.
And yet you can also understand why telcoms and others are slavering over the chance to use the microfinance distribution channels.
Something to think about however is that often these products provide business opportunities for the MFI client - as is the case with a Village Phone type of business promoted by both Grameen Bank and Grameen Foundation.
Lea,
I agree with your point. If an MFI makes a concerted effort to leverage these partnerships to create job opportunities for their clients, these partnerships can be great, such as Grameen-Danone (http://www.danone.com/en/what-s-new/focus-4.html).
That said, there is a difference between an involved and well-thought out collaboration and selling a product through an MFI to make quick money. The difference between the two is what I wanted to highlight in my post.
Hi Mike,
It is a good piece that talked about business ethics along with profitability but I would like to raise some fundamental questions. If we believe, MF is a mean to address poverty and development issues (although in an entrepreneurial approach) then there is no harm to optimize the MF delivery channel to address the greater need of clients. Yes, if it is a third party affair, then the form of affiliation (deed) is significant and MFI should cleaver enough to deal such affairs. The quality of service has to be ensured at any cost.
Thanks
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