This past weekend CMF and the College of Agricultural Banking (CAB), which is the training and capacity building arm of the Reserve Bank of India (RBI), held a conference entitled “Conference on Microfinance: From Research to Practice”. The group of 70+ that gathered at CAB's Pune campus was an interesting combination of practitioners (from MFIs and public sector banks), policymakers (CAB and RBI), and researchers from CMF and universities across India.
My favorite session was entitled “Optimizing Microfinance Distribution Channels”. During the session, my colleague Dan Kopf discussed CMF’s treated bednet study that we are conducting in collaboration with BISWA in Orissa, and Professor Raghabendra Chattopadhyay of IIM-Calcutta discussed our rainfall insurance project with SEWA Bank in Gujurat. I learned from both these presentations, but really enjoyed the practitioner responses from BASIX and SKS executives.
Dr. Sankar Datta, who is Managing Director of Indian Grameen Services, the research and development unit of the BASIX group, started off by discussing the economic logic of using microfinance distribution channels to provide multiple services. Dr. Datta explained that the transactions costs that come from loan officers visiting villages or certain areas of a city are relatively fixed. If this staff member can provide many services instead of just one (e.g., credit), than the distribution channel is more efficient because the fixed costs would remain relatively constant. Moreover, Dr. Datta noted that customer loyalty may increase from getting many services through one provider.
That said, there are on-the ground realities that could negate the possible benefits of a microfinance institution (MFI) providing multiple services. Paul Breloff, the VP of Business Development at SKS, did a great job of detailing some of the risks, which included 1) If the product does not work the MFI can get in trouble w/customers; 2) Selling non-core products can take too much management (and field staff) time; and 3) Regulatory risks.
Mr. Breloff also explained that an MFI’s core competency is disbursing and taking in cash. Outside of this key competency, field officers often struggle with logistics of distributing non-core products and educating customers about these products (e.g., cellphones, LED lights, etc.).
In the past, I have argued against the utility of MFIs providing non-financial services, and I think this session helped me refine my thoughts. As Breloff discussed, MFIs are not well-suited to educate customers about complicated products and there are real risks in opening up one’s own distribution channel to a specific provider. However, if an MFI can leverage its ability to collect and disburse cash, and rely on its partner to reliably provide other key services (e.g., education, the actual product, maintenance), such partnerships can work.
Thoughts?
5 comments:
I agree with Mr Breloff partially.I believe that MFIs diversifying to non-core areas is a good idea. It will bring down the total costs per transaction.
The "pull" and the "productive" products make sense, but I am skeptical of partner competency products. People generally dont view banks as institutions selling consumer goods, for example - hair oil. Banks are perceived to be much more sacred than grocery shops. It can dilute the reputation of the MFI. Further a bad product will reflect bad on the bank itself.
Ankit,
I agree that a bad product would reflect bad on the bank/MFI itself, and I think this is a reason that MFIs are slowly moving into such partnerships.
During the panel discussion, it seemed that such product partnerships are carefully chosen. The product must be good AND the partner must assure the MFI that it will take responsibility for maintenance and customer complaints. Even if these criterion are met, these partnerships can be risky.
As u mentioned that these partnerships can be risky especially consumer goods can be very tricky. Most of the FMCG goods sold in a village are locally made, poor replicas of more widely used products.
Under such a situation, the product being "good" does not suffice.
I have been following the blogs from a long time but may be commenting first time to the blog....I believe any product will work but it needs to be designed as per the needs of the customer. customer should percieve the benefit he/she will get for the price he/she is paying. Most of the partnership and products rolled are designed to suit the ease of the distribution channel or the service provider. thats when the customer rejects the product and everybody thinks these partnerships are risky. The question is why will not a customer buy "a hair oil" from an MFI if it is available at my doorstep. Definitely it doesn't syncs with the requirement of the customer....is it that the price is high because of high quality....is it of poor standards....just thoughts....
I guess issue is about creating awareness paradigm. MFI's role is very critical not only for selling but creating awareness and involving people. Most of the MFI's in India are leveraging on local people for creating awareness. Not only that, last mile consumers are not only involved as end-user, rather they are part of the product design team. Case-in-point is Godrej & Boyce 'ChotuKool', which went through multiple iterations (based on feedback of rural people), before it was launched.
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