Microfinance has demonstrated its potential to assist the poor to make significant strides towards reducing their vulnerability, improving their livelihoods, paying for basic health care and financing their children’s education. Many microfinance Institutions (MFIs) have demonstrated an ability to provide financial services to poor people on a sustainable, profitable basis. Together, these facts have attracted a great deal of donor of money and a wide variety of organisations into the Microfinance sector. As a result, a growing number of markets are becoming extremely competitive and clients have an ever-widening choice of financial service providers to choose from. With the vast majority of MFIs functionally confined to offering short-term credit products, the clients are effectively given the choice of staying with or leaving their current service provider at the end of every loan cycle. In competitive markets they are exercising this choice with unflinching regularity … and many are “deserting” their service provider to try another or simply to take a “rest” from the rigours of MFIs’ terms and conditions. The extensive literature documenting the reasons for and cost to MFIs of high levels of “drop-out”, “exit” or “desertion” has spurred them to re-examine their products and delivery systems to respond better to clients’ needs. Furthermore, the growth in competition between MFIs in many markets has meant that growing numbers of MFIs are responding by seeking to better understand their clients’ demands and preferences and thus taking a market-led approach to their business.The development of a more client-responsive, market-led approach to Microfinance is an important watershed in an industry hitherto largely dominated by the misconception that simple replication of successful models could achieve massive and sustainable scale worldwide. As Hulme notes, “Ironically it is the success of the “first wave” finance for the poor schemes…that is the greatest obstacle to future experimentation”.
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