Top 3 Strategies to Help Microfinance Get Its Groove Back

There has not been much comment on how the industry can be saved and be helped to get back on the right track where it was about 5 years ago. The comment below gives a flavor of how the microfinance industry can attempt to get back on track and continue to make an impact.

At the outset, most actors believe that micro finance does indeed reduce poverty and increase the level of financial inclusion for the unbaked. What I believe the industry needs however is hard and fast data to actually show the good that it does. Mix Market and Micro finance transparency are two organizations that have spearheaded data collection within the industry and have made some strides in getting data together that present the impact of micro finance in the lives of poor people.

These two organizations should however focus more providing data that gives more information on the quality of services given by MFIs rather than focus on numbers of borrowers reached for example. A focus on more qualitative data would help MFIs improve their products and how they interact with their clients and would also help the world see the non-financial impact that micro finance can make. They should also focus on providing more geographically representative data as my view is a lot of their data is India and Asia centric which a huge gap in African MFI space.

Innovation is a key area that the micro finance industry could explore further in order to improve its efficiency and possibly reduce its operational costs. For example, more MFIs should take advantage of mobile money for their clients which would mean that clients can settle their loans using their mobile phones and also receive payments using their phones. This would reduce the need to travel or complete numerous forms for loan disbursements. This could lead to increased efficiency and reduced staffing costs for Micro finance Institutions. 

'Micro finance plus' is another key area for consideration. By this I mean the additional (free) non-financial services that Micro finance institutions provide their borrowers. This could be Aids counseling, financial education, clinical services, or schools. Obviously the level and quality of the services provided will be dependent on the capability of the MFI and some small MFIs may see this as an increase in their overheads which may be unsustainable.

Whilst the above 3 strategies may not create an overnight change and resolve all the issues within the micro finance industry, I believe that they are a strong starting point to getting the industry gradually where it was a few years back when Yunus won the Nobel prize and where micro finance was referred to by the Nobel prize committee as 'the most liberating force that exists