Offices across Asia, Africa

and Latin America

www.MicroSave.net
[email protected]

Market Research for MicroFinance

Participant’s Manual
Graham A.N. Wright and Leonard Mutesasira
Overview of Product Development & Market Research 1

Acknowledgements
This toolkit was developed and tested over a number of years on two continents in a wide variety of urban and
rural settings on long-suffering clients of nearly two dozen microfinance institutions.
In particular, we must thank the clients and staff of the following MFIs who provided particularly important and
extensive opportunities for us to test and refine the methods/tools used.
BURO, Tangail (Bangladesh) K-REP(Kenya)
The Central Cordillera Agricultural Programme II Kenya Post Office Savings Bank (Kenya)
(Philippines )
Uganda Women‘s Finance Trust, Tanzania Postal Bank and
Ibanda Small Scale Industrialists Association (Uganda) Kilimanjaro Co-operative Bank (Tanzania)
Elgon Village Bank (Uganda)

Those people who have made particularly important contributions to its development are: Graham A.N.
Wright, Shahnaz Ahmed, Leonard K. Mutesasira, Stuart Rutherford, Monique Cohen and Jennefer
Sebstad.

In addition, we took many ideas from publications, and are particularly grateful to:

 Brand, Monica, ―New Product Development for Microfinance: Evaluation and Preparation‖,
Microenterprise Best Practices Project, Technical Note # 1, DAI, Washington, 1998.
 Brand, Monica, ―Product Development Cycle‖, Microenterprise Best Practices Project, Technical Note # 2,
DAI, Washington, D.C., 1998.
 Grant, Bill, ―Marketing in Microfinance Institutions: The State of the Practice‖ Microenterprise Best
Practices Project, DAI, Washington D.C., 1999
 Haim, Alexander and Charles D. Schewe, ―The Portable MBA in Marketing‖, John Wiley & Sons,
New York, 1992.
 Kotler, Philip, ―Marketing Management‖, 9th Edition, Prentice Hall, New Jersey, 1997.
 Rutherford, Stuart ―A Critical Typology of Financial Services for the Poor‖, ActionAid and Oxfam,
London 1996a.
 SEEP Network, ―Learning from Clients: Assessment Tools for Microfinance Practitioners‖. AIMS
Working Paper, AIMS Project. Management Systems International: Washington, D.C., 2000.
 Sustainable Agriculture Programme, International Institute for Environment and Development,
London.
 Wright, Graham A. N., ―Beyond Basic Credit and Savings: Designing Flexible Financial Products for
the Poor‖, in ―Micro-Finance Systems: Designing Quality Financial Services for the Poor‖ University
Press Ltd, Dhaka and Zed Books, London and New York, 2000.

This Workshop/Toolkit are for use with WRITTEN permission only.

Contact: MicroSave

MicroSave’s ―Market Research for MicroFinance‖ – Day 1

Overview of Product Development & Market Research 2

MicroSave
Market-led solutions for financial services

Day 1
Overview of Product Development
and Market Research

MicroSave
Shelter Afrique Building, Mamlaka Road, P.O. Box 76436, NAIROBI, KENYA
Tel: 254 (0)20 724801/724806/726397 Fax: 254 (0)20 720133

PO Box 7184, 18 Shimoni Road, KAMPALA, UGANDA

Tel: 256 (0)41 349911 Fax: 256 (0)41 344801

Email: [email protected] Website: http://www.MicroSave.net

Revised manual dated: June 2004

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Overview of Product Development & Market Research 3

Day One
OVERVIEW OF PRODUCT DEVELOPMENT &
MARKET RESEARCH
Session One
Introduction
Session Objectives:
Get to know one another – introductions
Overview of course outline/schedule

You will become very familiar with this chart throughout this course, as we follow its progression.

Setting the Scene:

This course focuses on market research – a key part of the process of new product development or
product refinement, which is … but one of the basic components of
the market-led approach to microfinance. Under the Strategic
Marketing for MFIs, framework developed by MicroSave and TMS Handout 1.1: Strategic
st
Financial, it falls under the ―Product Strategy‖ 1 tier strategy, which Marketing for MFIs
encompasses product development and differentiation.
Product development and differentiation is but one critical/key
component of the strategic marketing framework. As a result of the
history of the microfinance industry, many MFIs have used fairly Handout 1.2b: Course Outline
standardised products, often developed on the basis of copying what
has worked in other countries and institutions. There is a growing acceptance of the need to tailor
products to specific socio-cultural situations and market segments. As a result, product
development/differentiation is the component of the strategic marketing framework that most MFIs start
with since it is one of the more obvious and tangible components of a market-led approach. But usually
product development is but the beginning of MFIs‘ move towards a full-fledged market-led approach.

Finally, as we start this course, it is important to note that the market research techniques we will cover
are extremely useful for informing many, many of the components of the strategic marketing framework.
So as MFIs move into other areas of the framework, they will be able to use these skills to use them on
the basis of an understanding of the market, their customers and the environment in which the MFI is
operating.

Overview:
Using qualitative research techniques, we try to understand clients‘ needs for financial products and
services. After comprehending their needs, we develop a product concept and refine this idea into a
prototype (model) of the final product.

Using quantitative research techniques, we test the product prototype, make necessary changes, and get
ready to pilot test the product.

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Overview of Product Development & Market Research 4

The process will be broken down, and all terms explained in the upcoming sessions.

Market Research & Product Development

Process Overview
Costing &
Qualitative Qualitative Pricing
Research
Research Research:
Issue
Plan FGD/PRA
Understanding clients’ needs Concept
Development
Quantitative
Product Refine the
Research:
Ready for Concept into
Prototype
Pilot-test a Prototype
Testing

Testing the Product Prototype

Handout 1.2: Market Research and Client-Responsive Product Development

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Session Two
Background to Market Research for Microfinance Institutions
Session Objectives:
This session will provide an overview of:
MFIs and Their Markets
The New Microfinance Landscape
Trends in the New Microfinance Landscape
Reasons for Developing New Products
Marketing for Microfinance Institutions

The Evolution of Marketing

Successful companies‘ ideas about serving their customer have evolved. In the first years of total quality,
companies focused on making a product so reliable that it did what exactly what the company said in its
marketing campaigns. Later the focus switched to understanding what the customer wanted and then
providing reliable products that responded to those needs. Today, leading companies focus on
understanding what customers might want but have never experienced or would never think to ask for …
and then providing products in response to those needs.

“Good ideas don‘t start at the conference table. They begin with the consumer‖
Charles Hooper, Executive Vice President, Helene Curtis

Marketing Framework1
Many different factors have an impact on the nature of marketing within an MFI. These factors can be
largely grouped as either environmental (external) or institutional (internal) in nature. Ultimately, the level
of marketing programs is determined and shaped by the combination of these two sets of factors.

Environmental Factors
 Level of Development of Market For Microfinance

 New markets, characterised by few or limited available financial services with little effective
demand for financial services, where the focus for the institution is on developing
appropriate products and creating a market for microfinance products, in general; or

 Developing or growth markets, where there is substantial unmet demand for existing
financial products and institutional focus is on developing the institution and systems to
meet that demand; and
 Developed or mature markets, where financial services are readily available to the
population, where competition is developing among service providers, and MFIs need to
focus on improving responsiveness to client interests and on diversifying their products.

Some of the key elements affecting the nature of the markets

Handout: 2.1 Marketing Framework are the economic development of the country/region, the size
1
from ―Marketing in Microfinance Institutions: The State of the Practice‖ by William Grant of DAI – prepared for
USAID‘s Microenterprise Best Practices Project
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Overview of Product Development & Market Research 6

of the population, the physical location of the market (rural vs. urban) and the presence/history of prior
microfinance activities.

 Regulatory Framework
Many MFIs are still operating outside of a highly legislated environment. However,
all of them must be involved with some kind of legal framework; Is the MFI
operating within a regulated financial environment? Are there any Capital
Requirements? Are interest rates regulated? etc.

 Competitive Environment
What kind of competition is there among MFIs? Can it be characterised as co-
operative, competitive (that is, a healthy competition) or cut-throat?

If you are looking only at other MFIs or Banks, you are missing the point! In Bangladesh MFI
workers were asked how much of their clients‘ financial flows went through MFIs. Knowing that one
household might have membership in 5 or more MFIs, a confident ―85%‖ was the response.
In reality however, researchers discovered that only about 15% of cash based transactions went
through MFIs! The remainder was through the informal sector.
Stuart Rutherford: Money Talks: Conversations with Poor Households in Bangladesh about
Managing Money, March 2002

Institutional factors

 Type Of Institution
Is the institution an NGO, Donor Project, Savings & Credit Union, Village Bank or Commercial
Bank, etc.?

 Maturity Of The Institution

How mature, not how old, is this institution? Is it a start-up, intermediate or sophisticated
institution?

 Start-up: These MFIs (or often projects) are commencing operations - often in new and
challenging markets - and are designing a new
system/products from scratch.

 Intermediate: These small to medium sized MFIs

have typically been running for a few years following a
specific system and are seeking to reach scale through
expansion using this system. These MFIs have limited
institutional capacity to make significant changes to products and systems since this would
require radical re-engineering of their MIS, training etc. They can however ―tweak‖ or make
minor adjustments to their programmes.

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 Sophisticated: These larger, well-established MFIs have the institutional capacity to make
significant changes to products and systems in response to needs and opportunities in the
market.

 Purpose Of The Institution

Many institutions have developed from a ―charity‖ background, or have had a more ―poverty
alleviation‖ focus rather than a focus on profitability.

 Availability Of Financing
Many MFIs in many countries are facing a situation whereby donor funds are no longer available,
Commercial Banks remain reluctant to lend to MFIs and savings are not able to be intermediated by
law! Discuss how financing would force an MFI to shape their marketing program?

 Management/governance
Is management aware of the need, purpose, goals of marketing? Has management ―bought in‖ to
the idea of spending resources on marketing? Is the MFI governed by a Board? By and NGO? By
and international MFI? How does this affect the marketing program?

EXERCISE

What are the Needs for Market Research in the following Matrix?

Start up MFI Intermediate Sophisticated

Mature Market
Growth Market
New Market

The ―answers‖ can be found in Handout 2.1: Marketing Framework

The New Microfinance Landscape

Many of the participants will remember the not-so-distant past when microfinance was a fairly new field.
However, the industry is now witnessing:

 Increasing competition especially in the urban areas

 Threats to MFIs‘ market share including commercial banks getting
interested
 More institutions aware of importance of a marketing approach in their
strategic plans
 Increasing interest in rural markets
 Growing demand by donors and shareholders for demonstrated
profitability or sustainability

As MFIs face increasing competition with threats to their market share, more
institutions are becoming aware of the importance of a sound marketing approach
in their strategic plans.

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This is especially so in the urban areas that are typically characterised by a growing number of MFIs. The
competition is intense in spite of the small number of clients currently reached in proportion to the total
potential clientele.
More MFIs are looking at a market driven approach that examines how best to address issues of
sustainability by responding to and addressing their customers, needs. This is perceived to be the best
way to attract and retain clients.
In addition to this there is growing demand for demonstrable evidence of profitability from shareholders
in the case of banks and donors and social investors in the case of most NGO MFIs.
Trends in the New Microfinance Landscape
Marketing attempts to understand the needs of the client and adapt operations in order to meet those
needs and to achieve greater profitability/ sustainability.
The following trends have been instrumental in defining the new microfinance landscape:

 New players: MFIs are facing competition from both ends of the financial spectrum. Non
Government Organisations (NGOs) are able to access donor funds and technical assistance to
promote microfinance activity. In addition, Donors are funding more non-traditional MFIs –
Community Based Organisations, Financial Services Associations, Cooperatives and Managed
ASCAs (Accumulating Savings and Credit Associations). At the same time, seasoned MFIs are
transforming from NGOs into formal (ie, regulated) institution, demonstrating that the market can
be profitably served, which has likewise attracted traditional (regulated) financial institutions to
seriously explore the micromarket segment.

 Discriminating customers: As microfinance clients grow and develop, their needs for more
comprehensive financial services also evolve. Institutions must respond to clients‘ demands for
more sophisticated products to meet the changing needs of enterprises.

Recognising that the poor are a diverse group is extremely important. Thus there is a pressing
need to examine the best ways of designing and introducing new financial service products into
MFIs.

In the words of Hulme and Mosley (1997): ―Our main finding is the need for the designers of financial
services for poor people to recognise that ―the poor‖ are not a homogeneous group with broadly
similar needs. ... Recognising the heterogeneity of the poor clearly complicates matters for scheme
designers ...‖

 Increased accountability:
As MFIs become sustainable and profitable, and transform into regulated commercial entities,
they have become accountable to new stakeholders. Providers of funds, particularly private
investors, but even donors now, are becoming more vocal in requesting demonstrated
performance and strategic plans that anticipate market changes.

 Growing Interest in rural financial services:

Growth oriented MFIs are paying more attention to how to profitably extended financial services
to rural areas where the majority of their populations are residing.
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Overview of Product Development & Market Research 9

Why Develop New Products?

―What is often missing is going to the field and asking dumb questions, and smelling and feeling and
getting in bed with the problem so that you understand the other side of it.‖
Joe McPherson, Director of Innovation Programs, SRI International.

MFIs develop new products to address needs. Some of these are, the need to:

 Effectively respond to the demands and preferences of customers. The poor are not one
homogeneous group with similar needs! They need products that present a solution to their
problems.
 Examine the potential for deeper outreach especially to the hard-core poor who are currently
not reached by most MFIs.
 Improve sustainability by generating higher revenues to cover costs
 Raise new sources of capital for loans.
 Retain loyal clients and reduce client loss
 Reduce delinquency built upon customer service / appropriate products
 Develop simple products which are understood by clients and easily administered by the MFI.
 Create an impact on reducing income-poverty.
 Reduce vulnerability by introducing asset protection services.
 Create mechanisms to bridge the gaps created by poverty, illiteracy, gender, and remoteness

MFIs must develop new product because when clients needs are not
met….
 Clients desert the MFI! - Out of frustration, customers look
to the competition to meet their needs for lower rates, better
terms, more convenient service, different products, and so on.
And, The MFI experiences:
 slowed growth as word-of-mouth marketing dissipates.
 Increased delinquency or default
MFI staff and officers must be attentive to clients‘ concerns, complaints and negative signals. They must
be able to translate customers‘ needs into product refinements or new products. As difficult as it is to
listen to client complaints or to raise the subject with superiors that negative signals are being ―felt‖ from
clients, these signals can spur new product development amongst the competition in the formal and
informal sectors. Of course, in many ‗new markets‖ or in a situation whereby the MFI holds a monopoly,
these negative signals will take much longer to surface – if they do at all.

Unfortunately, many MFIs do not carefully track the reasons clients leave, and lose a valuable
information opportunity. Other negative signals could be increased delinquency or default, which triggers
a loan officer follow-up with the borrower.

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Marketing for MFIs

Marketing attempts to:
 Understand the needs of the client and adapt operations in order to meet those needs and
to achieve greater profitability/sustainability. In all cases, it has been demonstrated that
customers are interested in a range of products that are flexible and accessible services and
respond to the various financial needs.
 Adopt operations in order to meet those needs:
 achieve greater profitability/sustainability
 adjust to changing microfinance landscape.

Innovative MFIs are paying careful attention to the operations of the informal sector and are learning
invaluable lessons that may be useful in terms of product design and delivery mechanisms.

Lessons learnt from the informal sector include the facts that:

 Not all the poor are interested in credit.

 Those that are interested in credit may need protective and/or productive use -
this means that there is a need for other credit products.
 The poor can and do save, and they will pay dearly for a decent savings service.

Marketing addresses issues of new product development including what are known as the 8Ps:
 PRICING - this considers the demand, profit/sustainability objective using various strategies that
include cost-based, cost-plus, demand-based and break-even. It looks at behavioural attitudes,
perceived value, prestige etc. It seeks to determine what the buyer must give up for the product.

 PRODUCTS/services provided to ensure complimentarily where it can be achieved and avoiding

cannibalisation of one product by another. It examines such issues as product adaptability, idea
generation, idea screening, prototype development, concept development, commercialisation,
product growth and quality.

 PLACE/distributions/location of operations - this involves making sure that the

service/product is accessible where and when it is wanted. Important lessons can be drawn from
the informal sector.

 PROMOTION of the products - this refers to sales communication, which includes advertising,
public relations etc. It informs and persuades and sometimes dissuades.

 POSITIONING - it the effort by the MFI to occupy a distinct competitive position in the mind of
the target customer. This could be in terms of low transaction cost, low price, high quality, quick
turnaround time, professional service, etc. It is a perception.

 PEOPLE - includes how the clients are treated by the people involved with delivering the product,
i.e. the staff of the MFI. Are they treated with the courtesy and attention befitting a customer?
Are they made to feel welcome? etc. Good internal communications and feedback mechanisms
are vital to consistently providing good customer service. Good communications facilitate the

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Overview of Product Development & Market Research 11

early identification of problems and ensure the effectiveness of many of the other 8 Ps. To get the
best performance from staff, MFIs need to recruit the right staff then invest in training on
customer service and in products, the MFIs processes and procedures. Staff performance should
be monitored regularly through the analysis of data and through using tools like mystery
shopping, focus group discussions with customers and suggestion boxes.

 PROCESS - includes the way or system in which or through the product is delivered: how the
transaction is processed and documented, the queues/waiting involved, the forms to be filled etc.
Streamlining processes is very important especially where there are extensive manual procedures
or a slow back office. Poor service driven by lengthy procedures is a major cause of customer
dissatisfaction. Some MFIs go further and reward good clients with streamlined products such as
automatic credit lines for their long-term, high value clients with good repayment records.

 PHYSICAL EVIDENCE - includes the presentation of the product: how the branch physically
looks, whether it is tidy or dirty, newly painted or decaying, the appearance of the brochures,
posters etc.
Marketing is a comprehensive field aimed at strengthening the institution by maintaining a focus on
the client. The essence of marketing is simple - everything must be attacked from the customer‘s
perspective instead of the MFI‘s.

The Five Concepts

There are five alternative concepts under which organisations conduct their marketing activities. The
concepts include:
production: focuses on producing goods/services as cheaply as possible
product: focuses on making the goods/services as high quality as possible
selling: focuses on persuading potential customers to buy the goods/services being produced

marketing and These are the two

societal marketing concepts. that we‘ll focus on

Development Of Marketing Philosophy The focus in the marketing concept

CUSTOMER DRIVEN Marketing is the target markets whose needs are
concept understood and company efforts
geared in that direction. It takes an
outside-in perspective.

Selling concept Using the marketing concept

time organisations recognise that there is
more value in retaining customers than
in attracting new customers who cost
Product concept more. This concept works more at
identifying and meeting customers‘
needs profitably in addition to
Production maximising customer satisfaction with
concept existing products.
PRODUCT DRIVEN

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The societal marketing concept which is the newest of the philosophies recognises need for customer
satisfaction in an age of environment problems like, population growth, resource scarcity etc. A fruit
juice manufacturing company will therefore seek to add nutritional value to its product, ease container
disposal, etc.
For example, Blue Band margarine in East Africa recently added Vitamin A to its product, advertising its
commitment to the health of its consumers.

EXERCISE

EXERCISE 1
 What is your MFIs marketing
philosophy?

 What marketing activities does

your MFI undertake?

EXERCISE 2

 What are the key elements/capacities/

resources necessary for product development by
an institution?

 What do you need to start developing new

products?

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Overview of Product Development & Market Research 13

Session Three
The Product Development Cycle

Session Objectives:
This session will:
 Provide an overview of the four phases of the product development cycle
 Examine the capacity considerations for successful product development
 Detail the preparations for product development
 Explain how the product prototype is designed

Four Phases of Product Development:

The methods used to develop new products for MFIs broadly follows four key phases of financial service
product development:

 First, one must research to identify needs and opportunities

This includes a review of the competition and products offered by both the formal and
informal sectors, conducting market research as an integral and on-going part of staff‘s
interactions with the clients, and through contacting other market leaders in the
MicroFinance industry.
To accomplish this research, MicroSave has developed a this course, the
manuals, the PRA toolkit and the practical field-days and interactive discussion
Tool: MicroSave’s ―Market Research for MicroFinance‖

 Second, it is not enough to simply do the research to identify needs and

opportunities, a product has to be designed and pilot tested.
This includes the detailed design, costing and pricing of new products, prior to their initial
implementation on a pilot-test basis. Setting prices takes into consideration the revenue objectives, profit
objectives, cashflow objectives, competitive objectives. The pricing is sometimes based on costs of
bringing the product to market. From the MFIs point of view prices that are less than cost yield a loss.
From the clients perspective, costs that are above the value will not be recouped.
MicroSave has other courses and ―toolkits‖. For designing and pilot testing, the following are available:
Tool: MicroSave’s ―Costing and Pricing of Financial Services‖
Tool: MicroSave’s ―A Toolkit for Planning, Conducting and Monitoring of Pilot-Tests for MFIs‖
 The product development process isn‘t over at the design and pilot testing stage. The third step is
monitoring and evaluation of the pilot test.
This includes monitoring the financial and organisational consequences
Handout 3.1: Beyond Basic of the new product and conducting market research among the clients to
Credit and Savings review how the product was perceived and used. The monitoring will
engage the market research team into continuous quality improvement in

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Overview of Product Development & Market Research 14

terms of customer needs, systems and processes, impact on pre-existing products etc.

Tool: MicroSave’s ―A Toolkit for Planning, Conducting and Monitoring of Pilot-Tests for MFIs‖

 Finally, the fourth step in the product development process has arrived. Following the results of
the monitoring and evaluation of the pilot test period, the MFI will revise and scale-up
implementation of the product.
Once these analyses have been completed, the MFI can make the necessary amendments to the product,
its pricing strategy, promotional strategies, delivery mechanisms, marketing etc. before going for scaled up
implementation.

Tool: MicroSave’s ―Going to Scale: Rolling out New Financial Products for MFIs‖.
Successful Product Development

In this section, we will be discussing what an MFI has to do to successfully develop new products.

Successful Product Development Involves:

 The team. Multidisciplinary skills and a product champion. The team may include people from
marketing, accounting, management information systems, operations etc.

 Buy-in. Support within the institution for the process. The process must have support and a voice
from the top management or else it will face an uphill battle. Therefore the top management, and
indeed the whole organization, must buy into the need for product development so secure
appropriate supportive environment for the whole process

 Market segmentation. Definition of the customer group to be targeted. This

involves determining the boundary of the market, the segmentation variables,
collecting and analysing segmentation data, developing a profile of each
segment, targeting the segment to be served and designing a marketing plan.

 Market research focuses on understanding customer needs and identifying unmet or poorly met
financial service needs and design of the product prototype. It involves focusing on understanding
the customer. Questions are asked and answers found, through systematic, objective research
focusing on gathering information relevant to specific marketing problems and opportunities.

Each of the participants must think about whether they

have the capacity to undertake product development?

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Institutional Assessment
Once an MFI has decided that it makes strategic sense to diversify its product line, it must assess the
practical issues of the resources it requires for such an undertaking. In evaluating its capacity to handle an
additional product, an MFI must examine the following major items:

Staff skills and time: New products might require specialised expertise or a more highly
educated credit officer, depending on the complexity of the product. It may require more time
from existing staff

Delivery channels: If an MFI is going to successfully expand its product line, it must have
sufficient capacity within its delivery channels to market and distribute the new product.

Systems: An MFI‘s management information system (including

both accounting and portfolio monitoring) needs to track, manage,
and in some cases disburse the new product. A new product will
require separate bookkeeping systems at first to track demand and
analyse profitability. Back-office systems might need to be versatile
if the new product has non-standard payment terms or other unique
characteristics that differentiate it from existing products.

Risk Management: While diversification usually reduces portfolio risk, new products can create
liquidity problems if they are not managed carefully. For example, introducing highly liquid
savings accounts means that an MFI must manage its capital carefully to respond to sudden
withdrawals by depositors.

Training procedures: Staff need to be trained on the specifics of the product, how to promote it
to customers, and how to track it. MFIs that offer a mono-product might try to use on-the-job
training, which is generally inadequate, when diversifying a product line. Manuals will need to be
developed and courses designed in order to ensure quality implementation. Other MFIs have
used dedicated mentors (or floating specialists) who travel between branches, offering on-the-job
training to other credit officers.

Financial resources: All the above require a substantial commitment on the part of the MFI.
Product development necessitates initial investments by the MFI in systems development,
marketing and in training of staff to run the systems, market the product and transact the business
that arises from it.

Internal Preparation:

 Institutional Buy-in

This is a process of getting the significant areas of influence within the organisation to be aware and
supportive of the product development process.

Sudden changes can be unsettling. To avoid resistance, the product development team should regularly
communicate the progress of the testing process to their colleagues and engage the organisation‘s input.
Interdepartmental briefings are good settings for such discussions, because the success of developing,
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Overview of Product Development & Market Research 16

testing, and implementing new products requires drawing on the strengths and resources of different
functional areas within the organisation.

 Buy-in meetings should have two main purposes:

 to update the organisation on the current and upcoming product

development activities and
 to solicit feedback on the product development strategy and
implementation.

For this second purpose, it is important that the meeting be structured as an open
forum for feedback on the proposed product design, or that a brain-storming
session is scheduled to generate creative ways to incorporate the new product
efficiently into the MFI‘s existing systems.

 Drafting Terms of Reference, or a detailed Memorandum on the Market Research

process to be undertaken by the marketing department

 Why draft a Terms of Reference?

A Terms of Reference clarifies for all readers, and those undertaking the tasks, exactly what their
objectives are, what activities they will need to undertake to reach them, who will be involved, how long it
will take and at what cost. Even if many organisations don‘t create formal internal TORs, they usually
present a plan to senior management detailing the same items that would be in the TOR.

 Who drafts the Terms of Reference?

Ordinarily, the Team Leader drafts the TOR for presentation to top management for approval. This
approval may come from the Managing Director or Chief Executive in a large institution, or the Board
Chair in a small institution.

 What are the components of a Terms of Reference?

A Terms of Reference (TOR) is a formal document that outlines the background of the market research
activity, as well as the specific tasks, obligations and expectations of the Market Research Team.

This section of the TOR states the background of the project, in both general
Section I: Background and specific terms. The General Background states the general reasons for
of the Relevant Project conducting the research - for example high levels of drop-outs or the MFI
Objectives & Activities
entering a new market. The Specific Background lists the specific perceived
objectives that the market research should meet -for example, to examine the nature/reasons for drop-
out and options for reducing it or the opportunities and risks in the new market.

This section of the TOR is a detailed description of the services required of the Section II:
Description of
Market Research Team. It lists specifically the composition of the team, and
Required Services
lists by name the particular individuals that will fill those roles. This section

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should also designate the Team Leader and the Product Champion (if different). This section also lists
specifically what the Team is to be doing - both in terms of primary and secondary research.
Section Three stipulates the time frame for the Market Research – when the test is to
Section III: begin, and when it will be completed. This section also outlines the meeting
Duration commitment of the team members so that the team members and the approving
and Timing:
manager understand the general level of time commitment that will be required.

This section identifies the general supervisor of the Market Research Section IV: Monitoring
Team, as well as the Team Leader. This section delegates the responsibility / Progress Control:
for the test and the outputs.

Section V: Definition This section defines the expected outcomes of the Market Research Team. It
of Expected Outputs/ states when the final report of the Market Research Team is due, stipulates
Results: what other reports are to be completed, and when and to whom the Team
must provide its recommendations about the potential for future pilot-
testing of the product prototype.

This section outlines the budget for the Market Research. Remember: Market Section VI:
Research requires that the institution provides training, travel, per diem and Budget
stationery, and may require funds for additional staff or other items.

In Summary, the Terms of reference, as with any other communication designed to drive action should
contain the following information:

 Identify the desired results

 Indicate the guidelines
 Clarify the resources
 Assign accountability
 Reflect the consequences

EXERCISE

Write up the skills/team-members you would want on a ―product development team‖.

Assembling the Product Development Team

The core of the Product Development team is its leader, or…

Product Champion: The product champion is typically the person who becomes the product‘s
main proponent and assumes responsibility for managing the development process.

The product champion is the leader of the team that oversees the market research and pilot testing
phases and maintains the momentum…. behind what can be a tedious process at times. S/he is
responsible for motivating colleagues to serve on the cross-functional team and is accountable for
keeping them on track.
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The product champion infuses vitality into the process, and is often called upon to sell the product to
decision makers including senior management and board members.

Cross-Functional Team: Although the product champion is responsible for oversight of each
step of the development process, the day-to-day tasks are undertaken by a product development
team of key personnel from the different parts of the organisation, which are critical to the
product‘s ultimate success.

The cross-functional teams in most institutions should comprise three to seven staff members from some
of the following departments:
 SALES (branch/outreach officers),
 MARKETING/promotions,
 HUMAN RESOURCES,
 FINANCE, TEAM
 management information systems (MIS),
 methodology/RESEARCH AND DEVELOPMENT
 OPERATIONS, and
 LEGAL

 Sales(Branch/outreach officers):
 Often deliver the final product therefore it is critical they have a thorough understanding of the
product to sell it more effectively.
 Typically have the best understanding of clients‘ needs and preferences, gleaned from ongoing
contact with them.
 Have a sense of price sensitivities and effective delivery channels that can be incorporated into
the design of the new product prototype (model).

 Marketing/Promotions:
 Critical in helping ensure that products are developed from the point of the view of the market,
rather than just from an internal perspective.

 Human Resources:
 Someone on the new product development team should have an understanding of the ability of
the MFI to design a training curriculum because training is an integral component of the new
product pilot test and implementation process.

 Finance:
 The finance function helps evaluate risk and return (profitability) of new product development to
help balance the marketing perspective.

 Management Information Systems:

 A key component of implementing the new product will be developing
the internal systems to administer and track the new offering.

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 Methodology/Research and Development:

 Staff from these departments, to the extent that they exist, can bring valuable investigative skills,
market information and a dynamic perspective to the product development process.

 Operations:
 Essential for planning and implementing the new product within the operations/systems of the
MFI

 Legal:
 To address the regulatory/legal issues thrown up by the proposals for new products

Designing the Prototype:

The 8 Ps are central to the targeted market research involved in designing the product prototype.
Each of them will be refined continually during concept development and prototype testing and finalised
during the product implementation stage.

The steps involved in designing the prototype are:

 Market segmentation — identifying and characterising the target segment; A large

heterogeneous market is broken down into small homogeneous segments and a separate
marketing strategy is developed for each one of them.

 Market research — systematically and objectively collecting, developing and providing

information from various sources to support decision making; and

 Concept development and refinement/Prototype testing — soliciting direct customer

response to the product concept to refine it into a prototype ready for pilot-testing. (Discussed in
detail later in the course)

Using the 8 Ps in Designing the Prototype

To create sophisticated new products, the new product development team must consider the entire
prototype in terms of all its component parts, and solicit client feedback on factors referred to as the five
(5) Ps (as fully defined on page 7):

Product (design)
Price
Promotion
Place
Positioning
Over time the Original Five Ps, have been increased by three…
Physical Evidence
People
Process

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Session Four
Introducing Market Research: Part 1
Session Objectives
To provide an overview of:
The Market Research Process
Market Research Methodology :
Quantitative v. Qualitative Research
Uses of Qualitative Research

Market Research & Product Development

Process Overview
Costing &
Qualitative Qualitative Pricing
Research
Research Research:
Issue
Plan FGD/PRA

Understanding clients’ needs Concept

Development
Quantitative
Product Refine the
Research:
Ready for Concept into
Prototype
Pilot-test a Prototype
Testing

Testing the Product Prototype

The Research Objective

The Research Objective is a statement in precise terminology of what information is needed. Defining the
research objectives guides the entire research process. The objectives are translated into specific
information needs.

The objectives show what the project is expected to add to what is already known. It shows any
limitations to scope or scale.

Essentially there are 3 types of research objectives:

 Exploratory to gather preliminary data to shed light on the real nature of the problem and to
suggest possible solutions or new ideas
 Descriptive to ascertain certain magnitudes (how many people do/do not agree to a certain
savings idea etc.)
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 Causal to test cause and effect relationships

EXERCISE

 Participants decide upon a research objective for their MFI

Handout 4.1: MFIA Research Plan

Field experience has shown that until they have quite some experience, many participants find selecting
the PRA tools, developing research plans and preparing FGD guides difficult. In March 2003, MicroSave
introduced two new slides and 6 new hand-outs of illustrative research plans and FGD Guides to help
participants over come these hurdles. These example research plans/FGD guides should be used in
combination with Handout 10.1 (Day 3) ―Using the Tools Framework‖.

Handouts 4.2-7 in the ―Additional Soft Handouts‖

folder: Various Sample Research Plans and FGD Guides
on Savings, Loan and Leasing products as well as client
perceptions and needs analysis.

Market Research Methodology

The market research process continues to define the methodology to use in order to obtain the data in
the most objective and useful manner. In a typical market research problem there are basically two
primary techniques to be employed as far as the methodology is concerned.

These include the qualitative and quantitative methodology. (Each of which is discussed in detail in the
captions that follow, beginning with a contrast of the two).

The technique selected is dependant of the research problem and objectives and works to provide the
sought for solution.

EXERCISE

 Participants explain the differences between qualitative and quantitative research based on what
they already know or have learned

Qualitative Research
Originally derived from the behavioural sciences, qualitative research is primarily used to examine and
understand the complexity of human behaviour, and is more descriptive than definitive. It not concerned
with measurement, and so does not show proportions rather it shows behaviour.

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Qualitative data facilitates the identification of specifically relevant cultural features amongst target
populations, which in turn helps to design appropriate and effective questionnaires.
Used in quantitative research in order to have research attributes in consumer
language.

Qualitative data is a light to illuminate rather than a lamppost to lean on. It provides
in-depth understanding in a subject area and provides reasons provoking certain
behaviour etc.

Quantitative Research
Quantitative surveys which are usually conducted by means of pre-tested questionnaires and administered
to a sampled population facilitate speedy data processing as well as statements such as ―75 % of the target
population use bank-based savings services, 20% use money guards, and the rest do ―do not save‖". This
is obviously an attractive and effective way of presenting survey data but it restricts the data collected to
answers to specific pre-determined questions. Moreover, it rarely provides the reasons for the stated practices.
Reasons are the domain of qualitative research.

It is important to appreciate that the type of data produced depends not only upon the approach decided
on, but also on the method of data collection used. Different methods will produce data of differing
depth, breadth., quantity and content as well as differing levels of accuracy, speed and cost . For the
research user, it is important to have some feel for what each method can accomplish, in order to select
those appropriate for the needs of a particular problem.

The Differences Between Qualitative and Quantitative Research

Qualitative Research Quantitative Research

 Unstructured questioning  Use of structured questionnaire
 For in-depth understanding of consumer  Statistically representative of population
behaviour and motives
 Output: consumer words and descriptions  Used to measure behaviour and attitudes
 Highly trained professional moderator  Statistical output
 Moderator must understand brief (research  Usually analysed by computer
objectives, discussion guide etc.)
 Enumerators trained for consistency and accuracy
in asking questions
 Enumerators do not have to understand or
interpret brief

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The Differences Between Qualitative and Quantitative Research

The differences between the two research techniques lies mainly in the purpose, questioning process and
out put.
Qualitative Understand consumer behaviour in an
in-depth manner.
Purpose
Measure behaviour and attitudes.
Quantitative
The questions in qualitative research are ―open-ended‖, loose and flexible such that they change
whenever necessary in response to information previously obtained. In quantitative research, the
questions are rigid and structured.

In qualitative research the output is expressed in words and descriptions, rather than figures as is the case
in quantitative research.

In quantitative research the questions and range of possible answers is determined before hand, which is
not the case with qualitative research. In qualitative research, one question and its answers leads to
another set of questions.

The sample used in qualitative research is composed of people of the same demographics while the
sample used in quantitative is representative of the population.

Qualitative v. Quantitative Research Methods

―According to this line of argument the scientific‖ [quantitative] ―method fails as: it ignores the
complexity, diversity and contingency of winning a livelihood; it reduces causality to simple
unidirectional chains, rather than complex webs; it measures the irrelevant or pretends to measure the
immeasurable; and it empowers professionals, policymakers and elites, thus reinforcing the status quo
and directly retarding the achievement of program goals. At heart, PLA‖ [Participatory Learning and
Action] ―theorists do not agree that ultimately there is one objective reality that must be understood.
Rather, there are multiple realities and before any analysis or action is taken the individuals concerned
must ask themselves, ‗whose reality counts?‘. The answer must be that the perceived reality of the
poor must take pride of place‖.

Hulme, David, ―Impact Assessment Methodologies For MicroFinance: A Review‖, mimeo prepared for the CGAP
Working Group on Impact Assessment, Institute For Development Policy And Management, University Of Manchester, 1997.

Analysis and Reporting

The final step in the research process is analysis and reporting of research finding. Analysis involves
dissecting the data collected and placing it into the context that answers the research problem. The
analysed information is then forwarded to the problem owner with recommendations and conclusions.
Analysis and reporting for the two techniques requires different approaches and formats.
In qualitative research, transcripts and grids/matrices are used to compare the outcome from the groups
or individuals and facilitate in the drawing of conclusion.

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Data tables and statistical analysis are used for quantitative analysis, with graphs being drawn
to shown trends and variations.
But I Trust In Numbers!!
With quantitative research you may miss the point because:
 the questionnaire may be inappropriate
 the wording may be wrong
 it is difficult to use for complex issues
However, developing the quantitative questionnaire using the understanding and insight gained during
the qualitative acts as a buffer because:
 it ensures that questions are appropriate in that they can be understood by the target group
 questions used in a questionnaire may be ambiguous or leading such that the responses are not
objective
 emotions, feelings and such immeasurable aspects of human (consumer) behaviour are not easy to
express in a questionnaire.

Interviewer: Why do you like savings?

Respondent: They are very convenient

Interviewer: Why is that important

Respondent: I can accomplish more

Interviewer: Why is that important?

Respondent: I will feel good about myself

This shows the intangible element of self esteem

EXERCISE

 What are the possible uses of Qualitative Research techniques in the context of managing an MFI ?

Main topics of Qualitative Research

The main topics that are discussed in qualitative research are:

 Market Exploration
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 Reasons for client behaviour (drop-out/exit, delinquency etc.): Many MFIs still use
quantitative approaches to examine drop-out, but these often miss the complex and inter-
related reasons for clients dropping-out.
 Clients’ perceptions of our/the competition’s products: There is often a gap between
how the MFI thinks it products are seen/understood in the market and how they are really
seen.
 Creating new approaches to marketing:
Many of the issues that clients raise during market research can offer important insights
into how MFIs might market (even existing products) better.
 New product concept development:
Discussed in detail below
 Programme evaluation/Impact assessment:
Many of the qualitative research methods used in market research are extremely useful for
programme evaluation/impact assessment
 Detection of fraud/rent-seeking etc.:
Qualitative techniques allow MFIs to discuss in detail with clients their experiences in dealing
with their front-line staff and have been used to examine complaints/concerns about fraud
etc.

Uses of Qualitative Research

 Exploration
Qualitative research can be used to:
 Understand clients and explore their perceptions of the MFI and its
services/products
 Explore drop-out and delinquency problems and issues
 Explore consumer language
 Explore trends in the financial landscape

Qualitative research is primarily used to explore behaviour and attitudes. The information thus generated
shows what behaviour, attitudes exist with the advantage of obtaining this in consumer language, which is
best, from areas/markets about which little is known.

In the context of microfinance qualitative research is particularly useful to understand the nature and role
of the informal sector financial systems

 Explanation
It can be used for explanation of behaviour and attitudes:
 To find out why customers behave or think in a certain way
 Why the prefer particular banks or products to others etc

The key question asked in qualitative research is WHY…

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For every consumer behaviour or attitude towards various aspects raised in qualitative research, it is
important to understand the reason behind it.

Interviewer: In cases of emergency what do you do?

Respondent: I borrow money from my employer
Interviewer: And why is that so?

This type of questioning can lead to important insights into the roots of delinquency problems or high
rates of client drop-outs/exits - both of which are often driven by inappropriate products/delivery
mechanisms.

 Detection
It can be used to examine issues relating to the delivery of products and services from the
clients perspective with a view to detecting fraud and rent seeking by frontline staff

 Evaluation
 Can assess why things work and which things work best
 Can examine the impact of programmes on clients
 Can look at how clients are using MFIs services
 Assess depth of outreach
Evaluation is not really the domain of qualitative research and as such it is used in very broad
circumstances. For a credible/effective impact assessment/evaluation usually it is necessary to combine
qualitative with quantitative techniques.
However, Qualitative Research can provide important information for impact assessment at MFIs‘ client
level – on how they perceive and use the products on offer, how these products have helped/hindered
them in managing their household economic portfolio of financial, physical, human and social assets.

 Creation
It can be used for developing/creating ideas for:
 refining existing products
 developing new products
 new programmes
 new logos
 new marketing/ advertising campaigns etc.

Qualitative research is used to gather the complex information necessary to design new products or
launch new programmes/logos or advertising campaigns

Qualitative research is necessary, and desirable, to understand the reactions, understanding and belief
systems of the customers.

Some organisations even use PRA tools like ―ranking‖ and Focus Group Discussion techniques in
strategy-formulation and other staff meetings.

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Limitation of Qualitative Methods

Results are susceptible to misuse rather than any inherent shortcomings.

There is the great temptation among many managers to accept small sample exploratory results as
sufficient for their purposes because they are so compelling.

The dangers in accepting the unstructured output of a focus group or an in-depth are twofold:

 The results are not necessarily representative of the would-be population and hence can
be projected.
 An analyst with a particular point of view may interpret the thoughts and comments
selectively to support that view.
In view of these pitfalls, these methods should be used strictly for insights into the reality of the
consumer perspective and to suggest hypotheses for further research.

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Session Five
Introducing Market Research: Part 2

Session Objectives:
To provide an overview of:
 Why Conduct Market Research ?
 Secondary Research:
• Internal Records
• External Trends
 Primary Research
• Front-line Knowledge
• Consulting Customers/Drop-outs
 BRI Case Study

Why Conduct Market Research ?

Effective marketing requires information on consumer needs and wants. MFIs require information in
order to make relevant and tactical decision.

Market research increases:

 Market intelligence: everyday information about developments in the marketing environment that
helps managers to prepare and adjust marketing plans.

 Market orientation and preliminary understanding: important in markets that are unfamiliar and
therefore preliminary understanding is required.

 Strategy orientation: understanding various strategies and working out which of these the MFI
requires in order to meet its objectives.

 Understanding motivations: consumers are motivated in their purchase/consumption decisions

by various factors that organisations should understand.

EXERCISE

 Describe the sources of market information data that your MFI currently use.
 Describe the sources of information data that your MFI might use.

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Types of Research and the Research Continuum

Market research is divided into both primary and secondary research, all of which cover a continuum of
uses and needs.

Types of Research and the

Research Continuum
Macro-Economic, Client Consultative
Industry and Groups
Environmental
Interviewing
Internal Records Drop-outs/exits

Competition/ Information from

Networks Front-line Staff

Secondary Primary

Primary research consists of compiling primary data that is information collected for a specific
purpose at hand, and is only for that purpose. On the other hand, secondary research reviews and
compiles data from existing documents and sources.

It is advisable to start with secondary data, which then allows you to better define the primary data
collection instruments, such as:

 Observational Research – watching clients in the relevant settings, best suited for exploratory
research.

 Focus Group Research – of use as an exploratory step before designing a large-scale survey, best
suited for exploratory research.

 Survey Research – to learn about people‘s beliefs, preferences, satisfaction etc. best suited for
descriptive research, and measure these magnitudes in the general population.

 Experimental Research – most scientifically valid, calls for selecting matching groups of subjects,
subjecting them to different treatments, controlling for exogenous variables and
checking whether the responses differences are statistically significant.

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Secondary Research
Secondary research consists of data in which information already exists somewhere, having been
collected for another purpose. It is a good starting point for research and can help define problems and
research objectives.

There are various sources of secondary data, namely, internal and external. Secondary data usually can be
obtained more quickly and at a lower cost than primary data.

Sources of secondary data include internal sources:

loan ledger
loan applications
client passbooks
client exit forms, etc.

For example, information on clients‘ savings habits can be derived by looking at a two-year history of
several savings accounts with information derived from client passbooks.

Identifying Needs Using Internal Records

Some of the financial signals that indicate a need for new product development or refinement are
outlined below:

Poor Growth Rates: Limited growth in the take-up of savings or

loan products may well be indicative of inappropriate
products. If many of the savings accounts are dormant or
maintained at the minimum levels necessary, this is may be
indicative of a need to review and improve the products.
Similarly, if the clients are only taking limited loans, despite
expressed needs for additional credit, the design of the loan
products may be restricting their desire or ability to use them.
This type of analysis should be conducted on a product by
product basis. Thus if the MFI offers several savings and loan
products each should be analysed separately to review the
clients‘ use of these.

Liquidity: Limited and excess liquidity can both serve as signals to an MFI to develop new
products. Such a signal occurs, for example, when an MFI cannot meet its loan demand. An
MFI might also determine that its funding sources are too concentrated or too expensive and
seek to diversify to in order to manage its liquidity risk or reduce the cost of capital.

Profitability: Profitability pressures arise when an MFI strives to

maintain its self-sufficiency, or to meet investors‘ and
stakeholders‘ demands as a transformed financial institution.
These financial demands can motivate an MFI to develop
new products (other than the traditional working capital loans

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and compulsory savings programmes) tailored to the needs of lucrative repeat borrowers or to
attract new clients in profitable markets.

Identifying Opportunities Using Internal Records

The MFI’s Records. Loan files of both accepted and declined clients contain valuable
information about client preferences and projected demand. If this information is stored in
a database, files can be sorted by geography, income level, type of business, and so forth to
see if any trends surface that can provide insight into target markets for the new product.
Similarly, increasing numbers of dormant accounts or clients closing their accounts and
leaving the MFI are clear indicators of dissatisfaction with the services being provided. If
possible, the MFI should seek to disaggregate this information to search for patterns/trends
amongst its clientele.

For example, this analysis might reveal the probable source of the problem, or at least areas for further
investigation:
 all the high-value savings accounts are leaving, or
 clients always leaving after their fourth loan etc.

EXERCISE
 Break into groups
 Analyse the data in the handout ―MFIA Handout‖
 Answer the following questions: Handout 5.1a: ―MFI ‗A‘ Records‖

 What are the important trends described by this data ?

 What are the likely implications for the MFI and its products ?
 What additional information do you need to know & how might you set about getting
it ?

Don‘t worry – there are solutions coming also!!

Handout 5.1b: ―MFI ‗A‘ Records‖

Macro-Economic, Industry and Environmental Trends

Broad macro-level economic, industry, or environmental trends can create a demand for new products.
Following are some examples:
 Macroeconomic factors: High inflation would spark a need for highly liquid savings products.
Not surprisingly, the majority of BancoSol‘s depositors keep small balances in the most liquid
types of accounts and choose the U.S. dollar option to maintain value.

For the same reason, BancoSol‘s U.S. dollar-denominated savings product was more attractive
than the relatively less stable Bolivar product. Maria Otero noted, however, that since most

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developing countries operate in only one currency, the option of offering loans denominated
in more stable, foreign currencies would be prohibitively expensive for many MFIs.

 Industry standards: Industry standards, often in sectors inaccessible to the poor clients of MFIs,
can educate clients and create demand for products. For example, in Bangladesh, the
commercial banks offer a Deposit Pension Scheme. This product is extremely popular as a
form of saving for medium term needs (weddings etc.) and long term (pensions etc.). MFIs‘
poor clients are remarkably familiar with, and expressed strong demand for, this product. As a
result, when the equivalent contractual savings agreement was introduced by BURO, Tangail
(and subsequently ASA), it proved both popular and easy to market since it was well
recognised as being the ―poor person‘s Deposit Pension Scheme‖.

 Dominant firms: Can affect local economies, as was the case with Prodem-Bolivia, which shifted
away from ACCION International‘s typical practice of offering fixed amortisation schedules
for its products after it spun off many of its urban branches to BancoSol. Left to serve rural
areas of Bolivia, Prodem was subject to seasonal fluctuations of its agricultural-driven markets,
which affected the cash flow of its clients‘ enterprises regardless of whether they were directly
involved in this sector.

 Public health: The FINCA affiliate in Uganda developed a life insurance product to address the
nation‘s high mortality rate. Partnering with a local commercial insurer to provide access to
insurance to its members, FINCA takes a fixed percentage of the village bank loan as premium
for life and limited disability insurance. In Bangladesh many MFIs offer loans tailored to
buying ―tubewells‖ (hand-pumps) or sanitary latrines.

 Environmental factors: SEWA Bank in India also introduced an insurance product after a survey
of defaulted borrowers revealed that cyclones, floods, and other natural disasters wiped out
their customers‘ resources. SEWA also realised how important it was for women to have
landed assets, especially for their daughters‘ marriage dowries, and began offering a credit
program to help its customers repurchase pawned property.

 Natural disasters: In the wake of the floods in Bangladesh, many MFIs introduced emergency
response loans to help their clients re-establish their businesses or farms. These were repayable
over a longer time period (often as much as two years) and were extremely popular.

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Market Segmentation

Handout 5.2: Competition Matrix

Groups into which markets are typically

segmented include:

Geography Business
Size
 Geography: Most MFIs divide their Gender
markets into geographical units, identifying Demography
specific characteristics of regions, towns, or Industry/Occupation
villages. Income
 Demography. Demographic analysis Behavioural Financing
involves segmenting the population by Characteristics Needs
certain shared characteristics, such as
age/generation, social class, marital status,
family size, ethnicity, race, religion,
occupation, and level of education. The three most common demographic characteristics used to
segment markets in microfinance are gender, income, and industry/occupation.

 Gender. Many microfinance programs, such as the Self-Employed

Women‘s Association (SEWA) of India, target women explicitly both
because female-headed households are among the poorest in the world
and because of women‘s propensity to reinvest their earnings into their
family‘s health and education.2

 Income. Some MFIs target clients earning less than a certain amount.
If an MFI serves different economic classes of the population, income segmentation can help isolate
the different needs of these target markets.
 Industry/Occupation. Some MFIs offer specialized products by industry, such as agriculture,
fishing, and trade, or by occupation.

 Business Size. Business size is similar to income segmentation. MFIs can differentiate enterprises by
their sales, number of employees (if any), or profit size. ADEMI in the Dominican Republic, for
example, has designed specific products to target small, as well as micro, businesses.

 Financing Need. Commercial lending institutions often segment the market by product type or the
corresponding financing need. Similarly, MFIs often segment the market by those enterprises
requiring working capital (the most prevalent type of microfinance product) versus those wanting to
purchase fixed assets or to finance infrastructure improvements or a variety of savings accounts.

2
Eliana Restrepo Chebair and Rebecca Reichmann, Balancing the Double Day: Women as Manager of Microenterprises
(Somerville, Mass.: ACCION International, 1995), p. 6.
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 Behavioural. Behavioural segmentation divides customers into groups based on their attitude toward,
use of, or response to a particular product. Examples of behavioral segmentation include loyal, repeat
borrowers versus those who are very price sensitive; borrowers who are interested in tailored financial
products and hand-holding versus those who want quick, efficient service; and borrowers who
begrudgingly use an MFI because they have no choice versus those who have enthusiastic feelings.

Competition’s Activities and Products

With competition come new ideas and opportunities for growth. Competitors themselves can be a
resource, rather than a threat, to further educate and screen clients and to develop new product ideas.
An MFI can copy a competitor‘s product offerings and then improve upon it!
BancoSol created ―catch-up‖ individual loans to stem the desertion of its clients to the neighbouring Cajas
de Ahorro y Prestamo Los Andes. BancoSol combined the best of its current product — the efficiency
and accessibility with which it was delivered — with the flexibility of its competitor’s loans, to go beyond
the solidarity group methodology.

Competition
New product development teams should pay close attention to price, packaging, and placement of
competitive products when they design a new product prototype. Comparison with the competition is a
critical part of product positioning. The informal sector in particular will often provide important
indicators of the types of financial services and products that the poor need, as well as some options for
providing these: after all the informal sector is there because there is a market for it. For a fascinating
description of a wide variety of financial service systems for the
poor see Rutherford‘s ―Savings and the Poor‖ Handout: 5.3: Savings and The Poor

ASA, in Bangladesh, introduced open access savings accounts and contractual savings agreements after
seeing the success of these products in their competitor, BURO, Tangail‘s, system. BURO, Tangail in
turn adopted and adapted the idea of accepting savings deposits from non-target group (i.e. not-so-
poor) clients from ASA.

Both the informal and formal sectors will be the competition when the MFI introduces the new financial
service products, so it is important to pay careful attention to their pricing, delivery and marketing
strategies.

Analysing the Competition

To prepare a useful marketing strategy, the MFI must identify and research the other formal and informal
sector competition as well as its current and potential customers. MFIs need to identify their competitors‘
systems, strategies, objectives, strengths, weaknesses and the services they offer … and how the clients‘
perceive them.

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Private Networks
A number of trade associations to which conventional financial institutions belong provide information
on customer trends that can be used to design new products. Although MFIs have few similar industry
fora, some belong to networks that are linked to affiliated organizations in other countries.

For a list of some of these, see Wright‘s ―Beyond Basic Credit and Savings: Designing New Products for
the Poor‖. (Received earlier as Handout 3.1)

International Networks and Literature.

There is an increasing amount of experience with a diversified series of financial service products for the
poor, and with it an increasing body of literature documenting and discussing that experience. Any
organisation preparing to design a new product should examine any relevant literature that it can find and
try to contact those with experience in implementing such products … there are likely to be important
lessons which do not have be learnt the hard way !

As the MicroFinance net-working and e-mail and Internet services grow, this experience exchange will
become more easy.

How To Use The Development Finance (“DevFin”) List.

To sign onto the DFN listing, send an email to: [email protected] with the following
message as TEXT, not in the header.
SUB DEVFINANCE <your real name>

Also see Wright‘s ―Beyond Basic Credit and Savings: Developing New Financial Service Products for
the Poor‖ (Handout 3.1) for a listing of some other useful sources of information.

LITERATURE EXAMPLES
Handouts: MicroSave Research & other Papers

Use And Impact Of Savings Services Among The Poor In East Africa
Leonard Mutesasira, Henry Sempangi, Harry Mugwanga, John Kashangaki, Christopher Lwoga,
Florence Maximambali, David Hulme, Stuart Rutherford and Graham A.N. Wright

Background to the Study: There was a prevalent that ―the poor cannot save‖, but throughout East
Africa and indeed the rest of Africa, there is a vibrant and diverse informal financial sector. This report
shares findings that improve knowledge and understanding of how poor people in East Africa save, how
they use different savings mechanisms, the impact of those savings facilities on their household
budgets/lives and suggestions on where formal and semi-formal institutions can make a contribution. It
is a useful background study for understanding the complete competitive environment in the entire
financial sector ranging from formal to informal operators.

Primary research
Primary research is usually the only way to obtain comprehensive and reliable information on a new field.
This is because the entire research effort is geared towards solving one particular problem and is designed
purely for the intended purpose.

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Primary research costs more and may require a longer period of time to provide the data however the
results answer specific research needs.
An MFI wishes to provide clients with option of having
variable access to saving. They would like to know
reaction to various options available like allowing access
daily, once-a week, fortnightly, etc.
This would require primary data and research

Examples of Primary Research

 Branch Staff/Loan Officers
Important signals for new product development can come in the form of direct feedback from
staff/officers who have established relationships with these customers. This customer-provider
interaction is often built into the methodology, as is the case with many group-based lending strategies.

For example, the mission of SEWA Bank in India is to create ―people‘s economic organisations.‖
Accordingly, SEWA has helped organise its microenterprise borrowers into trade unions and smaller
committees to address different needs, such as inputs-sourcing, networking, and bulk purchasing. During
group meetings, ideas for new products are generated: ―We have many forums in which women can talk
— trade unions, executive committees, co-operative bank meetings; just by listening we hear what their
needs are; that‘s how we get our ideas for new products.‖

The branch staff/loans officers are the ―front-line‖ of the MFI, and the
ones who deal face-to-face with clients. They are the staff in the best
possible position to provide on-going feedback on clients needs,
perceptions and preferences – in short an invaluable resource for a
client-oriented organisation.

It is important for the MFI to develop an organisational culture,

structure and system that positively encourages feedback from its front-
line staff and properly assesses the information received.

MFIs should consider setting up formalised systems for accessing this

information – perhaps through periodic workshops with selected front-line staff to allow and encourage
them to provide field-based feed-back or
through using account opening forms etc..
Handout 5.4a Account Opening Questionnaire
 Accessing the Front-Line Knowledge Handout 5.4b Smart Saver Enquiries Questionnaire
Many MFIs have management that has little idea Handout 5.4c Smart Saver Product Analysis Survey
of what is actually happening at the front-line or
of how their customers view the financial products being offered.

Organisations, like countries or demographic groups, have distinct cultures that differentiate them from
others. Moreover, there is no proper or ―correct‖ organisational culture: each develops in response to the
specific realities of the market in which it operates and is shaped by the goals and work methods of its
founders.

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MFIs wishing to optimise their financial service products must focus on optimising the information flow
from the field and their front-line workers to the organisation‘s management. This will be largely
determined by two factors:
 the organisational structure, and
 the organisational culture of the MFI.

 Management by being there: There is no substitute for visiting the field and sitting with the
clients to discuss their expectations, perceptions and needs. Even if they can only spare a day or two
every six months, senior management officials should make special efforts to go out with staff versed in
eliciting clients‘ opinions.

However pressing the board room affairs, the client is the basis and source of the MFI‘s business and
should be ―king‖ (or ―queen‖). The clients‘ views are some of the most important information necessary
for making appropriate decisions in a competitive environment.

While market research reports will provide much of the necessary data and insights, they can be clarified
and strengthened by a few days of direct face-to-face experience with the clients in their businesses and
homes.

 Company norm of risk taking:

The ease with which honest communication between management and field officers can take place is
driven by management tolerance for risk and dissent. Management can create open dialogue by
encouraging critical thinking.

 Valuing innovation:
What is true in human nature holds for organisations: change is difficult. This truism is especially relevant
in financial institutions because of the risk-averse nature of the industry. Add to this not-for-profit (be it
NGO or government/parastatal) resistance, which has been defined by stability rather than the dynamism
of competition, and the difficulty in inspiring innovation becomes clear.

Most conventional for-profit financial institutions have encouraged product innovation through
employee recognition – so that when an employee makes a particularly important to product
development this is appropriately recognised through financial and/or non-financial means.

 Customer/Client Consultative Groups

MFIs also have anecdotal ways of tracking loan demand and customer satisfaction. The client-credit
officer relationship is often an MFI‘s most valuable asset in designing new products because client
feedback is unfiltered information and can be used to refine product offerings.

 Customer Feedback Surveys

These are short and simple question surveys. Typical examples are those incorporated into account
opening forms to capture information about clients as they join a programme. Similarly, such survey
questions can be incorporated into loan application forms. Other simple surveys can be done by staff
members.

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In fact, SEWA Bank of India identifies the simple

act of listening as one of its main sources of product
ideas. As their managing director explains, ―When
women get together they talk about their needs. At
SEWA, the client is in the centre. She is the source
of product ideas.‖ In fact, SEWA, actively consults
with its group leaders to stay abreast of its
customers‘ needs.

In Nigeria, the ―Lift Above Poverty Organisation‖

has institutionalised this throughout the organisation
and holds quarterly meetings with all of its group
leaders in each branch to examine progress and
clients‘ needs.

Similarly, in Bangladesh, BURO Tangail organises

quarterly customers‘ consultative groups to generate
similar client feedback.

 Interviewing Drop-outs
Another valuable procedure that most conventional banks — but few MFIs — undertake are exit
interviews with clients who have decided to terminate their relationship with the financial institution —
either temporarily or permanently. Exit interviews provide valuable information about market realities
and possible product shortcomings that can sometimes be addressed in a mutually beneficial manner.

Often even better information will be derived if a group of clients leaving the organisation come together
with the MFI‘s trained focus group discussion facilitators. This allows the MFI to generate more
discussion and benefit from the dynamics of group interaction, which generally results in participants
offering more and more frank views.

Preparation for interviewing departing clients is essential:

 conduct a careful review of the departing clients‘ account histories and look for trends/
commonalties in these.
 it is important that those interviewing departing clients have a summarised account history detailing:
 age/sex/socio-economic/cultural background
 how long the client has been with the MFI
 number/size of loans taken
 how much saved/patterns of savings
 how much withdrawn/patterns of withdrawal

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Sample Interview Questionnaire For MFI Drop-outs

Explain that the MFI wants to learn from its clients with a view to further developing and
improving its products and maximising client satisfaction

Start with simple, non-threatening questions to ―warm-up‖ the departing client.

Below are indicative questions only – the responses should be followed up with probing and
possibly PRA methods such as ranking of needs/reasons for leaving:

What is the nature of your business?

How long have you been a member of the organisation?
For what purpose did you join the organisation?
For what purpose(s) did you save with the organisation?
Did the savings services allow you to meet those needs/purpose(s)?
What should the organisation do further improve its savings services?
For what purpose(s) did you use the loans from the organisation?
Did the credit services allow you to meet those needs/purpose(s)?
What should the organisation do further improve its credit services?
Why are you now choosing to leave the organisation?
In what other ways could the organisation have better met your needs?
What procedures/systems would you change in the organisation

One Option: The AIMS/SEEP Tool

While this tool is probably the best client exit quantitative survey instrument on the market, we would
argue that to fully understand the results, supplementary qualitative research (probably using a simple
focus group discussion) is essential.
3

Handout 5.5 AIMS/SEEP Client Exit Survey

3
USAID-AIMS’ Client Exit Survey instrument and instructions on how to use it. Reference: SEEP/AIMS Manual
―Learning from Clients: Assessment Tools for Microfinance Practitioners‖. The 2001 version can be found in English,
French and Spanish at www.seepnetwork.org. Questions and pre-coded answers must be adapted to the MFI’s context.
For questions on the tool, please contact author, Carter Garber at [email protected]

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EXERCISE

Four Key Phases of Financial Services Product

Development Case Study

Group Exercise - BRI Case Study

The Four Key Phases of Financial Service Product Development

 Research to Identify Needs and Opportunities
 Designing and Pilot Testing
Handout 5.6 BRI Case Study.doc
 Monitoring and Evaluation
 Revision and Scaled Up Operations

Guidelines for BRI Study - Brainstorming Session

Discussion Guidelines
 What needs and opportunities were found?
 How were these needs and opportunities identified?
 Which of the phases can you identify as part of the process of product development in each of the
cases?
 Do you notice anything else that could have helped or hindered product development in each of the
cases?
 How does the process compare with the process in your organization?

Optional Handout: BURO,

Tangail Case Study

MicroSave’s ―Market Research for MicroFinance‖ – Day 1