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What do we really know about MFI clients?



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We returned from the XVI Foromic in Mexico with plenty of energy and fresh ideas in the bag. Through this series we want to explore emerging trends in the realm of financial inclusion – from microcredit to distribution channels. Join us during the next few weeks and participate with your comments. 

What do we really know about MFI clients? We tend to have a general knowledge of clients’ needs and wants - health, education, decent housing, protection against emergencies - but perhaps we are missing more meaningful information, a deeper knowledge that would allow MFI’s to better serve their clients. A panel titled “MFI Clients: What do we know about them?” featured in this month’s XVI Foromic, put this concept into perspective for me. In addressing clients’ needs through financial products, it is important to take into account the different resources clients already have and the different money management strategies they usually pursue. Conducting segmentation at a deeper level is the key. 

Taking the case of Mexico as an example, commercial banks identify 15% of the population as belonging to the top of the pyramid, where clients are categorized into 8 to 10 segments and served accordingly – women, working women, students, etc. However, the remaining 85% of the population given its income is identified as the bottom of the pyramid and therefore, it is categorized under that one segment and served with an array of products and services that are loosely defined and targeted. Now, considering the size of this segment it is ludicrous to assume that 85% of the population can be served entirely with a standard array of products only because they belong to the same low-income level group. Just like the top earning 15% of the population, further segmentation is possible. 

The results of a segmentation study conducted by CGAP revealed that while the bottom of the pyramid segment shared the same set of concerns and aspirations, there were striking differences in two aspects: 1) their cash flow structure, and 2) their money management strategies. 

Differences across these two categories allowed the CGAP tem to further segment the bottom of the pyramid into 6 different segments including - middle-income formal workers, low-income formal workers, middle-income entrepreneurs, low-income entrepreneurs, informal workers, and agricultural workers.

(Click on the image to see the complete table) 




The results of studying these different segments reveled that cash flow structure and occupation generate distinct financial objectives and therefore, behaviors. The more constant the income (say for a formal worker), the higher the propensity to lean towards savings as a tool for future planning; whereas with more irregular income (informal/seasonal workers) there is a greater need to combine savings with credit that facilitates short-term liquidity. 

The main takeaway from this example is that it matters what resources clients have and it matters how they use these resources to pursue strategies to obtain what they want. Why? One may still ask. Because this is an important piece of the puzzle on how to best serve them. Financial institutions can better serve their clients by 1) taking into account their existing resources and existing money management mechanisms and 2) enhancing them with an adequate product design that is more effective and efficient for the client. 

This concept resonates with Xavier Martin’s presentation during this same panel in which, within the scope of commitment savings, he emphasized the importance of learning from informal mechanisms in order to design effective products. This is because commitment savings mechanisms incorporate the flexibility in terms of amount and frequency of deposits, and even the liquidity that informal savings mechanisms provide. You can read more about why this is important in Xavier’s most recent blog, where he tells the tale of a taxi driver whose diverse money management strategies hint at the demand for commitment savings products that can address his demand for credit and savings. 


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