Keeping Clients at the Center: An Art and a Science
A colleague of mine does not like that I keep on talking about “clients at the center.” He thinks it sounds obvious and, worse, that it is spatially incorrect. At the center of what, he asks?
My answer is simple: at the center of all decision-making. That is, all decisions that financial service providers, policymakers, donors and investors make in pursuing financial inclusion. At CGAP we want to understand what it takes for all individuals, organizations, and governments that can further access to finance to have a relentless focus on clients and their needs.
And we are glad that many have agreed to share with us, in their words, what “clients at the center” means as part of the blog series being launched today, and scheduled to continue each week until early December.
But, what’s new…
The need to understand and stay focused on clients is frankly not revolutionary. Indeed, many would say that is exactly how microfinance started out. And several long-time colleagues, such as Stuart Rutherford, author of the Poor and Their Money, have never lost their way, even apologizing for repeating the exact same messages over decades now.
Back in the mid 1990s, the USAID-sponsored AIMS Project was actively cultivating a “renewed” focus on clients by promoting client assessment tools that ranged from large scale longitudinal studies to practitioner-friendly market research and evaluation tools. As one example, Microsave has built an entire brand and a strong team on two continents on the very idea of understanding client needs. Building on this expertise, David Cracknell will share a range of ways that the client voice can be drawn directly in the board room and management decisions of financial institutions in an upcoming blog. About one decade ago, FinMark Trust initiated the Finscope studies to understand consumer demand across transactions, savings, credit, and insurance. Maya Makanjee of FinMark Trust will tell us more about how the methodology has evolved over the years, while Modupe Lapido, CEO of EFIna (Enhancing Financial Innovation and Access) will provide a practical experience from the 2010 Access to Financial Services in Nigeria study.
… Well, quite a bit
So the idea is not new. But we would be short-changing ourselves not to recognize progress made on the foundations laid decades ago. Innovative academic research and business approaches are helping to provide a deeper and more nuanced appreciation for poor people’s’ lives. The financial diaries approach has advanced our understanding of poor people’s active financial lives, their cash flow management needs, and their agile use of informal and formal financial intermediation. Monique Cohen of Microfinance Opportunities will share the results of her collaboration with Opportunity Bank Malawi using the financial diaries methodology as part of this series.
There is also greater, more refined, and empirical use of segmentation analysis to understand clients across numerous dimensions. Bob Christen of the Boulder Institute will make a case for segmentation that is dividing the market into discrete client groups that share similar characteristics to help tailor products and delivery channels. Several fellow bloggers will help us focus on various segments – Inez Murray of Women’s World Banking asks whether we need pink check books for women, Jacqueline Urquizo, formerly of Accion International, will provide insights on the financial behavior of rural low income people, Rani Desphande of YouthSave will take us into the minds of young people, and Dörte Weidig of IPC Consulting will delve into the realities of the now very popular small enterprises segment. We could not focus on specific segments without looking at finding ways to serve the extreme poor and Syed Hashemi of BRAC Development Institute will discuss the role and limitations of financial services in reaching the ultra poor.
Since the mid-2000s, impact evaluations using randomized control trials (RCTs) have become all the rage. The more recent RCTs have focused not only on whether financial services had an impact, but importantly on product innovation and design, thus helping to clarify our understanding of how, and under what conditions, financial services benefit poor people. An upcoming CGAP paper summarizes the findings of recent randomized evaluations, and will be discussed in another blog series.
Perhaps one of the newest approaches in our toolbox is coming out of behavioral economics, where insights into the psychological underpinnings to everyday money management decisions is based on the idea that a better understanding of social, cognitive, and emotional factors can help us understand why people—poor and rich—do what they do. Sendhil Mullainathan of Ideas42 will take us on a tour of the (ir) rational mind and what it means for microfinance, policy choices, and product design.
Finally, the idea of empowering clients to develop the skills, attitudes, and behaviors to be his/her own best advocate in financial decision-making has taken root in the past few years. Mike Kurbansky of Monitor Group will share results of a broad landscaping study undertaken on behalf of the Citigroup Foundation.
So, it is time to rebalance
We can hopefully agree that there is exciting momentum today to accelerate our learning about clients. However, the fact remains that the demand side has been less attended to and that microfinance evolved with a heavy supply side bias. I actually think that a success of microfinance was precisely its strong focus on institution building, something sorely lacking in many other development areas. Viable providers and business models are key to the long-term ability to offer sustainable financial services.
Yet, it is now time to find a more just equilibrium between supply and demand. This is long overdue and both good for clients and for financial service providers trying to function as viable businesses. Getting deeper insights on client demand and responding to that demand with better products, delivery channels, and policies opens up opportunities for robust and responsible market expansion.
As you read this blog series laying out how we can learn about clients, please write in and contribute your thoughts. Break down for us the science of what you are successfully doing, and share the secrets to your fine art.
A recent Financial Times article entitled, “Innovators don’t ignore customers” argued that the rapidly dropping share price of Netflix, a DVD rental and online film service could be explained by the fact that the company lost touch with what its customers wanted. Keeping a sharp eye on client demand is thus not only the responsible or developmental thing to do–it simply makes good business sense.
Also in this Series
The Decade of the Client
An exciting dialogue is underway that is leading to a collective agreement that putting clients at the center of all decisions is key.
Three Myths about SME Finance
Small and medium enterprises (SMEs) are again at the center of attention – and this is excellent news because in many countries these businesses are the backbone of the economy and they employ large numbers of people. Unfortunately, the environments in which SMEs operate are not always conducive for their growth and development.
Comments
Dear Alexia
Dear Alexia
An interesting post!
‘Art and Science create a balance to material life and enlarge the world of living experience’.(-Hans Hoffman: Search for the Real ).Any approach to look at the financial services for the poor through both the lens of Art and Science would help balance between demand and supply of MF eventually sustaining the ‘desired change’ in the poor client’s living .There is therefore an imperative need to perceive the things scientifically first and then articulate the realities at house hold level towards the goal . This balanced approach certainly helps for positioning the clients at the centre. Following are some tips for the science of acquiring knowledge on the profile of clients in the poverty sector and some secrets of arts for delivering client based responsible finance for their sustainable upliftment along with business gain
Science
–(‘Science is always simple and always profound. It is only half truths that are dangerous’- Bernard Shaw: The Doctor’s dilemma)
1.Appreciation of Client’s socio economic status in the poverty pyramid and their respective needs is required first. Being poverty a multi faceted phenomenon, mere financial and economic perspectives alone are inadequate for the said purpose. A multi disciplinary study may therefore help perceive the phenomenological insights on the functioning of various financial services inputs independently as well dependently along with other development inputs services at client household level. That is to capture holistically the facts beyond financial diaries that influence the financial decision at client level.
2, Understanding the extent of causal relationship between the various financial services singly or severally (not confining to micro credit service only )and their implication on client living in each layer of poverty pyramid(poor, poorer, poorest/ultra poor) as it would facilitate adoption of graduated bottom up approach (CGAP-Pilot projects)
3. Gaining knowledge on the process of ‘Income Generation’ from the micro credit invested micro economic activities at client level and Income Recognition from the performing micro credit assets at MFI level. Also on prescriptive management that facilitates a viable business ensuring a well balanced as well sustained income and return for both the client and the provider respectively
Gaining knowledge on the dynamism of MF functioning for the poor with the focus on client first approach but at the same time the participant (all stake holders) in MF should also develop an art of positioning the client at centre . Here are some secrets for sharing
Art-
(‘ Life is the art of drawing sufficient conclusion from insufficient premises’ Samuel Buttler: Note Book. Life)
After acquiring the knowledge on the profile of the poor client , success of business venture in this MF industry largely hinges on following arts
1.Art of formulation of potential based and client oriented micro finance plans(MFP)for the different layers in the poverty pyramid in the given service area
2. Art of designing financial products and services for MFP matching the needs of various types of clients in the pyramid
3.Art of effective coordination among all the stake holders (direct and indirect) for sequentially arranging support services for the enhancing productivity of financial services in the given service area and sustained income generation for the client and income recognition for the lender
4. Art of social mobilization among the clients for participatory nurturing , planning, implementing and monitoring (social audit)
In fine, whatever the kind of Scientific tools and benevolent Art are developed for said purpose in the battle against poverty , the desired goal cannot be not be achieved unless the behavior of participants is ethically engraved and morally moulded as a pre requisite at all level in the field.
Thank you for sharing my views
Dr Rengarajan
Thank you,Dr. Rengarajan, for
Thank you,Dr. Rengarajan, for sharing your great quotes and for concretely contributing your science and your art. I’d like to touch on your point about the art of designing financial products and services that match the needs of various types of clients at the bottom of the pyramid. It seems to me that figuring out organizationally how to do this, I mean from a business model perspective, is fundamentally important and a much broader challenge than new productive development narrowly defined.
Thank you Alexia for your
Thank you Alexia for your response. Regarding product designing from business model perspective, I wish to share the following
1. Both for learning and for teaching an art requires also an art. Here explaining the art of ‘how to do’ on the subject, is therefore also an art to be experienced intuitively unlike ‘Science’. However let me try to share some secret of the art at surface level briefly since greater insights are inherent in the process of figuring out organizationally involving meticulous perception and intuition embedded with indigenous knowledge while performing this financial art in social field
2. Sequentially, the MFP in the first as I referred to in my post , shows the physical environment and the credit absorbing potential of the service area of MFI and the social economic profile of the poor clients in different layers in the pyramid. Taking cognizance of the credit (absorption) potential area with the sector wise classification ( agriculture, activities allied to agriculture, micro enterprises ( local resource based) small business, transport, education, housing etc., credit product need to be designed for each sectoral activities .While designing these product, the factors like eligibility, amount of loan, margin, interest rate, collateral, repayment schedule etc., are to be considered consciously with the local clients’ feel. Broadly physical number of units for each sector product and the credit out lay for such units using separate scale finance for each one of them may be arrived.(much against the present ‘one size fits for all’ formula by MFI) The consolidated credit outlay for each sector forms the Perspective MF plan for the respective organization concerned as far the micro credit activities (mostly for income generation activities) are concerned say for five year.
3. .Then based on the perspective MF plan for micro credit related products, Annual Action Plan(AAP)could for the current year could be formulated for the identified clients (participatory )indicating their actual products needed in each layer with the number of units and the out lay for each product . This is business plan for the organization as the AAP is based on the actual demands of the clients to be covered and the resources available for the particular year. AAP may also include the demand for financial services such as micro savings and micro insurance and non financial support services depending on the needs of the clients in the bottom layer.
4. .This is only tip of ice berg in the art of business modeling and product designing in MF arena.. As I already mentioned in my previous postings, art of social mobilization for ensuring participation of clients in all stages of business planning and monitoring is necessary as this would enable us for keeping the ‘client at the centre’
5. In fine, in this said art, I have three and a half decades exposure associating with a commercial bank and a national NGOSHG in micro finance field . This art, I feel, could be better demonstrated in any given pilot (CGAP)project area for better perception aesthetically rather than giving description on the subject with lot of assumptions
Thank you for sharing my views
Dr Rengarajan
Add new comment