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Managing Client Information: Feedback Loop Lessons from Latin America

Today, the microfinance agenda is increasingly client or market-driven. Much of the renewed interest in clients is driven by the industry’s focus on competition and dropouts. Competition, together with the policies of microfinance organisations (MFO) which require clients to take increasingly large loans each cycle, has tempted some clients to take out multiple loans, to assume too much debt and, occasionally, default on some of their microfinance credit. Significant dropouts raise operational costs, a situation that few MFOs can afford. These changes plus other concerns for a more business like approach to microfinance, have led to a growing interest in a more market-led approach to microfinance, and a greater awareness that the customer matters.

This paper focuses on institution-client linkages, i.e. the organisational mechanisms that need to be in place to ensure the effective integration of client information into MFO operations. Key questions addressed are:

  • Who needs what information, from whom and in what form to make decisions?
  • How are the resulting decisions conveyed so that actions are implemented in a timely and efficient manner?
  • How is the effectiveness of these resulting changes assessed?

Answering these questions represents a shift in emphasis away from the practices observed in the majority of microfinance institutions where flows of information are largely top-down and products are developed with little attention to the dynamics of the market. The new focus calls for opening up the opportunities for the client to be heard or for the client or the front line staff to participate in institutional decision-making.

The paper reviews the experience of both MFOs and networks in building capacity for market-led microfinance by exploring these questions:

  1. How is information on clients collected?
  2. How are the results conveyed to management?
  3. How are changes in operations conveyed to frontline staff who implement them and clients whom they affect?

The findings enable the authors to propose some tentative guidelines for the industry to consider as it moves towards a more client-driven approach to microfinance.

Research was conducted with CAME in Mexico, ODEF in Honduras and two networks, COVELO, a national MFO membership organization in Honduras and PROMUC, a village banking network in Peru. The framework for the analysis was the feedback loop which was devised by the Imp-Act programme (see Practice Note No. 1 which is available in the RFLC). Findings from the field visits are presented in sections IV and V of the paper.

It was noted that building capacity within MFOs to implement the feedback loop could be done within institutions and through networks. Factors contributing to the success of both approaches have been the presence of product champions and the time for institutions to learn. All institutions indicated that the conduct of client assessments had lead to institutional changes that had lowered transaction costs for clients and the MFOs, and had raised staff productivity.

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