Product Diversification in Microfinance: Introducing Individual Lending
Group-based lending strategies have become widely established amongst MFIs – these include solidarity group lending, especially popular in Latin America, and village bank approaches that are prevalent in Asia and Africa. As part of a drive to provide a diversified selection of financial products, many MFIs in all regions have begun to expand their available credit products to include individual loans for some of their clients. This report points out that the objective of many MFIs in introducing individual lending has been to reduce the migration of valued clients to the competition, and to enhance their ability to attract potential new clients – group and individual loan methodologies represent dramatically different approaches to lending.
The purpose of this paper is to set out the Women’s World Banking (WWB) approach to integrating individual loan products into group lending institutions. In doing so, the paper describes the processes and tools developed by WWB and aims to provide practical assistance to the increasing number of group microlenders globally that are beginning to provide individual lending products. WWB has developed a framework designed not as a blueprint, but as a series of guiding questions that aim to anticipate the decisions and challenges encountered by institutions in introducing individual lending.
Prior to setting out its framework, the paper begins with a brief overview of the key differences between group-based and individual lending. The main part of the paper is then divided into three sections, each covering a range of topics within:
- Planning Stage – Developing Strategic Vision and Leadership
- Design and Implementation Phase – Creating Institutional Capacity
- Testing, Evaluation and Integration Phase – Achieving Sustained Success
The analytical methodology for each phase includes a range of practical tools and staff workshops used as part of long term technical assistance from WWB. The estimated duration of the three stages is 6 to 8 months, 6 to 12 months, and 12 months for each in turn, respectively.
In order to provide examples and analysis from case studies, the paper draws on the experiences of four WWB network members that are currently integrating individual lending or that have completed the process – MI-BOSPO (Bosnia), Kenya Women’s Finance Trust (KWFT) (Kenya), SHARE (India) and Association Al Amana (Morocco).