In the past few days, Frontier Markets has been examining a few MFIs that are beginning to think about ways to support this new demand for consumer durables and other non-financial needs for low income households. Many have started creating their own non-financial business development team focusing on healthcare, education and energy. Others have begun using their non-profit arm to vet proposals before starting pilots on the ground…. all sounds great, right?

EVERYONE love a PILOT, and EVERYONE works to make sure a PILOT is successful… but what about Scale?!!!

Here are some of the challenges FM forsees for SCALABILITY…

• Staff, Staff, Staff!: right now, neither the MFI nor the “Product Company” have sufficient resources to continue educating, marketing and monitoring products to MFI members. In a pilot, there are a few company reps that work with the MFI field staff to provide such services, but this is NOT SCALABLE. The sheer costs to involve a MFI field staff for any of the aforementioned services is just too high. A product company needs to invest in that resource, but for one product, again, too high of a cost!

• Casual Sales to Meeting Targets: during pilots, we are all gauging whether a product will sell, so targets are NOT the focus. However, once we’re at scale, suddenly it is about targets, margins, and field staff incentives. Marketing and education become sales goals – it is difficult for an MFI to balance company expectations and their own loan portfolio.

• Diversified Loan Portfolios: MFIs have JUST started thinking about consumer financing… they do NOT have energy, healthcare, or consumption loan products at the moment. The question is, is it worth processing a rs. 800-2000/- loan? Most MFIs argue the cost implication – its just too high to begin creating separate loans…

Long Term Solutions: 

• Building an independent non-financial staff to educate, market and monitor products and services to MFI members: having separate field staff is really the only solution to maintain quality of interaction and understanding of products. This field force will become the point of contact for all members, providing them with assistance and support on products.

• Creating realistic targets at a pace where loans can be processed and determined by the member’s capacity to purchase: the MFI has a responsibility to gauge movement of products and sales cycles. It is unrealistic to assume that a large MFI’s member base will definitely purchase every product introduced in this setting. Targets should reflect demand assessments.

• Creating energy, healthcare, product portfolios and providing a line of credit: if MFIs can understand the range of products that are in demand in each sector, they can determine a maximum loan size that can be reformed for specific products. A women can use that line of credit to purchase 4-5 consumer durables in 4 to 5 years…