Beyond Basic Credit and Savings:
Developing New Financial Service Products for the Poor

2. Identification of Needs and Opportunities

A. Review Existing Systems.

The MFI should review and catalogue what financial services are being offered by both the informal and formal sectors in and around the geographical area where it works. This review should, of course, include a review of the MFI's own financial services, and its clients' responses to them. It should ask: why have these services grown up or been developed ? how well are the services meeting the needs of the poor ? is the pricing of the financial services reasonable ?

Under the discussion of "lessons learned in the design and handling of demand-oriented savings products and technologies", top of the list of success factors for the Rural Bank of Panabo was "Adaptation of "classical" savings products to the needs of small depositors." In addition, the paper notes "Replication of other success factors in a competitive environment. A financial institution that s competing with other banks for customers' deposits can replicate promotional measures such as the execution of raffle contests or the payment of a higher savings interest rate" (GTZ, 1997a)

The informal sector in particular will often provide important indicators of the types of financial services and products that the poor need, as well as some options for providing these: after all the informal sector is there because there is a market for it. For a fascinating description of 58 varieties of financial service systems for the poor see Rutherford's "A Critical Typology of Financial Services for the Poor" (1996). Both the informal and formal sectors will be the competition when the MFI introduces the new financial service products, so it is important to pay careful attention to their pricing, delivery and marketing strategies.

B. Conduct Market Research.

Market research should be conducted informally on an on-going basis through poor-friendly sensitive staff paying careful attention to issues facing the poor - both clients and non-clients - and listening to them articulating their needs.

The field-research conducted as part of the preparation for Rural Finance component of the EU-funded Central Cordillera Agriculture Programme, revealed that the most important financial services-related issue facing the poor in the Cordillera was how to manage school expenses. As a result of a remarkable commitment to educating their children, every year, in June, households all over the Cordillera had to find substantial sums of money to meet the costs of buying uniforms, books etc. In the absence of savings facilities, households were taking loans (at 10% interest per month) from money lenders in order to finance these school expenses. There was a clear need and demand for secure savings products to help meet education costs without going into debt.

Encouraging field-based staff in particular to be aware of the organisation's interest in developing financial service products to help the poor more effectively manage their household economies may in itself lead to the description and reporting of needs and possibly ideas to meet them. This process can be facilitated and improved through a series of workshops with staff focusing on the needs of the clients in the areas in which they work.

"BRI found that the key of market research was to learn from clients what they wanted and then incorporate this information in both the product and its advertising. Studies on savings motives and preferences of rural people throughout Indonesia identified four major characteristics a savings facility must combine:
Safety/security; Convenience;
Liquidity; and Positive return"
(GTZ, 1997 b).

Another way of obtaining insights is for the MFI to ensure that the search for needs and opportunities is built into the terms of reference of visiting evaluation teams - particularly if they are going to be using qualitative and case-study oriented techniques. All donor agencies should be interested in improved product development, not least of all since it will lead to better, more appropriate and user-friendly services being provided to the poor and possibly even allow inclusion of the poorest.

Market research can also be conducted in a more formal manner through need surveys - these are often difficult to do effectively. Surveys imply quantitative driven instruments which limit the opportunity/ motivation for follow-up and probing, discovering what is really important - particularly for poorer households. At best needs surveys will usually rely on the further development of issues and ideas by the review of indigenous informal systems and/or the informal market research mechanisms outlined above through focus group discussions or similar techniques.

"BCS relies on market studies before introducing new savings products to the wider public. In general, desk work market studies are combined with empirical tests with a limited random sample. In addition BCS closely watches market research carried out by competing financial institutions" (GTZ, 1997c).

C. Review The Literature And Contact Market Leaders.

There is an increasing amount of experience with a diversified series of financial services products for the poor, and with it an increasing body of literature documenting and discussing that experience. Any organisation preparing to design a new product should examine any relevant literature that it can find and try to contact those with experience in implementing such products c there are likely to be important lessons which need not be learnt the hard way ! As the MicroFinance net-working and e-mail and Internet services grow so this experience exchange will become more easy.

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Hari Srinivas - hsrinivas@gdrc.org
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