“The Customer is King” - this phrase has become a staple in the modern business world. However, for microfinance institutions, clients are viewed in a different manner. If you were to walk into any MFI office in Ghana, you would be hard pressed to find client satisfaction teams. However, the rise of levels of loan delinquency and microfinance competition may force MFIs to be inventive to attract customers and remain performant on the Ghanaian market.
Rethinking the position of the client within microfinance might be the solution. For long, customers of microfinance companies have been viewed as humble “beneficiaries” and painted with the wide brush of indigence. Their uniques profiles, needs and preferences -especially as micro-entrepreneurs - have been ignored. As a result, inadequate loans and savings products have been provided by MFIs that fail to grasp the essence of their customer - the mark of truly great businesses.
Presently, adapting to the MFI customer is more than noble, it is effective. In this article, we will explore three ways microfinance companies can benefit from developing a customer-centric mindset and stand out in the Ghanaian market.
Understanding Customers Produces Better Loans
In our research on microfinance in Ghana, the FLUID team has worked with 30 MFIs. Through this process, we noticed that loan repayment rates could either be very high (92-96% loans repaid) or dangerously low (below 70%). A key differentiator between high achieving MFIs and others was the importance given to understanding their customer’s economic activities before lending to them. One MFI Manager even told us:
“The more we study our customers, the less defaults we have”
We observed that successful MFIs go further than assessing their customer’s financial and moral standing before issuing credit. Successful MFIs determine if their loans would actually help their customer’s business. In addition to the customer’s appraisal, attention is given to business seasonality, market demand and access to supplies. Loans provided are of an appropriate size to ensure that customer’s business needs are met without leading them to overindebtness. In some cases, MFIs even deploy technical and business consulting services to help their customers succeed. For these MFIs, the customer is not simply a loan recipient but a partner in their success.
Adopting this methodology might seem costly at first for MFIs. However, the alternative is often spending significant resources on debt collection. The reality is that issuing microcredit requires considerable effort to understand customers' habits. This can be done to issue high quality loans or by attempting to limit damage from underperforming borrowers.
Removing Barriers to Saving
When MFIs seek to obtain customer saving deposits, they must ask themselves a fundamental question
How can we make the customer choose us rather than putting their savings under their mattress?
While customers can be attracted by interest savings accounts, MFIs often fail to provide the flexibility provided by informal saving methods when it comes to fund withdrawal. In remote rural areas, customers have difficulty accessing their savings in times of need due to being far from MFI branches or having to wait for MFI staff to visit their location. Additionally, some MFIs enforce policies locking down customer savings over the term of a loan or through a certain duration. While this practice is justified to create saving habits in customers, MFIs have to remember that placing too many constraints will simply discourage clients from making deposits in the long run.
To meet the clients' needs, mobile banking solutions must be leveraged along with fairer withdrawal policies. With the massive adoption of mobile money and the impending introduction of the Bank of Ghana’s digital currency, more MFIs need to make the jump into the digital age and invest in e-solutions to allow their clients to deposit and withdraw funds at will. Some institutions like Innovative Microfinance have paved the way by creating their own Mobile Banking platform but the majority of the industry still needs to follow suit.
Developing the Culture of Customer Service
The power dynamic between MFIs and customers is deceiving. Because of their poor background and urgent financials needs, customers rarely demand good service. However, they eventually realize their ability to choose which MFI to do business with and switch over if not satisfied. New technology and investments in microfinance have made it easy for customers to be selective. Now additional effort from MFIs is needed to secure their customer base and remain competitive.
To do so, MFIs must develop a culture of customer service by tackling three main challenges:
- Lowering Customer Costs: Engaging with MFIs can be expensive for customers. Obtaining photographs, copies of documentation or spending time and money to travel to MFI branches comes at a cost. Eliminating indirect customer expenses can significantly improve the attractiveness of an MFI in the market. Technologies such as the Fluid Wealth Creation Assistant can help MFIs make their operations more customer-friendly by making customer management, onboarding and payment tracking digital.
- Staff Training: Interactions with MFI staff dictate the customer experience. To ensure quality, MFIs must train their personnel to manage customers professionally and actively solve their problems.
- Building Trust: The banking sector clean-up of 2019 caused extensive reputational damage to all MFIs. More than ever, institutions need to create a relationship of trust with their clientele. As such, MFIs should adopt customer education strategies to communicate their policies effectively to customers and work to address their feedback.
The microfinance market in Ghana is maturing. With this comes an unprecedented level of competition for MFIs. Fluid is committed to helping financial institutions leverage technology to offer the best service to their customers while decreasing their operating costs. If you are interested in learning more, visit fluidfinance.co.