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Putting the Principles into Practice

Appropriate Product Design and Delivery at Musoni

NUMBER13 APRIL2012

LESSON #1: START BY LISTENING TO CLIENTS

Smart Campaign (SC): Musoni uses mobile payments to collect loan repayments. How did you come up with your product features and delivery channel?

Musoni (M): ManyMFIsstartbydesigningaproductbasedonwhattheythinkclientswant,orbasedonwhattheircompetitorsoffer.Ourphilosophyisdifferent.Beforewedesignedanyproducts,wetalkedtopotentialclientsaboutwhattheywantandneedfromafinancialinstitution,sothatwecoulddesignsomethingweknewwouldworkforthem.

Beforewedidthemarketresearch,wealreadyhadourmobilemoneyproductinmind.Butwhatwewantedfromconversationswithclientswastoknowifitwastherightproduct,andhow,specificallyweshoulddesigntheproducttermsanddelivery.

SC: How do you conduct market research?

Musoni:Theideasforourproductdesign,ourservice,andbranchlocationscamefromin-depth,participatoryresearchwithpeopleinourtargetdemographic—urbanandsemi-urbanmicroentrepreneurs.Weusebothquantitativetechniquesandfocusgroupdiscussionstogatherinformationaboutclientpreferences.Onetech-niquewelikeiscalled“choicemodeling.”Weaskclientsorpotentialclientstocompareseveraldifferentproductideas.Welistthedifferentattributesoftheproduct—forexample,aquickandsimpleloanapplicationprocess,pre-loantraining,alowinterestrate,agraceperiod,etc.Then,weaskclientstoranktheattributesaccordingtotheirpreferences.Theserankingsgiveusinsightintowhichproductattributesbestsuitclientneeds.

AlloftheinformationwegathergoestotheMusoniProductCommittee,whichiscomposedoftheHeadofProductDesign,theCEO,theCOO,andtwoBranch-Managers.Wearealsoconsideringexpandingthegroup

Musoniisamicrofinanceinstitutionusingmobiletechnologytodeliverconvenient,flex-ible,andreliableloanstolow-incomepeopleinKenya(andotherEastAfricancountriesinthefuture).Musoni’sproductsaredesignedbasedontheneedsandpreferencesoftheirclients.

TheSmartCampaign’sClientProtectionPrin-cipleAppropriate Product Design and Delivery, statesthatinstitutionsshoulddesignproductsanddeliverychannels:

•insuchawaythattheydonotcauseclientsharm;and

•withclientcharacteristicstakenintoaccount.

Musoni’sapproachtoproductdesigncanserveasan“excellentpractice”exampletootherinstitutions.Musonistaffdiscussedtheinsti-tution’sproductdesignanddeliverywiththeSmartCampaign,revealingfiveprimarylessonsfromthefield.

1Musoni’sbackofficeservicesarecentralizedintheNetherlands.

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toincludeWealthCreationOfficers(WCO’s),Mu-soni’sversionofloanofficers.Wethinkit’sveryimportantthatthisgrouprepresentallaspectsofourbusinesssothatproductdesignisapriorityforalldepartments.

SC: What did the clients tell you?

Musoni:We’vebasedourproductdesignonafewrecurringneedsthatweheard.Clientstellustheywantafairprice,butevenmorethanthat,theyvalueaproductthattheycanaccesseasilygiventheirworkscheduleandtheirlocation,andaprod-uctthatisflexibleenoughtofittheircashflows.Theyalsovaluetransparencyabouttheprice—theymadethatveryclear.Theyalsowantfinancialedu-cationsotheydon’tremaininanever-endingcycleofdebt.Inotherwords,theywanttoknowhowtomakethemostoftheloansothateventuallytheydon’thavetoborrow.

LESSON #2: OFFER CONVENIENCE & RELIABILITY

SC: How has Musoni responded to the needs ex-pressed by clients?

Musoni: First,andforemost,wehavedesignedourproductssothattheyareconvenient.Clientscanac-cessourserviceseasilyandwithoutbearingahighpersonalcost.Allloanrepaymentisdonethroughmobilemoney,soclientsdon’thavetotraveltomeetingswithapocketfulofcash.Thisreducesper-sonalriskfortheclient.Italsomeansthatpaymentscanbemadewhenandwheretheclientchooses,withinaseven-dayperiod.

Secondly,wedeliverourloansatthetimepromisedtoclients—ourdeliveryisreliable.Clientstoldusthattheydon’tlikehowlongittakessomeMFIstodisburseapprovedloans.Musoniguaranteesthatclientswillreceivetheirloanwithin72hoursofap-plication,aslongastheapplicationisapproved.Inreality,weusuallydisbursewithin24hours.Reliabil-itymeansthatclientscancountonthemoneywhentheyneeditandthatwekeepourpromiseofquickdisbursement.

Finally,inthecomingmonths,wehopetobecomevirtuallypaperless.Wewanttousemobilephoneapplicationsratherthanpaperformsduringloanap-plication,appraisal,andapprovalsothatweonly

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processinformationonce,ratherthantransferringitfrompapertoelectronicfiles.Paperlessinteractionswithclientswillallowustoserveourclientsevenfaster.

LESSON #3: OFFER FLEXIBILITY & TRANSPARENCY

SC: Clients also asked for flexibility—how have you responded? And does group lending mean that your products are less flexible?

Musoni:Weoffertwodifferentloanproductsandweofferseveraldifferentloantermsandrepaymentschedulesbasedonaclient’sabilitytopayandhis-toryofrepaymentwithMusoni.Weofferbetterandmoreflexibletermsforclientswithgoodrepaymentrecords.Wealsoofferagraceperiodbetweenloandisbursementandthetimeofthefirstrepaymentforallclients.Inourmarketresearch,clientstoldustheyreallyvaluedthisflexibility,sothatisanessen-tialfeatureofourloanproducts.

Toyoursecondquestion,ourgrouplendingmeth-odologydoesnothinderflexibilitybecausewemaketheloansonanindividualbasis.Memberscanhavedifferentloanamounts,takenatdifferenttimes,withdifferentrepaymentschedules.Groupsexisttoguaranteeandsupportoneanother.

SC: Mobile payments are more convenient to the client—do they also increase flexibility?

Musoni:Yes.Aspreviouslymentioned,wegivecli-entsaweekduringwhichtheycanrepaytheirloansatanytime.Infact,themajorityofinstallmentsarepaidafterworkinghours,whichisabenefitthatfewMFIsoffer.Also,wedon’tchargefeesforearlyrepayment.Thesefeaturesmeanthatclientscanbettermatchtheirrepaymentstotheircashflows.

Inthefuture,wewanttouseourflexibleservicestoprovideaccesstoclientsinunderservedruralareas.Ruralclientsneedgreaterflexibilitysotheydonothavetotravellongdistancestomaketransactions.Wethinkourmobiletechnologywillallowustoof-ferthemthisflexibility.

SC: What about transparency? How do you help clients understand their loans?

Musoni:Ourinterestratesareclearlydisplayedonourmarketingmaterials.Wedon’ttrytoconceal

them.Admittedly,wequoteflatinterestratesratherthanadecliningbalance.Thiswasbecauseaftercol-lectingclientpreferences,clientsexpressedastrongpreferenceforflatinterestrates.However,wearehavinganimportantinternaldiscussionabouthowtochangethiswithoutappearinguncompetitivewithalltheotherlocalMFIsthatquoteaflatrate.Ifwedomovetoquotinginterestratesonadeclin-ingbalance,wewillfirstneedtounderstandhowtobestcommunicatethiswithclientssothattheproductscontinuetobewell-understood.

However,wedoensurethattherateincludesallfeessotherearenohiddenchargestotheclient.ItisactuallycommonpracticeinKenyatochargehid-denfees.Weexplaintoclientsthetotalcostoftheirloansinlocalcurrency,theirloanschedules,andhowwecalculateloansize.Inthisway,clientsknowwhattheyarecommittingto.

LESSON #4: TRAIN CLIENTS

SC: Beyond working with clients to understand the prices and terms of their loans, how else do you ensure transparency?

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Musoni: Anotheraspectoftransparencyisgoodtraining.Thisissomethingthatclientsrequestedandweknowtheyreallyvalue.Eachnewgroupofclientgetsbetweenfourandsixweeksofpre-loantraining.Thisisaveryimportanttimeforclientstolearnfinancialmanagementskillsandhowtomain-taingroupcohesion.Allclientsgothroughaformalcurriculum,andweallowourWCOstodecidehowquicklythegroupshouldmovethroughthetraining,andwhenadditionaltrainingisneeded.

Towardtheendofthepre-loantraining,weaskeachgrouptodraftagroupconstitution.Thisdocu-mentlaysouttherulesforgroupconductandthegroupleadershipstructure.Eachgroupdesignsitsownconstitution.Ifthatexercisegoeswell,theWCOknowsthatthetraininghasbeeneffectiveandthegroupisreadyfortheloan.Butifthegrouphastroubledoingit,ortheirconstitutionisweak,theWCOknowshehastokeepworkingwiththatgroupuntilmembershavetheappropriateskills.

LESSON #5: IT’S GOOD BUSINESS

SC: From Musoni’s perspective, is there a business case for designing appropriate products and deliv-ery channels?

Musoni:Certainly.Wealwayshavetokeepourfinancialperformanceinmind.Butweseerealcom-patibilitybetweenservingtheclientswellandbeingsustainable.

Forexample,werecentlydiscoveredthatclientslikereceivingtextmessagereminderswhentheirloanrepaymentisdue.Theyactuallythankusforhelpingthemtoavoiddelinquencywiththesereminders.Atthesametime,weestimatethatthissimplemea-surehashelpedreducedelinquencyby10percent.That’sgoodforeveryone.

AnotherfinancialbenefitofourmobilemoneymethodologyisthatWCOsdon’thandlecashduringtheclientmeetings.Thisreducestheriskoffraudandtheft,whichreducesourcosts.Simultaneously,itimprovestherelationshipbetweentheWCOandtheclient.Imagineagroupmeetingwherealoanofficerisnotputtingouthishandaskingforcash,ratherissaying“let’stalkaboutyourbusinesses.”It’sareallypositivedynamic.

SC: What is next for Musoni?

Musoni: Clientstellusthattheywanttobeabletosavewithus.Manyclientstellusthisisevenmoreimportantthancredit.Legally,wearenotallowedtoacceptdeposits,butwearebeginningtheprocessofapplyingforthislicensebecauseit’saservicethatourclientsdemand.Clientsarealsoaskingforschoolfeeloansandagricultureloans.Basedonon-goingmarketresearch,weareexamininghowandwherewecanprovidetheseadditionalproducts.

Inaddition,wearedevelopingaformalcreditscor-ingtool,whichwillbeparticularlyimportantasweexpandintonewmarketsinUgandaandotherEastAfricancountries.WCOswillusethetooltoassessclientcapacityfordebt,ensuringthatwedonotindebtclientswhocannotservicealoan.Thetooldesignerswillusedatathatrevealthecharacteris-ticsofwell-andpoorly-performingclients,sothatthetoolcanaccuratelypredictclientcapacity.Weexpectclientgroupstowelcomethenewmethod-ologyasitwillaidintheselectionofgoodgroupmemberswhoaremorelikelytorepaytheirloans.

Finally,wearedevelopingaformalsocialperfor-mancemanagementsystemtostandardizehowclientdataarecollected,analyzed,andreportedwithintheinstitution.Withthissystem,weshouldbeabletobetteranalyzeclients’experienceswithourproductssothatwecancontinuetorespondtotheirneeds.

AspecialthankyoutoourcontactsatMusoni:EvaTeekens,BartvanEykFlorisHenningandMarkEllis-Jonesfortheircontributions.

LeahWardleandEvaTeekenswereresponsibleforpreparingthisnote.