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Product Development and Microfinance

Barbara MagnoniPresident, EA Consultants

November 16, 2012

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Where do new products come from?

Supply side

“our rural clients should have more appropriate products for their businesses”

“we need to diversify/increase our funding”Demand side

“rural clients like having access to short term loans, why?”

“clients are asking to have savings”

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Adding donors to the mix can be...fatal

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“a donor is asking me to develop a savings product”

“there is donor funding for product development for savings, this could be our chance”

look out for “trendy” ideas:

we would like to develop a credit product for our 2,000 rural customers

we would like to design a loan product especially for women

we would like to offer clients loans for cookstoves that produce less pollution

we would like an insurance product to protect farmers’ crops

our project aims to develop 4 new products for our clients

lets discuss why this is a

problem?

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CAUTION: PRODUCTITIS

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...but how are they actually made?

Adapt processes

product design

Write product manual

Adjust cells in

information systems

forms and other

paperwork

Train sales, operations and IT staff

Regulatory issues (if

applicable)Pilot if

applicable$ $$

Why is Productitis a bad thing?

also, products have to be tracked, analyzed (risk & profitability)

$Product design alone is time

consuming1. Decision making

Why do we want a new product? what product are we interested in and why? should we develop it internally or with outside help?

2. Data mining and segmentation

who are our clients? who will be the target audience?

if they are not existing clients, mine census and other data

3. Establish one or more hypotheses

ie. we are targeting our poorest female borrowers and believe they would be interested in group loans

4. Market Study

supply side

what are the existing products in the market

mystery shopping

geo-mapping

demand side

focus groups

surveys

1. “practice products/delivery”

delivery

is this the right channel for this product? capacity?

1. is there trust?

Analysis and Design/testing of prototype

1. more surveys?

{product design

...and then there is piloting

Piloting is essential to fix kinks in operations, but should not be used to validate demand

Kinks can and must be fixed quickly- Information Technology is key

“My Board has no patience for piloting, if its a good idea, they want to see it make money immediately”

- MFI General Manager on rural loan products

“My company gives us one year to prove a product is profitable, if it isn’t then we can’t continue”

- Director of Mass market and Micro Insurance of a large insurance company

Piloting is controversial!

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...what’s the alternative?

Developing New Products

copying what others are doing

lets discuss

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So how do we make sure the product is appropriate for clients?

Ask the right people the right questions in the right order

Observe their relationship and interaction with the institution

understand the incentives of the people who will sell

them products

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Sampling is critical when selecting small groups

1. Define segmentation criteria

• mine data sets from MFI

• mine other data (HH surveys, census, research)

2. segment clients by large, measurable categories (gender, life cycle, business size/type)..MFIs won’t/shouldn’t develop products for small groups

3. Randomly choose respondents from target segments for focus groups/surveys

4. Don’t let the institution pick!

Asking: an art and a science

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Research questions should be specific- have a hypothesis but be open to change

Methodology for the market study can and should vary depending on goals, existing information, and existing hypotheses

1. focus groups

2. individual interviews (client math)

3. “test” delivery

4. preferred delivery mechanism/trust

Implementation should be done by people who are trained to engage, discuss, and analyze...not necessary local

The study should inquire about more than just the product

1. how are people currently borrowing/saving/insuring and can we do better?

2. how does the product fit into the way clients see us?

Asking: an art and a science

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What’s wrong with these pictures?

lets discuss

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What’s right with these pictures?

lets discuss

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is it a go?

Define the scale of your potential market

Calculate a pro forma estimate of profitability: revenues and costs

Take opportunity costs into account

Ensure there are incentives and resources in place for the product to sell

Set up simple monitoring of client satisfaction, revenues, and cost

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Words of note: academic research can be your best friend and your worst enemy

research that can point to specific interventions that increase take up of existing products can be very useful in designing delivery mechanisms

showing a 5% uptick may be a great academic result, but it won’t move management decisions

research that shows the benefits of training may not calculate all direct and indirect costs to the institution

research that shows index insurance allows farmers to leverage is good...but for who? The insurer will be wary of covering high-risk farmers

health insurance research pointing to a need for primary health care rather than hospitalization overlooks the fine line between the two in under-resourced economies

lets discussKeep it in your back

pocket

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Thank you!Barbara Magnoni

bmagnoni@eac-global.com