Training Objectives: Training Objectives By the end of the session, participants will be able to: Discuss the importance of product development to a MFI and to donors Describe examples and limitations of the financial services used by the poor Articulate donor strategies in addressing product development issues at MFIs Explain how donors can appropriately support and encourage effective product development by MFIs


Why Is Product DevelopmentImportant to Donors?: Why Is Product Development Important to Donors? Seek out and support client-responsive financial institutions Disseminate and share information on new and innovative financial services for the poor Understanding the issues helps donors:


Why Is Product Development Important to Donors?: Challenges Huge unmet demand for wider range of services Poor client retention rates Existing products not viable Opportunities Increase client outreach and impact Improve client loyalty and retention Ensure permanent and sustainable access Why Is Product Development Important to Donors?


Small Group Task: Small Group Task Read the Critical Incidents provided Answer the following questions and discuss in your small group: Make a list of all the financial services, both formal and informal, used by the individuals in the two examples. List the advantages and limitations of each financial service you identified above.


Targeting Client-Responsive Institutions: Targeting Client-Responsive Institutions Poor people need a range of financial services beyond microcredit for: Lifecycle events Seasonal events Emergencies Business opportunities Client-responsive institutions focus on demand!


What Financial Services Do the Poor Use?: What Financial Services Do the Poor Use? Informal systems Family Neighborhood networks Moneylenders Savings clubs Cash under mattress Assets used as savings Credit from input suppliers For some:  institutional services offered by financial cooperatives, post banks, MFIs, etc.


Limitations of Available  Financial Services: Limitations of Available Financial Services High costs of informal services: Moneylender rates are exorbitant Buying inputs on credit is far more expensive than in cash Risks of savings in kind (i.e., crops, livestock): Fluctuation in commodity prices Destruction by fire, insects, etc. Theft


Limitations of Available  Financial Services: Limitations of Available Financial Services Inflexibility of rotating savings/credit circles Rigid amounts and timing Small scope due to limited trust Not responsive to emergency needs/sudden opportunities Limited services offered by financial institutions Narrow range of financial products Inflexible terms


Research Shows Clients Demand: Research Shows Clients Demand Wider range of services Flexible terms Individual loans Secure and convenient deposit services Transfer payments Remittance services Insurance


What Donors Should Knowabout Product Development: What Donors Should Know about Product Development Product development is not a donor activity Financial institutions should follow a systematic process before engaging in product development Do not re-invent the wheel Ensure capacity and commitment of financial institutions Beware of product proliferation Measure success with appropriate indicators


Financial Institutions Should Follow a Systematic Process: Financial Institutions Should Follow a Systematic Process Environmental and Institutional Analysis Market Research Concept or Prototype Design Product Costing Pricing Pilot Testing Product Launch and Roll Out


Consequences of Top-Down Product Development: Consequences of Top-Down Product Development Limited demand for the new product Inappropriate management systems Inadequately trained staff to market and deliver the product Higher set-up costs than anticipated Poor product profitability


Do Not Re-invent the Wheel: Do Not Re-invent the Wheel Support global or multi-country networks which can replicate successful product development efforts Promote information exchange Maximize the replication of successful product development efforts: Support market research efforts on the financial needs and preferences of the poor


Product Refinement: Product Refinement Refining, repackaging or relaunching existing products is frequently Less expensive Less time consuming Less disruptive to systems than designing new products


Issues to Address Before Supporting Product Development : Issues to Address Before Supporting Product Development Does the financial institution have: necessary tracking and management capacity? management and board commitment? available staff to develop, implement, manage? adequate systems? the capacity to train relevant staff?


Beware of Product Proliferation: Beware of Product Proliferation Confusion among front-line staff and clients Cannibalization among products Complicated delivery systems Overly complex MIS


Measure Success with Appropriate Indicators: Measure Success with Appropriate Indicators Wider range of services Broader client outreach Increased stability & sustainability Greater client loyalty and retention Better fund mobilization


How Can Donors Support Product Development?: How Can Donors Support Product Development? Provide flexible innovation grants Look for demand-driven partners Support necessary organizational changes Offer technical assistance for testing new products Reward performance and outreach Support information exchange Support regional and global initiatives