The examples cited are just some of the models where microfinance can be used as a platform to offer and deliver integrated services to clients. Like any business model, there is no single right way to offer services.24 MFIs can provide additional services themselves, partner with other social service providers, or use service agents who will perform certain functions on their behalf.
In today’s environment, given the heightened awareness of microfinance and its role in poverty alleviation, there are many players interested in participating, which could lead to interesting hybrid models as well.
If organizations pursue an in-house model (i.e., they provide the services themselves), they can either increase the scope of the existing business model to include other services (unified approach) or build a separate arm to deliver the services in parallel with offering loans (parallel approach). The organizational structure will depend on the resources available, their staff’s skills and expertise, the mode of delivering the services, and the needs of their clients. A unified approach requires a strong staff that is knowledgeable in all the products and services offered. A parallel approach will require greater organizational capacity as well as internal coordination and external collaboration. Regardless of which approach, MFIs ought to ensure that the delivery of additional services does not compromise its capacity to lend and administer loans on a costeffective and sustainable basis.
For organizations that do not have the capacity or prefer to specialize only in lending, they can provide their clients with additional services by engaging in partnerships or alliances (linked approach) similar to BRAC and their IGVGD Program. Each partner can provide complementary services or they can collectively offer more comprehensive services to their clients. It depends on what each partner brings to the table and the opportunities for shared or leveraged resources. A key ingredient in engaging in a partnership or strategic alliance is whether the interests of both parties align. It is critically important that both parties have the same end goals in mind and are in agreement on the roles and responsibilities of each during the process. In this particular case, MFIs, when choosing their partners, have to keep in mind the evolving needs of their clients and how the alliance will impact them in the short term and over time. Because microfinance and this client segment require a high-touch, high-service level model, the partnership has to be well developed and tested before being rolled out to an MFI’s entire network of clients.
As the microfinance field grows, more opportunities will arise to outsource particular functions and services. MFIs do not have to do everything themselves, particularly in the areas of offering health, educational or other social services not within their area of expertise. They can use a service agent on their behalf or outsource certain services. Like a partnership though, they still have to make sure that the various parties involved are clear in the rules of engagement and the end goal. This model is beneficial because it increases the scope of offerings to clients by leveraging resources and providers. If it is not well managed or executed, however, it could lead to substantial problems.
Each of these models mentioned above or a hybrid of them can help microfinance institutions offer clients more value-added services. Organizations should develop a model that works for them and their marketplace. The idea is for MFIs to leverage their infrastructure and their attractiveness to potential strategic allies. Whether it is access to tangible resources (e.g., distribution networks and complementary services) or more intangible resources (e.g., organizational capacity, knowledge and skills, or even brand and reputation), organizations seeking to partner with MFIs should put long-term business considerations above short-term profit maximization or public relations value. We encourage organizations to look beyond the obvious partner choice, however. It is easier to network with and collaborate with more similar organizations such as other MFIs, foundations, and NGOs. But often, more value can be gained when MFIs can engage and motivate other actors including businesses to see how their long-term business goals will be realized faster if they partner with MFIs and the platform they have created. Because poverty alleviation is a global issue, which can only be sufficiently addressed if more parties lend a hand, we encourage MFIs to reach out to less obvious players—including social ventures, private businesses, government organizations, and yes, even large corporations—
and serve as a platform for them to help in this important cause.
Microfinance: A Platform for Social Change by Marge Magner March 2007 Grameen Foundation
To learn more about this author, visit Grameen Foundation's Website.
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Grameen Foundation
(Visit Grameen's Website)
Grameen Foundation's mission is to empower
the world's poorest people to lift
themselves out of poverty with dignity
through access to financial services and
to information.
With tiny loans, financial services and
technology, we help the poor, mostly
women, start self-sustaining businesses to
escape poverty. Founded in 1997 by a group
of friends who were inspired by the work
of Grameen Bank in Bangladesh, our global
network of microfinance partners reaches
over 3.6 million families in 25 countries.
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