Product Development in - Institute of National Affairs product development-Madhu Moulik.pdf ·...
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• “A world in which all people have access to high-quality, affordable, market-led financial services.”
Our Inspiration
• “Strengthening the capacity of financial service providers to deliver market-led financial solutions.”
OurMission
About MicroSave
Innovations• Savings
product design • Electronic and
mobile banking
• Value-chain design – silk, fisheries, retail
• Microfinance plus programmes
Implementation• Business
planning• Market research
and product development
• Process mapping and risk management
• Customer service and branding
Our Approach Focuses on
MicroSaveMarket-led solutions for financial services
Innovations• Savings
product design • Electronic and
mobile banking
• Value-chain design – silk, fisheries, retail
• Microfinance plus programmes
Implementation• Business
planning• Market research
and product development
• Process mapping and risk management
• Customer service and branding
Our Areas of Expertise
Product and Channel
Innovation
Product and Channel
Innovation
OrganisationalStrengthening
and Risk Management
OrganisationalStrengthening
and Risk Management
Research andDisseminationResearch andDissemination
Training andWorkshops
Training andWorkshops
Electronic and Mobile Banking
Solutions
Electronic and Mobile Banking
Solutions
MicroSaveMarket-led solutions for financial services
MicroSave’sAreas of
Expertise
MicroSave’sAreas of
Expertise
Strategy Development
and Governance
Strategy Development
and Governance
Investment andDonor ServicesInvestment andDonor Services
We have implemented projects across Africa, Asia and Latin America including:Afghanistan, Bangladesh, Cambodia, Colombia, Democratic Republic of the Congo,
Egypt, Ethiopia, Ghana, India, Indonesia, Kenya, Malawi, Nepal, Nigeria, Papua New Guinea, the Philippines, Sierra Leone, South Africa, Sri Lanka, Tanzania, Uganda, and
Zambia.
Years of experience
Worked with wide variety of institutionsExperience
Knowledge
Talented consultants
Practical solutions
Unique tools
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5
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2
1
Examples
30+ toolkits being used extensively
We Create Value Through
100+ staff
150+ clients in Asia and Africa
2 decades of experience of BOEP market
NGOs, MFIs, Banks, Corporates
MicroSaveMarket-led solutions for financial services
Worked with wide variety of institutionsExperience
Strategy
Impact
Create strategic opportunities
Align strategies with organization and cultureHelped financial institutions achieve very significant growth
Managed institutions attain sustainability
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Experienced working with myriad strategic issues and business drivers
NGOs, MFIs, Banks, Corporates
Innovation to implementation
E and M Banking, Value chain financing
Practical implementable recommendations
Equity Bank, Eko, OK Bank
Increased revenues and decreased costs
MicroSaveMarket-led solutions for financial services
MicroSaveMarket-led solutions for financial services
Level 5, Pacific Place, Email: [email protected]. Musgrave St. & Champion Pde. Port Moresby, NCD, Papua New Guinea Website: http://www.MicroSave.net
Product Development in Emerging Markets
MicroSaveMarket-led solutions for financial services
Institute of National Affairs8th August, 2012
Life Cycle Financial Needs
Birth, Education, Marriage
Working Life
Prepare for old age
Savings, simple pension products
Savings, credit
Credit and cash
management, insurance
Enhanced ability to manage planned financial needs
Enhanced ability to manage planned financial needs
Enhanced household capacity to manage shocks & vulnerabilities
Enhanced household capacity to manage shocks & vulnerabilities
FINANCIAL NEEDS2,3,4FINANCIAL NEEDS2,3,4 OUTCOMESOUTCOMES
Support others
Insure Assets
Deal with emergencies
Short/long term credit facilities or savings services
Asset, illness, death insurance
Remittances
Improved social, educational and financial status
Improved social, educational and financial status
Leveraging opportunities as they arise
Leveraging opportunities as they arise
3 Needs That Drive Financial Activity
Managing basics:Cash-flow management to transform irregular income flows into a dependable resource to meet daily needs
Coping with risk: Dealing with the emergencies that can derail families with little in reserve
Raising lump sums: Seizing opportunities and paying for big-ticket expenses by accumulating usefully large sums of money
Managing basics:Cash-flow management to transform irregular income flows into a dependable resource to meet daily needs
Coping with risk: Dealing with the emergencies that can derail families with little in reserve
Raising lump sums: Seizing opportunities and paying for big-ticket expenses by accumulating usefully large sums of money
http://www.microsave.org/popbn From: “Portfolios of the Poor”
Broadly Poor People Make Decisions on the Basis of 4 Variables
1. Trust/ security
2. Proximity/ convenience
/access
3. Returns/ interest
rates
4. Liquidity/ illiquidity
preferences
So the poor want … Frequent opportunities to transact Small amounts in Conveniently located outlets of Trustworthy/secure institutions
So the poor want … Frequent opportunities to transact Small amounts in Conveniently located outlets of Trustworthy/secure institutions
Karim, a Taxi Driver (Bangladesh)Karim is from Gaibanda. He shifted to Dhaka 12 years back in search for income and has been running a taxi since. You can often find him at the Motijheel Taxi stand with a yellow Navana Taxi.
His wife joined him in Dhaka 8 years back.
His daughter and two sons continue to live in the village with Karim’s parents. They go to the village school.
We found Karim Bhai to be very keen to save from his daily income, through all possible options. So this is how he manages his finances!
His wife joined him in Dhaka 8 years back.
His daughter and two sons continue to live in the village with Karim’s parents. They go to the village school.
We found Karim Bhai to be very keen to save from his daily income, through all possible options. So this is how he manages his finances!
Karim’s Daily Cashflows
On a typical day, Karim Bhai after driving for 13-14 hours would….
• Earn BDT 2,000 (USD 24.5)• Give daily rent of BDT 1,100 (USD13.05) to the taxi owner• Spend about BDT 300 (USD3.6) on fuel• Spend BDT 100-150 (USD 1.2 – 1.8) - for his daily for his
expenses (food - BDT 100, airtime – BDT 10, miscellaneous BDT 100
That leaves him with ….(assuming 25 working days a month)• Daily : BDT 350 – 400 (USD4.2)• Monthly: BDT 9,000 (USD110.4)
On a typical day, Karim Bhai after driving for 13-14 hours would….
• Earn BDT 2,000 (USD 24.5)• Give daily rent of BDT 1,100 (USD13.05) to the taxi owner• Spend about BDT 300 (USD3.6) on fuel• Spend BDT 100-150 (USD 1.2 – 1.8) - for his daily for his
expenses (food - BDT 100, airtime – BDT 10, miscellaneous BDT 100
That leaves him with ….(assuming 25 working days a month)• Daily : BDT 350 – 400 (USD4.2)• Monthly: BDT 9,000 (USD110.4)
Karim’s Other Cashflows• Karim also has a small piece of land yields from
which help cover some of his household expenses, such as rice, both here and in Gaibanda. Its yields him some seasonal income too from growing vegetables.
• House rent in Dhaka : BDT 2,000• Expenses in Gaibanda: BDT 1,800 (sends quarterly
or once in two months)• Household expenses in Dhaka: BDT 2,000
• Karim also has a small piece of land yields from which help cover some of his household expenses, such as rice, both here and in Gaibanda. Its yields him some seasonal income too from growing vegetables.
• House rent in Dhaka : BDT 2,000• Expenses in Gaibanda: BDT 1,800 (sends quarterly
or once in two months)• Household expenses in Dhaka: BDT 2,000
Karim’ s Financial Needs
• Regular cash flow for taking care of consumption needs such as…• Household expenses in Dhaka and in Gaibanda• Education expenses for his children• Medical expenses for his mother • Airtime to be in touch with his family and taxi owner
• Long term financial need• Daughter’s marriage• A lump sum to help his sons set up a business as they
complete school • Purchase a small room in Dhaka to avoid paying rent • Coverage of family from death risk, since he perceives
his occupation as risky
• Regular cash flow for taking care of consumption needs such as…• Household expenses in Dhaka and in Gaibanda• Education expenses for his children• Medical expenses for his mother • Airtime to be in touch with his family and taxi owner
• Long term financial need• Daughter’s marriage• A lump sum to help his sons set up a business as they
complete school • Purchase a small room in Dhaka to avoid paying rent • Coverage of family from death risk, since he perceives
his occupation as risky
Karim’s Transactions (1/2)
Quarterly Lottery Based RoSCA► Members contribute BDT 600 per month (or BDT 20 per day)
for 3 months. When the fund becomes BDT 90,000, the entire amount will be allocated to one person, selected by lottery. That person will have to continue to save , but will not be a part of lottery till al the other members have received the amount at least once.
► Use: Major household expenses, medical expenses, expense for festivals/scheduled events, book a room in Dhaka
Weekly Lottery based RoSCA► 100 members save BDT 100 per week; the lottery happens
every week for the entire fund. Once winner will not be allowed to participate in lottery for 1 year.
► Use: Expense for expense for festivals/scheduled events, repay debts taken at time of emergency
Quarterly Lottery Based RoSCA► Members contribute BDT 600 per month (or BDT 20 per day)
for 3 months. When the fund becomes BDT 90,000, the entire amount will be allocated to one person, selected by lottery. That person will have to continue to save , but will not be a part of lottery till al the other members have received the amount at least once.
► Use: Major household expenses, medical expenses, expense for festivals/scheduled events, book a room in Dhaka
Weekly Lottery based RoSCA► 100 members save BDT 100 per week; the lottery happens
every week for the entire fund. Once winner will not be allowed to participate in lottery for 1 year.
► Use: Expense for expense for festivals/scheduled events, repay debts taken at time of emergency
Insurance► Pay BDT 2,600 every 6 months for an endowment maturing in
10 years yielding BDT 100,000 (also the sum assured). One can withdraw a bonus of BDT 10,000 every 3 years, but in such case, the maturity period gets extended by 2 more years.
► Karim Bhai has withdrawn the bonus once. ► Use: Bonus was used for house repair and extension in
the village, maturity amount is for daughter’s marriage, security against death
Deposit Pension Scheme► A 2 monthly DPS of BDT 1000 for 5 years in Islami Bank► Use: For setting up small business for son, may sell land
to add up to this amount
Karim’s Transactions (2/2)
Insurance► Pay BDT 2,600 every 6 months for an endowment maturing in
10 years yielding BDT 100,000 (also the sum assured). One can withdraw a bonus of BDT 10,000 every 3 years, but in such case, the maturity period gets extended by 2 more years.
► Karim Bhai has withdrawn the bonus once. ► Use: Bonus was used for house repair and extension in
the village, maturity amount is for daughter’s marriage, security against death
Deposit Pension Scheme► A 2 monthly DPS of BDT 1000 for 5 years in Islami Bank► Use: For setting up small business for son, may sell land
to add up to this amount
Summary of Financial Transactions of KarimTransaction Details AmountIncome and Expense - DailyDaily income from taxi 2000Daily expenses on road (food etc.) 100Air time top up 20Miscellaneous 100Fuel 300Rent for taxi 1100Amount in hand at the of the day 380Amount in hand at the end of the month 9500Amount in hand at the end of the month 9500Expenses - Monthly 5800Rent 2000Sends to Gaibanda (but sends every 2-3 months) 1800Household expenses in Dhaka 2000Saving - Monthly 3433Quarterly RoSCA, paid daily (20*30) 600Weekly RoSCA (100*4) 400Insurance, paid six monthly (2600/6) 4332 monthly DPS of BDT 1000 each 2000Amount in hand 267
Prudence from Karatina in Kenya
She uses the following:► 2 RoSCAs► 1 ASCA► Informal funeral insurance► Cash savings at home► In-kind saving► Loan from Faulu MFI
She uses the following:► 2 RoSCAs► 1 ASCA► Informal funeral insurance► Cash savings at home► In-kind saving► Loan from Faulu MFI
Diversified and Informal Prudence (1)RoSCA 1: 4 members daily contribution of $0.29. From this around $31.00 is paid out each month to each member in turn
Use: School fees for grandchildren
RoSCA 2: 4 members weekly contribution of $2.90. From this $11.60 is paid out each week to each member in turn
Use: Re-stocking business (small market stall selling basic commodities: salt, rice, biscuits, soap etc.)
ASCA: 40 members save $1.03 a week, and can borrow from the fund. The ASCA is liquidated annually in December.
Use: Celebrating Christmas (savings) and emergencies (loan)
Informal Funeral Insurance Fund: 100 members contribute $11.40 per month – covers immediate family
Use: Risk pooling for “repatriation” to village
RoSCA 1: 4 members daily contribution of $0.29. From this around $31.00 is paid out each month to each member in turn
Use: School fees for grandchildren
RoSCA 2: 4 members weekly contribution of $2.90. From this $11.60 is paid out each week to each member in turn
Use: Re-stocking business (small market stall selling basic commodities: salt, rice, biscuits, soap etc.)
ASCA: 40 members save $1.03 a week, and can borrow from the fund. The ASCA is liquidated annually in December.
Use: Celebrating Christmas (savings) and emergencies (loan)
Informal Funeral Insurance Fund: 100 members contribute $11.40 per month – covers immediate family
Use: Risk pooling for “repatriation” to village
Emergency cash in the home: $3-$5► Use: Emergencies requiring immediate cash
A cow back in the village: looked after by Prudence’s brother► Use: Provision for old age/social capital maintenance
Working capital loan from Faulu MFI ($356)► Building a small room to rent out (to provide stable income
for old age)
Diversified and Informal Prudence (2)
Emergency cash in the home: $3-$5► Use: Emergencies requiring immediate cash
A cow back in the village: looked after by Prudence’s brother► Use: Provision for old age/social capital maintenance
Working capital loan from Faulu MFI ($356)► Building a small room to rent out (to provide stable income
for old age)
Veena from Rajapur, in Uttar Pradesh, India
She uses the following:► Reciprocal borrowing and
from lending to neighbours► A savings club (or ASCA)
that is liquidated annually► Cash savings in a mud
bank► Borrowing for business and
emergencies from SKS
She uses the following:► Reciprocal borrowing and
from lending to neighbours► A savings club (or ASCA)
that is liquidated annually► Cash savings in a mud
bank► Borrowing for business and
emergencies from SKS
Microfinance in Asia• Largest and most profitable MFIs: BRI, ASA etc.• Large numbers of weak MFIs• Cost efficient (best at 5% operating efficiency)• 528 million estimated clients• But … 200-400 million un-served in India and 200-400 un-
served in China
2
3
4
5
6
7
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9
400
600
800
1000
1200
1400B
alan
ce in
Mill
ion
USD
Deposit and Loan Balance of Grameen Bank
Rollout of GB II started here
Rollout of GB II started here
Leveraging existing visits to groups reduces
the cost of deposit
mobilisation
Bangladesh: Opportunities Can Even Be Dangerous
0
1
2
0
200
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Loans Outstanding Deposits of non - GB Members (Balance) Deposits of GB Members (Balance) Number of Clients
Products Introduced Top-Up Loans Flexi-Loans Individual Enterprise Loans
Products Introduced Voluntary Savings Recurring Deposit (GPS) Fixed Deposits
0
200
400
600
800
1000
1200
1400
US$
Mill
ions
Loans O/S Deposits O/S
Ever Increasing problem of matching
Assets with Liabilities
Ever Increasing problem of matching
Assets with Liabilities
Bangladesh: Opportunities Can Even Be Dangerous
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
• Generous interest on fixed & recurring deposits (of around 12% per annum) has yielded a $400 million excess of savings over loans
• Fixed deposit rates in the Bangladesh market are 8-10%
• Grameen is accelerating its individual lending programme to absorb more of the deposits http://www.microsave.org/briefing_notes/grameen-ii-8-lessons-from-the-grameen-ii-revolution
Microfinance in Africa
• Many diverse institutional models • Most clients served by credit unions & coops• Rural and agricultural finance is particularly challenging• Only 8 sustainable institutions (MBB)• 25 million estimated clients – this may be an under-estimation• International and domestic banks starting to take an interest
4000
5000
6000
4000
5000
6000 Customers and Profit of Equity Bank (1994-2009)
Kenya: Huge Market Out There …
Equity transforms
from Building Society to a Bank (2004)
and subsequently gets listed on Nairobi Stock
Exchange (2005)
Equity transforms
from Building Society to a Bank (2004)
and subsequently gets listed on Nairobi Stock
Exchange (2005)
0
1000
2000
3000
0
1000
2000
3000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Deposit Accounts (Thousands) Profit Before Tax (Mn. Ksh)
Selling to survive
Equity transforms
from Building Society to a Bank (2004)
and subsequently gets listed on Nairobi Stock
Exchange (2005)
Equity transforms
from Building Society to a Bank (2004)
and subsequently gets listed on Nairobi Stock
Exchange (2005)
http://www.microsave.org/briefing_notes/briefing-note-63-the-market-led-revolution-of-equity-bank
Kenya: What Fuelled the Growth?Build on a commitment to:• Listening to clients and responding to their needs• Excellent customer service• Technology/delivery channels: IT/ATMs /POS/m-banking
This involved:• Commitment to customer focus and market research/product
development• Harnessing the market-led approach, word of mouth and PR for
growth• Maintaining corporate culture and optimising corporate
governance• Management of donor inputs• Strategy development/execution: remaining a broad based bank • Re-engineering processes
Build on a commitment to:• Listening to clients and responding to their needs• Excellent customer service• Technology/delivery channels: IT/ATMs /POS/m-banking
This involved:• Commitment to customer focus and market research/product
development• Harnessing the market-led approach, word of mouth and PR for
growth• Maintaining corporate culture and optimising corporate
governance• Management of donor inputs• Strategy development/execution: remaining a broad based bank • Re-engineering processes
Microfinance in Middle East & North Africa
• Mostly NGOs • Heavy donor dependence• In infant stages of development• Mostly small working capital loans• 48 million estimated clients
Addressing Competition : India
How We Got Here …• Very rapid growth• Transformation to more regulated / for-profit formats• Mono-product environment• Huge demand• Horizontal expansion
Led to….• Multiple lending / over-indebtedness• Reserve Bank and Government worried about interest
rates• State Governments putting restrictions/ classifying MFIs
as moneylenders• Banks and investors looking at MF as a high risk sector• Stridently negative press –national and regional
• Multiple lending / over-indebtedness• Reserve Bank and Government worried about interest
rates• State Governments putting restrictions/ classifying MFIs
as moneylenders• Banks and investors looking at MF as a high risk sector• Stridently negative press –national and regional
A Comparative (1)
Pre-Competitive Stage Competitive Stage
Objective: To reach more people and to become financially viable.
Objective: To retain or increase market share, while remaining profitable
Internal focus: Developing the institution’s internal capabilities and optimising efficiency.
Internal issues remain important, but external focus is added: Understanding the external environment and incorporating that understanding into business strategy. Issues like corporate branding, strategic marketing and governance gain importance.
Internal focus: Developing the institution’s internal capabilities and optimising efficiency.
Internal issues remain important, but external focus is added: Understanding the external environment and incorporating that understanding into business strategy. Issues like corporate branding, strategic marketing and governance gain importance.
Driving motivation: Access to funding.
Driving motivation:Attracting and retaining customers.
Pre-Competitive Stage Competitive StageGrowth: High growth possible. Some MFIs have doubled their portfolio annually for several successive years with no competition and abundant donor/bank funds.
Growth:Low growth, stagnation, or even portfolio shrinkage possible, even for large well-managed MFIs, as the experience in and shows.
Market assessment: Little need to take the behaviour of other players into account.
Market assessment: Must study the behaviour of the clients, prospective clients, and competitors, or suffer grave consequences.
A Comparative (2)
Market assessment: Little need to take the behaviour of other players into account.
Market assessment: Must study the behaviour of the clients, prospective clients, and competitors, or suffer grave consequences.
Client demand: Taken as given. Institutions can grow and be profitable with unchanging, unpopular products.
Client demand: Can evaporate quickly if competitors provide better service. Institutions that think strategically, satisfy customers’ needs and desires, and innovate intelligently are likely to do well; others are likely to have hard times.
3G Microfinance Institutions“Expansion” to “Engagement”
3G-MFIs see growth in terms of improvements in
their clients’ financial well-being, and MFIs’ ability to serve them over a long time
Some MFIs are even looking at using full life time value of customer
analysis as a basis of their planning
Some MFIs are even looking at using full life time value of customer
analysis as a basis of their planning
3G-MFIs grow horizontally, but they grow
horizontally only to an extent that does not compromise their
engagement with existing client segments
3G-MFIs: How Will They Do It?
Offering clients a suite of financial services in response to
their full spectrum of
financial needs
Focusing on convenience for all clients
– so that products
respond to clients’ needs
Leverage technology, particularly
e-/m-banking to increase transaction
efficiency and reduce costs
Supplementary services, such
as the “livelihood” services or
education/food security
services7 or possibly even health services
Offering clients a suite of financial services in response to
their full spectrum of
financial needs
Focusing on convenience for all clients
– so that products
respond to clients’ needs
Leverage technology, particularly
e-/m-banking to increase transaction
efficiency and reduce costs
Supplementary services, such
as the “livelihood” services or
education/food security
services7 or possibly even health services
One of the pioneers of 3rd generation microfinance has been the IFMR Trust Holdings, which provide a wide range of products and
“Wealth Management” support to its clients
The 8Ps of Products
Process
ProductPositioning
Physical Evidence Customer
Centric Product
Price
Place People
Promotion
Customer Centric Product
The Customer’s Viewpoint
Customer SolutionsCommitted
Convincing ConciseCustomer
Centric Product
Convenient
Competitive
CostCompetent & Courteous
Communication
Customer Centric Product
Market Research & Product Development Process Overview
QualitativeResearch:FGD/PRA
ConceptDevelopment
Qualitative Research
Plan
Research Issue
Understanding clients’ needs
Costing & Pricing
ConceptDevelopment
Refine the Concept intoa Prototype
QuantitativeResearch:Prototype
Testing
Product Ready forPilot-test
Refining/Testing the product prototype
Risk Analysis &
Process Mapping