Rethinking Client "Graduation"

This paper evaluates the success of Premium loan, a group loan offered by Pro Mujer Peru (PMP), in retaining good clients and preventing client graduation to commercial competitors.

PMP designed the Premium loan, a product with longer terms, higher credit ceiling and lower interest rates, to meet the needs of bigger clients. However the study found that most Premium loan clients also took several other loans from PMP, banks, other MFIs and non-commercial lenders. On an average, Premium loans comprised less than one-third of the clients’ total credit portfolio. The study identifies three main reasons behind the clients’ retention of PMP loans even after graduation:

• Clients form friendships and mutual support within PMP loan groups;
• PMP is among the oldest MFIs in Peru, and has become a habit;
• Clients want to maintain a mix of individual and group loans.

MFIs need to recognize intangible factors of client decision-making such as social capital in order to retain good clients. Finally, the study draws attention to the possibility of poor clients being denied access to PMP’s loans with bigger clients taking regular as well as Premium loans.