Client Drop-outs From East African Microfinance Institutions

This report studies thirteen large and medium-sized MFIs in East Africa to determine client drop-outs, and the reasons responsible for it. It uses qualitative and quantitative methods to study the operations, clients and their drop-outs from MFIs in both urban and rural areas.

The document states that:

• East-African MFIs target vulnerable not-so-poor and (upper) poor micro and small entrepreneurs. The (lower) poor and the very poor receive limited or no services;
• The reasons behind the poor not joining MFIs are their exclusion by other group members, self-exclusion, MFI staff and unattractive products;
• Drop-out rates are high in East Africa;
• Clients drop-out for many reasons including:
  • Downturn in the national economy and/or adverse climatic conditions for agriculture;
  • The initial period of member training;
  • Expense stress during predictable periods such as festivals, near dates of submission of school fees;
  • Phases of change in agency policy when concerns about default or sustainability lead to a rapid, forced exit of large numbers of clients;
  • Management problems in MFIs;
  • Multiple memberships to MFIs.

Further, the report argues that client exit is a significant problem for MFIs as it:

• Increases the MFI's cost structure;
• Discourages other clients;
• Reduces prospects for sustainability.

Finally, the report suggests that in order to overcome this problem, MFIs need to monitor drop-outs more systematically and need to move away from the rigid, credit-driven, group based products that dominate their services.