Paper
Drop-outs, Graduates, Defaulters and the Excluded
Client drop-outs, client graduation to formal banking institutions, client defaults and exclusion
19 pages
This article reviews several studies on the issues that microfinance institutions (MFIs) face while employing group-lending techniques. Focusing primarily on studies from Bangladesh, the author isolates the following issues that pertain to MFIs:
- High drop-out rate of members of MFIs;
- Graduation of high-value clients to formal sector banking system leading to reduced cost effectiveness of microfinance programs.
The author concludes that microfinance institutions should alter the nature and quality of their finance services to suit client requirements. Doing so would :
- Help MFIs create permanent financial service institutions;
- Attract the "poorest of the poor" to participate in the microfinance programs;
- prevent "multiple membership" of the same client with different MFIs;
- Improve cost effectiveness of the microfinance programs.
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