The Emerging Market-led Microfinance Agenda

This briefing note studies the evolution of the microfinance industry from a supply-led to a market-led industry that matches products with client needs. The paper identifies three issues that enable understanding of the mismatch between available products and client needs:

• Client outreach of microfinance institutions (MFIs);
• The usage patterns of financial services by the poor;
• The ways by which MFIs can increase the poor's access to financial services and increase efficiency in service delivery.

Further, the paper informs that a market-led approach to microfinance focuses on three components:

• The client-product nexus acknowledges that MFIs need to match products to clients' needs, repayment amounts and cycles to clients' cash flow, and loan size to clients' income;
• Linkages between clients and institutions involve creating operational mechanisms to enable the creation and usage of client data to inform product development, marketing or service delivery;
• Analyzing the client's financial landscape helps MFIs understand the formal and informal competition, clients' use of services and their own role within the financial market.

Finally, the paper observes that:

• Market-led microfinance is gradually catching the attention of donors and MFIs alike;
• Large numbers of MFIs are reviewing the integration of client data into management information systems;
• There is a growing recognition of the importance of institutional-client linkages and the client's financial landscape;
• Operational benefits are enabling MFIs to lower service delivery costs, attract new clients and retain existing ones, thus facilitating sustainability.