Those Who Leave and Those Who Don't Join: Insights from East African Microfinance Institutions

The paper presents products of MFIs in East Africa and explains the high rates of dropout and low outreach. Drawing from 13 microfinance institutions (MFIs) in East Africa, the paper addresses the "who, why and when" questions of exit from and non-participation in MFIs. It states that:

• The poor, or those significantly below the poverty line, do not join East African MFIs;
• There are more MFI dropouts in East Africa than there are active clients;
• Dropping out from one MFI, might not result in withdrawing from MFI services entirely.

The paper then presents the reasons why clients decide to drop out of microfinance institutions and highlights the importance of designing more flexible, demand-driven products to address the financial service needs of the poor and attain significant outreach in the region. Based on qualitative information from the MFIs studied, a number of common experiences seem to emerge. Findings reveal that:

• Dropout rates increase when there is a downturn in the national economy and/or adverse climatic conditions for agriculture;
• Solidarity-group-based MFIs report significant numbers of dropouts during the initial period of member training and some experience many dropouts after the first few loan cycles;
• Changes in policies have led to the rapid exit of a large number of clients;
• A number of MFIs have experienced increased dropouts because of management problems, such as fraud, or cash flow difficulties that prevented the MFI from disbursing promised loans to clients on time.

This document is also available in French, Spanish and Arabic here.