At Ladies’s World Banking’s Making Finance Work for Ladies Summit in November, three main monetary establishments gathered to debate how particular person lending methodology has impacted their enterprise technique and skill to succeed in girls purchasers. In dialog with moderator Jennifer McDonald, Director of Product Improvement at Ladies’s World Banking, had been Alfredo Osvaldo Zamora García of Compartamos Banco (Mexico), Samit Ghosh from Ujjivan Monetary Companies (India) and Amir Nafie of Lead Basis (Egypt).
Conventional microcredit, as pioneered most notably by Muhammad Yunus, makes use of the group lending methodology through which debtors type teams and are held accountable for one another’s reimbursement. Beneath this mannequin, collectors depend on mutual accountability and robust social networks instead of collateral and credit score historical past. The person lending methodology, however, is an strategy tailor-made to the precise wants and reimbursement skill of 1 borrower.
Why particular person lending? – Serving distinct market segments
Alfredo perceives group and particular person lending as methodologies that deal with the wants of distinct market segments, and thus serve completely different functions. Group mortgage purchasers are inclined to personal small-scale and itinerant companies, corresponding to promoting bread and fruits. They usually lack collateral and formal documentation of their enterprise operations, making them well-suited to the low obstacles to entry of the group lending mannequin. Particular person lending purchasers, however, are inclined to have extra formal and arranged companies, therefore extra more likely to have credit score historical past and documented enterprise actions. These purchasers usually search bigger loans to assist develop their companies, whereas group mortgage purchasers use smaller quantities of credit score to cowl consumption bills. In Compartamos Banco’s view, providing particular person and group mortgage merchandise permits the financial institution to faucet into two completely different market segments, serving every of their distinctive wants extra successfully.
Why particular person lending? – Constructing relationships with purchasers
For Ujjivan, particular person lending is a chance to proceed strengthening relationships with its current buyer base, particularly these purchasers whose wants are not happy by a bunch mortgage. In keeping with Samit, group loans comprised 90% of Ujjivan’s portfolio in 2011. Nonetheless, department workers noticed that many consumers had been leaving the establishment when the mortgage quantities provided had been not adequate to serve their wants. At 73%, Ujjivan’s buyer retention charge was solely simply above the trade commonplace. With the intention to enhance consumer retention, Ujjivan launched the person loans so purchasers who’ve “graduated” from group loans can subsequently apply for a bigger mortgage that can be extra tailor-made to their specific circumstances. This initiative has enabled Ujjivan to construct stronger relationships with purchasers and stay their monetary establishment of selection as their lending wants evolve.
Why particular person lending? – Specializing in girls’s wants
In Egypt, the standard tradition discourages girls from taking out loans. For Lead Basis, bettering the share of girls in its portfolio concerned introducing a credit score product designed to satisfy the wants of girls. Amir shared that Lead’s buyer analysis had revealed a definite section left unserved by each particular person and group lending. Since Egyptian girls face societal strain when taking out a mortgage, girls worth the privateness that a person mortgage provides however usually can’t meet the minimal collateral necessities. To deal with this hole, Lead launched a “lady’s mortgage,” with a smaller mortgage measurement and fewer collateral necessities, however that also supplied the person privateness necessary to girls purchasers. In keeping with Amir, the product has to this point been an excellent success: Lead’s proportion of girls purchasers has elevated from 18% to 37% since its launch. Apparently, Lead discovered that decreasing collateral necessities additionally improved male purchasers’ uptake of particular person loans, including additional worth to the establishment’s general portfolio.
These three case research present that particular person lending will help monetary establishments throughout quite a lot of areas seize a bigger market share, improve current buyer relationships, and most significantly, provide a diversified suite of merchandise to allow girls purchasers to construct better safety and prosperity.
For extra on particular person lending, watch the video of the complete panel dialogue or take a look at Ladies’s World Banking’s latest publication, “Particular person Lending for Low-Earnings Ladies Entrepreneurs: An Inclusive Method.”
