PRODUCTS

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A financial intitution providing financial services like savings, mortgages, consumer credit, insurance and loans to fund the money transfer business. that the practice of adding more financial services from the supply side.Here are the services provided by financial institutions

PRODUCTS

Products delivered by MFIs are many and include loans, savings, insurance and
money transfer. Non financial products such as training or consulting are also often
delivered by microfinance institutions. This session analyses the main features of these
products. Loans, and increasingly savings, constitute the main products actually
offered by MFIs but as the industry matures additional products have been introduced
by many institutions.

1. LOANS

The specific features that microfinance institutions should implement to deliver
valuable services for their clients are listed below. These characteristics are met quite
well by moneylenders giving them a competitive advantage. But MFIs that have been
able to include these features into their credit services successfully replicated this
competitive advantage.

A. Fast access

Rapid loan approval and fast disbursement is crucial for clients and it is often the main reason why many people deal with moneylenders even at very high interest rates.

B. Clear, easy and flexible conditions

It is important to provide the credit service at convenient conditions for the clients. Transaction costs, which include transportation costs (to pay the instalments or get the money) or time away of work, throughout the life of the loan must be kept low. Loans should also not be strictly linked to a specific purpose. MFIs should monitor the income streams of their clients but with a certain level of tolerance as restricting the possible use of funds will not allow microentrepreneurs to have the necessary flexibility in the use of the money received and thus interfere with the microbusiness development.

C. Permanent services

Credit services must be provided on an ongoing basis, not only for a limited period of time. The lack of this requirement is the main shortfall of many projects that despite their effectiveness do not have the goal of delivering financial services on an ongoing and sustainable basis.

D. Alternative collaterals and collateral substitutes

Poor people often lack traditional collateral. To overcome this obstacle many MFIs use other kinds of collaterals known as collateral substitutes and alternative collaterals. Group guarantee is an example of the former, while personal property such as equipment or jewellery are an example of alternative collateral that are not accepted as collateral by the traditional banking sector.

2. SAVINGS

MFIs typically offer two types of savings accounts: voluntary and forced. Voluntary savings replicate the savings services provided by traditional commercial banks while forced savings serve as collateral for the loan. These accounts do not necessarily provide a return on deposit and are kept by the institution until the balance of the loan has been paid off.

Liquid accounts are flexible saving products often with no or small minimum balance but they usually do not provide or pay very little interests. Time deposit accounts, on the other hand, usually offer higher interest rate but clients have to leave their money in the account for a specified period of time.

 

Microfinance institutions should provide a complete set of short, medium and long term deposit accounts, in addition to more liquid accounts. This to meet the diverse needs of liquidity and rates of return of the clients.
Savings will also attract more clients than loans alone and constitute an important source of funds for the institution. Furthermore it should also be a less expensive source compared to traditional commercial loans as for most MFIs it does not represent a big additional cost. This is due to the already available infrastructure required to collect savings (branches, trained staff, clients relationships).

 

3. MICROINSURANCES

Low income enterprenuers, just like anyone else, are vulnerable to risk, such as illnes, injury, theft, death accident and flood. this is why financial product to mitigate the effect of these risk are vulnerable for them.
insurance as financial service that some MFIs are starting to addto their portfolio to respond to this need protection.

Insurance products to the target group of microfinance institutions must be designed to fit their specific risk  they may include health insurance , live stock insurance and crop insurance.

 4. MONEY TRANSFER

Money transfer service is another critical financial service: the business of remittances,
i.e. the money that emigrants send home to relatives, is growing strongly and is often
managed by informal arrangements with high charges and high risks.

Depending on the local regulation and costs this service can be delivered directly or
in partnership with money transfer companies. MFIs owns the competitive advantage of the relationship with their clients and such service can also be linked to other
products or can be taken into account when calculating the repayment capacity of each
client. There is the possibility to link remittances with credit products when
remittances are not used for consumption but for production purposes, combining the
different sources of funds.