Research & Analysis

Microfinance and Risk Management: A Client Perspective

As the microfinance industry matures, service providers are increasingly concerned with developing new and better products. This focus on new product development is a response to growing competition in the microfinance market, the search for more defined market niches, and some anxiety about dropout rates.

To design successful products, the first step entails understanding the financial needs of clients (and potential clients) and how financial services fit into their money management strategies. Understanding clients requires an awareness of the economic goals of poor households, how people manage resources and activities, and how they deal with risk in their day-to-day lives. Such a framework can be a useful starting point to better understand financial service preferences of poor households.

Recent research commissioned as a contribution for the forthcoming World Development Report 2000/1(WDR) on poverty highlights the importance of focusing on risk and vulnerability as a way of understanding the possibilities and limitations of the interface between poverty and microfinance. The research focused on selected non-income dimensions of poverty, specifically how people use microfinance services to build physical, financial, human and social assets, mitigate risk, and reduce vulnerability.