March 16, 2015
By Sharada Ramanathan and Rajesh Sinha
Our first two posts talked about how Non-Banking Finance Companies (NBFC)-Microfinance Institutions (MFIs) who wish to become Business Correspondents (BCs), offering multiple banking products can effectively influence:
- Partners to develop a mutually beneficial, sustainable business model, and
- Employees to transition successfully into the new organizational model and deliver business results.
In this post, we turn our attention to the third pillar of organizational success—customers—and discuss ways for MFIs to engage effectively with them to drive product adoption and usage.
The key to marketing effectively to the poor is to challenge your assumptions about how they make decisions. Too often for example, we see that MFIs focus on pricing alone, the assumption being that the poor only want cheap products. This may not necessarily be true. Our experience shows that the poor are willing to pay for a product as long as the price is justified in their view, and offers a benefit that they truly value.
As MFIs transform from offering credit alone into Business Correspondents offering a range of financial products, marketing strategies will also need to evolve. As they think through these decisions, MFIs need to address a few key questions about their target market:
What insights do we have about our customers? What are their constraints, needs and expectations from our product?
The first step is to understand what the poor are looking for. The key challenge for any provider serving the poor is that products need be priced and designed taking into consideration not only low, but also unpredictable incomes.
Let’s take microsavings as an example. Research shows that the poor can and want to save. However, they need a convenient and cost-effective way to do that. They appreciate the safety that an account at a bank provides them as against saving at home. But they find that making repeated visits to the bank to deposit and withdraw such small sums of money (often in the range of INR 50 or even less at a time) is cumbersome and often economically unfeasible. One other nuance is a perception that clients making such small deposits are not valued at banks. This adds to their reluctance to operate formal banking accounts. Understanding this, Cashpor—a MFI whose transition to the Business Correspondent model we supported—was able to stress that, as a BC liaising between the bank and customers, they are able to offer the security and easy accessibility of a bank account without the associated costs. Clients greatly appreciated the ability to safely make small transactions, as and when their cash flows permitted, in their own villages through a trusted intermediary.
Conventional financial products and processes in India are rarely designed around the needs of the poor. Traditional products will not work for the poor, since their circumstances are very different from ours. Even minor changes can go a long way towards encouraging product uptake. Let’s take another example from Cashpor to illustrate this point. Banks in India typically require a minimum of two official documents: an identity document and an address proof to open a no-frills savings account. Cashpor clearly saw this as a barrier for the poor, particularly in remote villages. To address this challenge, Cashpor introduced significant flexibility into the process of opening an account. It first convinced its banking partner to start accepting voter IDs, which in a single document provided both a proof of address and of identity. Next, clients without any address proof were permitted to submit attested statements from the village head as proof, resulting in significant business traction.
How can we devise our communication message and mode of delivery around our customer?
Conventionally, organizations focus on features and benefits of their product in marketing messages. This by itself may not suffice when it comes to marketing to the poor. Effectively marketing to the poor requires us to focus on the value proposition that resonates most with their needs, values and desires. Only then are they likely to part with their small, irregular resources for a new product or service.
One challenge that makes the poor reluctant to use conventional savings services in India for example, is a perception that they will not be able to withdraw all the deposited money in an emergency. Banks in India actually offer zero-balance or no-frills accounts—basic bank accounts where a minimum balance does not need to be maintained—but few clients are aware of this. Banks do, however, insist on at least one transaction every 180 days. In the event that this does not happen, the account is frozen. Most poor clients in India are unaware of these nuances, leading to inefficient account usage and reinforcing negative perceptions. Recognizing this, Cashpor spent significant time and effort educating clients on these features -
First, communication was consistently focused on the theme that “100% of what you deposit is yours, and can be withdrawn when you want”. For the poor, who typically save for an emergency and desire 24/7 easy accessibility to their savings, this proved to be a powerful message.
Second, they educated clients on benefits of a savings account and the importance of making a transaction every 6 months, and actively facilitated these transactions. This ensured that accounts were not blocked.
Third, in their client interactions, they actively encouraged small deposits, even amounts as low as INR 20. The goal was to make clients feel welcome and respected, irrespective of the amounts they brought in. Over time, they noticed that few clients made transactions as small as these, and most typically made deposits in the range of INR 50 or so. However, the fact that small transactions were encouraged resulted in clients becoming confident in their ability to make these transactions, and feeling a greater sense of trust towards Cashpor.
Mass communication channels rarely work in villages. Communication needs to be delivered through below-the-line channels which are customized to the local context. In our experience, word-of-mouth helps. Every client group we have worked with has typically had an informal leader, and at least one or two women who are more financially and mobile-literate, and involved in their family’s finances as compared to the rest of the group. These are typically the “influencers” who are looked up to by the others, and are able to significantly lead opinions and behaviours. Identifying these influencers can provide the initial traction needed to encourage product adoption.
Dealing with clients who are unfamiliar with and wary of formal banking services, requires an intensive degree of client engagement. The loan officer is perceived by clients as a trusted intermediary, and their link to the bank. The time that these officers invest into building deep, respectful relationships with clients, counseling them on products and training them on their use, is eventually reflected in outcomes.
How can we effect long-term behavior change?
To truly facilitate financial inclusion, socially conscious MFIs must focus on strategies that result in long-term behavior change among customers. MFIs need to find a way to inculcate financial discipline and regular saving behavior in clients. We find that helping clients visualize their future needs, and motivating them to work towards fulfilling them as a goal helps. Often, the poor borrow to invest in a child’s education or wedding. Visual aids such as charts on recurring savings or examples of success stories from their own or neighboring villages can be used to teach them that by starting to save now, they can use their own funds for these future needs rather than borrowing later.
Marketing to the poor is a time and resource-intensive effort. It requires MFIs to intimately know the poor and understand their behaviors, needs and constraints. Organizations serious about serving this populace need to challenge conventional marketing strategies and craft new ones. If an MFI’s goal is to build transaction volumes and develop a sustainable BC business which serves customers profitably and in a socially conscious way, it must start to view marketing as a long-term investment rather than just a short-term expense.
This post concludes our series on the Business Correspondent Model and making it work for promoting financial inclusion in India. To learn more about Grameen Foundation India’s work, visit //grameenfoundation.in/
 The Reserve Bank of India typically requires only one permanent or local address proof to open a no-frills account, but banks tend to be more conservative, and often ask for a proof of identity as well.