The 1990s saw an unprecedented growth in microfinance institutions (MFIs) in Bangladesh, both in terms of the number of MFIs and the range of financial services they offer. What factors drive new innovations in the microfinance market and how do such changes happen at various levels of the institution?

Using case studies of three MFIs operating in Bangladesh, the author seeks to address such questions, discovering the forces that trigger innovation, details of the product design, and how such changes are implemented in practice. For each of the three institutions, the study looked at official policy and thinking on new products at head office level, branch and field level practice, and clients’ views of the products. The new products in question were two flexible savings schemes from ASA, Gono Bima’s life assurance scheme and Safesave’s response to the failure of the traditional credit schemes to offer a wider choice in financial services to the poor.

The findings of the study showed that:

• The pressure of competition and new opportunities arising from the changing microfinance environment have been important catalysts for the product innovations.
• Also important is a drive to provide financial products that are more responsive to clients’ needs and which can reach more people by serving previously unmet needs and by reaching those previously excluded.
• The MFIs face a challenge relating to the speed of introduction of new products and their ability to be patient in scaling up from small pilot programmes.
• The difficulties of changing the culture of an organisation to adapt to new, flexible products have been underestimated.
• Insufficient attention to product design has meant that some of the products were poorly received by clients.
• Given access to flexible financial services, poor slum-dwellers will use them in a variety of ways according to their individual circumstances and needs.

Policy lessons highlighted in the study are:

• The demand for savings is very different to that for loans, and the potential client base is broader. This raises challenges in terms of regulatory structures and product development.
• The scaling up of microcredit schemes depends on donor funds. The role of donors in providing flexible capital to support innovation is therefore very important.
• Lesson learning through careful analysis of successes and failures is vitally important for both practitioners and advisors. Pilot studies are required and patience is needed to avoid the premature scaling-up of new schemes.
• The expansion of innovations in microfinance will depend on a combination of innovative action in the field and innovative thinking on product design issues.

Source(s):
‘The Changing Microfinance Landscape in Bangladesh: A Study of ASA, Safesave and Gono Bima’, Finance and Development Working Paper No. 37, Institute for Development Policy and Management, by Imran Matin Full document.

Funded by: Department for International Development (DFID)

id21 Research Highlight: 18 October 2002

Further Information:
Imran Matin
Research and Evaluation Division
BRAC
75 Mohakhali
Dhaka 1212
Bangladesh

Tel: +880 2 9881265-72
Fax: +880 2 8823542, 8823614
Contact the contributor: imran.m@brac.net

BRAC, Bangladesh

Other related links:
'Finance matters: Financial liberalisation: too much too soon?' Insights #40

'Fine tuning microfinance: better financial systems for the poor'

'Money matters – can microfinance reduce poverty?'

'Credit crisis: does microfinance benefit the very poor?'

See the Microfinance Gateway for further research

See the UNDP Special Unit for Microfinance