Product Development & Marketing Management (Module III)

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MODULE III
PRODUCT DEVELOPMENT AND

MARKETING MANAGEMENT
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PRODUCT DEVELOPMENT AND MARKETING MANAGEMENT
© Copyright (2019)
The Chartered Institute of Bankers of Nigeria
All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system or transmitted in any form or by any means
without the prior written permission of the copyright owner.
ISBN: 978-978-57181-6-4
Published in Nigeria by
The Chartered Institute of Bankers of Nigeria (CIBN)
Bankers House PC 19, Adeola Hopewell Street,
Victoria Island, Lagos, Nigeria.
PR E S S L
BN I
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M
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IT E
T HE
Printed in Nigeria by
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FOREWORD
The decision for the production of this Study Pack on Product Development and Marketing
Management arose as a result of the need to provide an updated, comprehensive
and adequate material on the subject for the use of the students preparing to write the
examinations of Microfinance Certification Programme.
This became imperative for two reasons. First, the review of the Curriculum of the
Certification Programme which had been in use since it was introduced in 2011 has become
critical to provide the most relevant and up to date knowledge to existing and potential
practitioners in the Microfinance Subsector.
Secondly, the existing Manual only summarised and provided highlights of the topics of the
subject. It did not cover the Curriculum and adequately provide the required resource to be
successful in the examinations. The Candidates would have to read several books,
journals and papers delivered at different fora to have a good grasp of the subject matter.
Only the Manual was a publication of note available for the eight years of the existence of the
Certification Programme. This compelled the Governing Council of the Institute to direct the
production of the Study Packs for all the modules of the Certification Programmes for release
along with the newly approved Curriculum to adequately equip the students.
This Study Pack therefore is primarily intended to provide comprehensive study materials for
the students preparing to write Product Development and Marketing Management in the
Microfinance Certification Programme.
The Study Pack has been deliberately prepared in line with the Curriculum to reduce the
number of other publications the students would have to read to pass the examinations. It is a
handy tool for students preparing for the examinations and can be effectively
used for revision as well. It is hoped that readers, whatever their experience, will find the
Study Pack invaluable to the understanding of the subject matter and enhancement of their
knowledge.
Meanwhile, in view of the dynamism of the subject area, students are still encouraged to read
further to continuously update their knowledge.
The Study Pack can also be useful as resource and reference materials for students of
banking and finance and economics in tertiary institutions. Also, Practitioners who desire
further knowledge in the subject will find it a useful reference guide.
I wish those who will have cause to use this Study Pack the best of luck.
’Seye Awojobi, FCIB

Registrar/Chief Executive
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Acknowledgement
The publication of this Study Pack on Product Development and Marketing

Management marks an important milestone in the Institute‘s bid to deepen capacity in
the Microfinance Subsector. For coming this far, we owe a debt of gratitude to those
who contributed one way or the other to making the Publication possible.
We owe a heartfelt appreciation to the Deutsche Gesellschaft für Internationale

Zusammenarbeit (GIZ) GmbH, an agency owned by the German Federal Government that
implements technical cooperation projects on behalf of the Government and other
development partners in Nigeria has been operating in the country since 1974. However,
following the agreement between the Nigerian and German governments, the Organisation
has since 2002 focused on sustainable economic development programmes and its
contribution to this Publication is indispensable. Indeed, GIZ undertook the writing of four
Study Packs of the Certification Programme including this one.
We acknowledge the efforts of Mr. Dapo Komolafe, FCIB and Mr. Chima Wosu, ACIB (both of
NPF Microfinance Bank) for reviewing the book.
Our indebtedness also goes to the members of Capacity Building & Certification
Committee for their immeasurable support to the publication especially, the
Chairman, Mr. Abdulrahman Yinusa, FCIB, and the Vice Chairman, Mr. Rotimi Omotoso,
FCIB.
This work would not have been accomplished without the efforts of the Management of the
Institute led by the Registrar/Chief Executive, Mr. ‗Seye Awojobi, FCIB, Group Head,
Capacity Building & Certification, Mr. Segun Shonubi assisted by Senior Manager, Capacity
Building & Certification, Mr. Kayode Adeyemi, Manager, Human Resources, Mrs. Stella
Nwosu, Manager, Capacity Building & Certification, Mrs. Linda Daniel, Assistant Manager,
Audio Visual Unit, Mr. Shegun Shokunbi and Officer, Compulsory Continuing Professional
Development & E-learning, Mr. Kabiru Ogunfowodu who both designed the Cover Page and
indeed the entire staff of the Capacity Building & Certification Division.
Lastly, our acknowledgement would be incomplete without thanking the Office Holders of the
Institute under the Chairmanship of Dr. Uche Olowu, FCIB for their tremendous contribution
to make this publication a reality.
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PRODUCT DEVELOPMENT AND MARKETING
MANAGEMENT
Aim
This course is designed to educate candidates to appreciate the importance of
product development and marketing management in the Microfinance Subsector
of the Financial Service Industry.
Objectives
At the end of the module, candidates are expected to have a good
understanding of:
1. Process of Product Development and Management.
2. Basic Management Principles, Marketing Concepts and Strategies in

Microfinance Subsector.
3. Importance of Customer Relationship Management including Counselling

and Advisory Services.
4. Communication Concepts, Skills and Tools in Microfinancing.
5. Contemporary Issues
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TABLE OF CONTENTS
Foreword…………………………………………………………………………… iii
Acknowledgement………………………………………………………………… iv
Chapter One
Process of Product Development and Management ………………….. 1
1.1 Introduction to Product Development …………………………….…. 1
1.2 Product Development Process …………………………………….… 2
1.3 Product Costing ……………………………………………………….. 8
1.4 Responsible Pricing………………………………………………....... 14
1.5 Guide to Bank Charges ………………………………………….…... 16
Practice Questions.………………………………….……….…….…….….. 17
Chapter Two
Products and Services of MFIs ………………………………………..… 19
2.1 Overview ………………………………………………………….…. 19
2.2 Deposit Products……………………………………………………... 22
2.3 Current Account via Deposit Money Banks …………………….... 23
2.4 Specific Long-term Savings‘ Products…………………………….. 23
2.5 Transfers and Payment Services ………………………………..… 23
2.6 Loan Products ……………………………………………………….. 24
2.7 Investment Services ………………………………………………... 26
2.8 Understanding Value Chains ………………………………………. 28
2.9 Agriculture Value Chain Financing and Business Model ……….. 37
2.10 Micro-housing, Micro-leasing and Micro-insurance ……………… 42
2.11 Green Finance and Renewable Energy …………………………… 43
Practice Questions …………………………………………………………. 44
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Chapter Three
Basic Management Principles, Marketing Concepts and
Strategies in MFIs …………………………………………………………… 47
3.1 Marketing …………………………………………………………….... 47
3.2 Distribution Channels and Methodologies/Efficient Network
Plan……………………………………………………………………... 55
3.3 Market Research ……………………………………………………… 57
3.4 Competitive Analysis ………………………………………………….. 61
3.5 Strategic Marketing and Planning ………………………………….. 61
3.6 Use of Internet and Other Social Media for Delivery and
Better Management …………………………………………………. 62
3.7. Factors Determining Success in Market Planning ……………….. 65
3.8 Features of Customer Focused Bank ……………………………… 65
3.9 Corporate Branding and Identity …………………………………… 68
Practice Questions ……………………………………………………..…… 75
Chapter Four
Customer Relationship Management ………………………………….… 77
4.1 Overview of Customer Relationship Management (CRM) ……… 77
4.2 Customer Relations ………………………………………………….. 81
4.3 Customer Education and Financial Literacy Training ……………. 83
4.4 Customer Advisory and Counselling Services ……………………. 86
4.5 Customer Retention ………………………………………………….. 87
4.6 Customer Service Framework ………………………………………. 88
4.7 Corporate Social Responsibility …………………………………….. 90
4.8 Variables in The Internal and External Environment of MFIs …… 91
4.9 Factor Influencing Customers‘ Choice of Microfinance
Service Provider ………………………………………………………. 96
4.10 Branch Structure ………………………………………………………. 97
4.11 Managing Cash ………………………………………………………… 98
4.12 Deposit Account and Document Management …………………….. 100
4.13 Relationship Management, Client Protection and Support 103
Practice Questions …………………………………………………………… 105
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Chapter Five
Communication Concepts, Skills And Tools In Microfinancing……. 107
5.1 Concept of Communication ……………………………………….… 107
5.2 Effective use of Communication Technology (ICT) in

Microfinance …………………………………………………………. 114
Practice Questions ………………………………………………………… 120
Chapter Six
Contemporary Issues ……………………………………………………… 123
6.1 Sustainable Banking ………………………………………………... 123
6.2 Agency Banking ……………………………………………………… 124
6.3 Mobile Money ………………………………………………………... 126
6.4 Ethics and Social Responsibility in Marketing …………………… 126
6.5 Community Microfinance ………………………………………….... 130
6.6 Bank Verification Number …………………………………………… 131
6.7 Cryptocurrency ……………………………………………………….. 131
Practice Questions …………………………………………………………. 132
Recommended Textbooks ……………………………………………..… 135

Index ………………………………………………………………………….. 137
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Tables and Diagrams
 Product Development Process 3
 Pricing Objectives 12
 Agricultural Value Chain Financing 37
 Marketing Audit Diagram 54
 Strategic Marketing Framework 62
 Eight Dimensions of Customer Service 68
 Footpath to a Great Brand 69
 Customer Relationship Management 79
 Operational Customer Relationship Management 80-81
 Branch Structure (Organogram) 98
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CHAPTER ONE
PROCESS OF PRODUCT DEVELOPMENT AND MARKETING
Learning Outcome
At the end of the Chapter, readers should be able to:
 Develop a product that is systematic, client-focused, analysis-driven and
result-oriented
 Use various client-oriented market research techniques; interpret
research results to design product prototypes, cost and price products,
pilot test products and launch new products that result in increased
profits and client satisfaction
1.1 Introduction to Product Development

To define product development, one must first define product. For MFBs,
a product is a financial service that customers purchase because it fulfils
a particular need. The most common types of products are credit,
savings and insurance. Other financial products include guarantees,
commercial papers, remittances, leasing and mortgages. Some products
combine two of these categories while some integrated products
combine financial with non-financial services such as training, business
development services, market linkages and entrepreneurial training.
Historically, most MFIs were methodology-driven rather than market-
driven because, until recently, they operated in markets with little
competition. In the past, MFIs offered highly standardized loans with little
variation or field-officer discretion to keep costs low and maintain internal
control as the institutions expanded to meet huge demand. MFIs,
nonetheless, grew and prospered, as did clients, thus creating a more
sophisticated customer base and an attractive market for new
competitors. These changes have required MFIs to become more
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attuned to their clients‘ needs and to competitive threats. Today, MFIs

must understand and attend to clients‘ evolving demands for financial
services or face customer desertion to more-responsive, market-driven
competitors Brand (2001).
1.2 Product Development Process

The Microenterprise Best-Practice Project (MBP) advises a four-step
process for the product development cycle depicted in Figure 1: Product
Development Process: Evaluation and preparation, design, pilot test and
launch.
a Evaluation & Preparation

This begins when the institution decides to formally investigate
the development of a new product. The institution will mobilize
staff and other resources to work on the development effort and
create a work plan. This will guide the MFB in determining
whether it is ready to undertake a new product development.
b Design and Development

The design and development of a product prototype involves the
drafting of the initial features and characteristics of the new
product. To design a prototype, the development team must
understand clients‘ needs and the competitive landscape to
determine what the market (the clients) will buy.
c Pilot Testing
Pilot testing of the prototype is an opportunity to offer the product
to a sample group of clients to determine whether they need, and
will buy, the product. The results of the pilot test will help the bank
determine whether demand exists for the new product, what
modifications or changes to the terms and conditions are needed
to make the product more appealing, and what features or
processes need adjustment. MicroSave (Briefing Note # 14)
recommends 10 steps for pilot testing as outlined below:
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Source: Brand, 2001
Evaluation &
Preparation
L  Customer needs
a  Competitors D
u  Institutional e
n Strengths s
c i
h g
n
h
h n
Pilot Test
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i Composing the Pilot Test Team

Ensure that the team is representative of the different
departments in the bank such as MIS, Credit (if a loan product),
Operations, Marketing and Administration.
ii Developing the Testing Protocol

Make the developing and testing protocol as comprehensive as
possible, remember that the pilot test should mimic all possible
scenarios that could occur when the product is launched including
delinquencies, defaults and collections (for credit products) and
lodgments and withdrawals (for deposit products).
iii Defining the Objectives

When defining the objectives, be specific about the objectives of
the pilot test.
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iv Preparing All Systems

In preparing all systems, make adequate preparations and have
back-up and contingency plans.
v Modelling the Financial Projections

The financial plans need to be modelled along the different
scenarios identified in step two; for instance, if it was credit
product, there should be a financial model for a PAR of 1%, 2%,
etc. and a write-off of 1%, 2% etc.
vi Documenting the Product Definitions & Procedures

It is better to err on the side of over-documentation rather than
under-documentation. When dealing with rural finance, have a
mechanism for collecting data and feedback from clients who
cannot read or write such as participatory rural appraisal
techniques.
vii Training Relevant Staff

The staff to participate in the training should be trained to deliver
the products. However, do not fall under the temptation to over-
train. Provide as much training as you plan to continue to conduct
when the product is launched.
viii Developing Product Marketing Plans & Materials

Develop samples of the marketing materials you plan to use so
that they can be tested during the pilot testing. If they are not
used during the testing stage, the pilot test will be incomplete.
Since the materials are a key component of the product features,
it is very important to test them as well for the message they
convey and the reactions of the customers to them.
ix Commencing the Product Test

In commencing the product test, set a date for when the pilot test
will commence and how long the testing will last. Ideally, the
testing should last as long as the product tenure i.e. the pilot test
for a three months loan should last for three months.
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x Monitoring and Evaluating the Test

As you enter this phase, monitoring should be adequate, and the
evaluation should be objective.
d) Product Launch
Product launch involves making the new product available to the
bank‘s entire market. Introducing the new product to the bigger
market assumes that the bank is confident that the characteristics
and features of the product are in line with the needs of the bank‘s
clients and that the bank is prepared internally to incorporate a
new line of business.
The product development process does not end after the product
is launched. It is an ongoing process of refining the terms,
characteristics and conditions of a product based on client
feedback and market analysis. In fact, most product refinement
(rather than new product development) is precisely the
―innovation‖ that is needed. This process should be a strategic
and integral part of the bank‘s ongoing business operations so
that it can maintain its competitive advantage in the marketplace.
Three key sources that influence the development of new
products are:
 Customer needs
 Competitors
 Core competencies (institutional strengths).
Note that in the new product development process, these three sources
influence every stage. The circular shape of the diagram emphasizes the
interdependency of the phases. Once a product has been introduced, the
organization needs to continue to monitor its success in meeting
customer needs and adapt the product as necessary. If customer needs
change significantly or you decide to pursue a new market niche, you
must return to the idea-generation stage.
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Pre-conditions for New Product Development

Key factors that should be taken into consideration when developing
products include:
(a) Institutional Strategy

Does the development of new products in general and the
proposed product fit into the MFB's strategic plan?
(b) Financial Viability

Is the organization in sufficient financial health to undertake the
product development effort and roll out the new product?
(c) Customer Service Orientation

Does the MFB already provide quality customer service and have
an appropriate client-orientation process? Is there a process for
continuous improvement in the way the bank serves its
customers?
(d) Marketing Capacity

Is the bank able to market its products adequately? Do the target
customers know about the bank‘s product offerings? Are they
happy with the existing products? Do you have feedback about
the clients‘ perspective on the bank‘s marketing capacity?
(e) Culture of Innovation

Is the MFBs culture geared towards innovation and continuous
improvement? Do employees embrace changes? Do customers
embrace change?
(f) Effective Management Information System (MIS)

Does the organization have a management information system
(MIS) that can easily accommodate new products? Can it be
scaled up to meet the MFBs requirements both now and in the
future? Is there a plan to generate the reports required to
effectively monitor the new product? Is there a budget to scale up
the MIS (if necessary)?
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(g) Product Profitability Monitoring

Does the bank already monitor the profitability of individual
products by assigning borne costs and revenues on a product
basis?
(h) Effective Internal Communication

Does the MFB have effective internal communication channels,
for both vertical and horizontal transmission?
(i) Effective Training Department

Does the MFB have the means to train its staff on the policies and
procedures of a new product?
(j) Low Staff Turnover

Is the bank successful in retaining its key staff members?
(k) Available Resources

Although product improvements can be made without major
investments, new product development can be an expensive
process particularly if external people have to be used. Can
the bank ensure that sufficient funds and human resources
are set aside for this effort?
(l) Context
Has the MFB considered how its external environment influences
product design? Has it recognized the impact of the
following four elements?:
(m) Competition
An MFB's financial product should be compared to other services
available to the target market from both formal and informal
sources. Almost all microfinance clients borrow and save
through other channels, especially informal ones. By
understanding what other services clients use, an MFB may gain
insight into the product features that are attractive to them.
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(n) Regulation
The parameters imposed by the legal environment may determine
certain product features (e.g. interest rate ceilings, permissible
activities etc.) and limit the types/scope of services the MFB can
offer (e.g. MFBs in Nigeria are not allowed to offer international
money transfer services).
(o) Macroeconomic Conditions

The macroeconomic conditions, such as inflation and economic
growth, may influence the design of a financial product (such as
interest rate) or the timing of its launch.
(p) Culture
Social and cultural factors can also influence product design. For
example, if a community embraces Islamic finance principles that
prohibit the receipt and payment of interest, or if it prefers group-
based initiatives to individual entrepreneurialism, it can affect the
products it offers and require it to undertake product development
(or refinement as the case may be).
1.3 Product Costing

One of MicroSave‘s goals is to promote high quality financial services for
poor people. High quality, sustainable financial services must make a
profit if they are to attain significant outreach unsupported by donors or
institutional goodwill. This is particularly important given the dilemmas
posed to African financial institutions in reaching more remote and rural
communities. Once a research issue is specified, qualitative market
research leads to the development of a product concept, which is then
developed, refined, costed and priced. The Action Research Partner
uses its understanding of the costs of its existing products to develop
expectations relating to the costs of its new product and to build a
financial model of the product against which its progress can be tracked.
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(a) Why Perform Product Costing?

Advocates of product costing generally agree that implementing
either costing system can bring a range of benefits to a financial
institution. Whether an institution uses the simpler allocation
based costing or the more complex activity-based costing (ABC)
method, product costing has the potential to do the following:
 Identify the full costs of delivering products.
 Identify hidden costs.
 Determine the profitability or contribution to profits of
assorted products.
 Help management to better plan the mix of products offered.
 Improve business planning and investment decisions.
 Assist in budgeting and in understanding the variances
between budget and actual costs.
 Help determine the viability of new products.
 Assist financial institutions in making decisions on
outsourcing services.
 Facilitate the pricing of current and new products.
 Instil greater cost consciousness in staff (provided the
process has senior management's support).
(b) Product Piloting

The pilot testing process has 10 steps detailed in MicroSave‘s
‗Planning, Implementing and Monitoring Pilot Tests Toolkit‘. Pilot-
tests are essential for the successful development and rollout of
new products. ―Launching new products without a pilot test is
another mistake that MFIs in Latin America often make‖, says
Luis Echarte, founding partner of Paraguay‘s Servicios
Internacionales de Consultoría para el Desarrollo (SIC). ―The
need for growth (of MFIs) causes them to imitate local
competitors or successful organizations in other countries without
conducting an appropriate analysis of the implications of the
innovations they introduce‖, he explains. Microlenders can be
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blinded by illusions. Rapid growth is one such common illusion

that can prove costly to microcredit institutions. In fact, according
to experts, it‘s a situation that may conceal several dangerous
traps (Microenterprise Americas Magazine, 2003). A well-
designed, implemented and evaluated pilot-test can save the
financial institution significant strategic and operational problems
and financial/non-financial losses.
There are many good reasons for pilot testing new products in
terms of reducing risks, controlling costs and in carefully
developing products in a controlled environment. A few of the
most commonly reasons are provided below:
(i) To reduce the risk of developing inappropriate new
products.
(ii) To reduce the cost of making mistakes.
(iii) To grow business volumes and profits through better
meeting the needs of prospective customers.
(iv) To perfect the product whilst changes can be made quickly
and easily and without risk to reputation.
(v) To develop innovative new products – to be a product
leader not a follower.
(vi) To develop a competitive advantage.
The 10 Steps of Pilot Testing

(i) Composing the Pilot Test Team
(ii) Developing the Testing Protocol
(iii) Defining the Objectives
(iv) Preparing All Systems
(v) Modelling the Financial Projections
(vi) Documenting the Product Definitions & Procedures
(vii) Training the Relevant Staff
(viii) Developing Product Marketing Plans and Materials
(ix) Commencing the Product Test
(x) Monitoring and Evaluating the Test
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(c) Product Pricing

Pricing a financial service is both an art and a science. The art of
pricing is in choosing a combination of fees and charges
acceptable to customers, that are fair and transparent, and in
determining if the product has any unique attributes that deserve
premium pricing. The art of pricing is also a careful and
considered communication to and feedback from customers and
staff to ensure that pricing messages are appropriately and
correctly delivered. The science of pricing is ensuring that the
product is profitable and competitive in the market; that, aside
from avoidable losses, each product returns a profit.
Pricing Objectives
Inevitably, where demand for financial services is price sensitive, a lower
price leads to a significant increase in demand. However, where demand
is greater than supply, as in most microfinance markets, price is not the
limiting factor. Neither is profit maximisation a key driver for many
microfinance institutions subject to achieving a stated level of return. One
possible addition to the pricing objectives given above is when an
institution prices high in the short term to obtain sufficient profits to
finance expansion and geographic outreach.
In ‗Marketing: Theory and Practice (Baker, 1995)‘, Diamontopolous

suggests a framework for pricing objectives and methods as shown
below:
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Source: Marketing Theory and Practice (Baker)
Pricing and the Customer

How important is the price of financial services to poor people?
Participants in focus group discussions, carried out by MicroSave,
consistently raised pricing issues. Clearly, the price of financial services
and the way customers are charged are important. However, several
observations suggest that accessibility to financial services is more
important to poor people than price. For example, the losses the poor
typically face when obtaining services from the informal sector are quite
high, yet they still use these mechanisms. Also, existing services
accessed by the poor, such as deposit collectors prevalent in West
Africa, are very successful and charge relatively high fees. Specifically,
Mukwana and Sebageni note, from their qualitative research in Uganda,
that for savings‘ products, price was given much less frequently as a
reason for choosing financial service provider than the safety and
security of the institution and the ease of access to savings. Pricing and
Microfinance: Mainstream microfinance is in transition from a product-
driven to a more competitive, market-led approach. The more customer
responsive market-led approach is characterised by more competitive
markets and a focus on efficiency, product diversification and delivery
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channel development, each of which has implications for setting and

communicating prices.
Competition: More microfinance markets are becoming competitive as

we have in Bangladesh, Uganda and Bolivia. Meanwhile, the range of
institutions providing services to the low-income market is growing. A
recent CGAP presentation provides the following figures: Of 750 million
deposit accounts targeted at low income consumers, more than 50% are
held in Postal Savings Banks, 36% in Agricultural and state banks, and
only 5% in traditional NGO-based microfinance programmes (CGAP
2005). Simultaneously, microfinance is increasingly integrated into the
financial system. Microfinance products are frequently offered by a
department within a bank as in Cooperative Bank in Kenya, CRBD in
Tanzania and Hatton National Bank in Sri Lanka. Pricing now has to take
account of this wide range of competing institutions.
Efficiency: There is a greater focus on efficiency, driven by a more

competitive environment, greater standards of disclosure by initiatives
such as the Microbanking Bulletin and the Microfinance Information
eXchange (MIX), and more aware policy makers. It is becoming harder
for microfinance institutions to price high to cover inefficient operations.
Product Diversification: When CGAP published ‗Occasional Paper

Number 1 Setting Sustainable Interest Rates‘, microfinance was often
seen as the preserve of microcredit focused NGO MFIs offering a single
basic product. In this environment, pricing could be reduced to a cost-
plus formula: R = [(AE + LL + CF + K) / (1 - LL)] - II where R was the
required minimum sustainable rate, LL the loan loss, CF the cost of funds
and II investment income. While the principle of cost coverage remains a
vital aspect of pricing, in a multi-product environment, pricing itself
becomes more complicated. Several types of products, savings,
insurance, group and individual loans all need to be priced individually.
So, what can be learned from pricing theory?
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Pricing Theory
Pricing theory is important for several reasons, but one is worthy of note:
Establishing a price for a product or service is often delegated to the
marketing function. In part, this is justified on the basis that research is
required to establish competitive prices. However, marketing
departments, staffed by marketing professionals, have often received a
lengthy orthodox menu of pricing theory from marketing training and
marketing manuals. These approaches, though valuable, tend to
surround pricing with an almost mystical aura.
(d) Product Rollout

With a view to ensuring a systematic and controlled rollout,
MicroSave uses a carefully planned, comprehensive approach to
the rollout process using its ‗Product Rollout: A Toolkit for
Expanding a Tested Product throughout the Market‘. The toolkit
provides practical tips and checklists to assist financial institutions
with all aspects of the rollout process: Recommendation letters,
handover, finances, human resources, systems and marketing, as
well as assessment of the rollout process. Once a financial
service has been piloted, how you introduce the product to each
new location has a significant impact upon the success or failure
of the product. In each new location as a minimum, staff training,
marketing the product to clients and staff and customisation of
systems and procedures will be required (Cracknell et al., 2003).
1.4 Responsible Pricing

The challenge of defining responsible pricing in microfinance recently
became a story that drew the attention of the New York Times. The
fracas over preserving the field‘s saintly aura centers on the question of
how much interest and profit is acceptable, and what constitutes
exploitation,‖ writes Neil MacFarquar. The story goes on to describe
cases of high interest rates being charged to very poor people, where
clients, providers, and investors seemed unaware of what the rates really
were. The question posed by the story is a key one for the microfinance
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industry to address. Clearly, it costs more to make 10,000 small loans of

$100 each than to make one $1 million-dollar loan, so the prices on
smaller loans need to be higher. But this has led to a confusing array of
pricing techniques and charges that can make it difficult to determine the
actual price for a loan. And when you combine confusing pricing
structures with the power imbalance between a loan provider (who has
money available to lend) and a poor person (who needs access to
finance to earn enough money to provide food and shelter to her family),
you have circumstances that supply room for unscrupulous providers to
exploit the poor. The Client Protection Principles of the Smart Campaign
seek to help the microfinance industry focus and improve its service to
poor clients. In February 2010, the Smart Campaign amended the
second of its six principles to include responsible pricing as a key part of
client protection. The principle now provides:
Transparent and Responsible Pricing: The pricing, terms and

conditions of financial products (including interest charges, insurance
premiums, all fees, etc.) will be transparent and will be adequately
disclosed in a form understandable to clients. Responsible pricing means
that pricing, terms, and conditions are set in a way that is both affordable
to clients and sustainable for financial institutions. This amendment came
out of a discussion held over several months by the Principles Task
Force of the Smart Campaign and was approved by the Campaign
Steering Committee and accepted by existing endorsers of the
campaign. We all have innate understanding of what ‗affordable‘ and
‗sustainable‘ mean. Intuitively, ‗affordable for clients‘ means clients derive
a net benefit from a service even after paying full cost for it. ‗Sustainable
for institutions‘ means that revenues raised are sufficient to keep an
institution solvent (which means they must generate profits) over a
lengthy period. It is not easy to provide specific guidance about what is
and is not affordable or sustainable. A review of the state of the practice
in responsible pricing shows that the microfinance industry has not yet
come up with a way to define when a price is both affordable to the client
15
and sustainable for the financial institution, though it has made a lot of
progress in that direction over the last few years.
Comparative Transparency: Another approach to responsible prices

avoids the setting of ceilings or limits and instead advocates for a public
listing of the prices for all microfinance products in a country, using a
common method for defining the price. The leader in advancing this
method is Microfinance Transparency. This organization goes, country to
country, to collect data on every microfinance loan and (sometimes
savings) product offered in the country, calculates an annual percentage
rate (APR) and effective interest rate (EIR) and then posts this
information on its website. Microfinance Transparency considers the
effect of loan size on operating costs. Responsible pricing, like Client
Protection Principles, makes good business sense in the longer run.
With the relatively high cost of acquiring new clients in microfinance,
financial service providers survive based on long term customer
relationships. Setting a price that allows the client‘s business to thrive
helps to generate more future business for the financial institution.
Making responsible pricing a key part of the Client Protection Principles,
and developing appropriate ways to assess its implementation, benefits
both microfinance clients and the financial institutions they serve.
1.5 Guide to Bank Charges

In concept, microfinance product pricing is simple, firstly, establish cost,
secondly, examine the fees charged by the competition and finally
determine whether the product or service has enough customer value to
deserve a premium price. In practice, pricing is complex, customers and
institutions alike find it difficult to track prices regularly and to understand
the nuances of pricing calculations. There is a role for regulators in
promoting transparency, but a less clear role in setting interest rate
ceilings as these can act to restrict the supply of credit.
Finally, where possible, pricing should reflect levels of risk and not be an
avenue for excessive returns or to cover for inefficiencies in delivery of
services
16
Practice Questions
1. Which of the following are functions of Marketing?

(a) Isolates, Anticipates and Satisfies customer requirements
(b) Identifies, Anticipates and Satisfies customer requirements
(c) Refutes, Satisfies and Identifies customer requirements
2. How can Marketing help organizations to listen to their customers?

(a) By enabling them to achieve their social missions
(b) By designing mechanisms that enable them to understand
customer needs and wants
(c) By ensuring that organizations consider their customers‘ needs
3. When was Marketing first implemented?

(a) 1960s
(b) 1970s
(c) 1980s
4. Microfinance is defined by the World Bank as

(a) A way for people to purchase and sell provisions, livestock, and
other commodities.
(b) A development tool through which government or non-
governmental organizations and financial institutions provide a
variety of financial services to help people
(c) A method of advertising goods and services to costumers
5. Which of these is a financial service provided by microfinance?

(a) Micro Insurance
(b) Micro Withdrawals
(c) Micro Economies
6. The MFI Marketing Strategy involves all strategies EXCEPT?

(a) Corporate Brand Strategy
(b) Customer Service Strategy
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(c) Market Strategy
7. Financial accounting is one of the core areas of focus of an MFI or an

MIV
(a) True
(b) False
8. An advantage of having a good corporate brand is?

(a) Warranty
(b) Implausibility
(c) Complexity
9. Which of these is important when developing brand Identity?

(a) Standardization
(b) Identification
(c) Customization
10. Which of these is a key challenge that companies face in the post-IPO
period?
(a) Maintaining the pace of growth
(b) Delivering on promises
(c) All of the above
11. What is Marketing and elaborate on the key benefits of marketing to

MFIs
12. Briefly state and explain three challenges in Micro Finance
13. What is the role of personal selling in building the brand?
14. Explain the term ‗corporate Identity‘
15. List and explain five advantages of a good business brand to MFIs?
18
CHAPTER TWO
PRODUCTS AND SERVICES OF MICROFINANCE

INSTITUTIONS
Learning Outcome
At the end of this chapter, readers should be able to:
 Describe microfinance products and services
 Explain value chain financing and list key actors in the value-chains and
 Become acquainted with Agricultural Value Chain Financing
2.1 Overview
As defined earlier, a product can be described as anything that satisfies
the need(s) of a target client. The term is generally used to describe
goods and services offered in exchange for monetary value. Products,
therefore, are bundles of attributes - features, functions, benefits, delivery
and services that can either be tangible (physical goods) or intangible
(service benefits) or a combination of both. A product consists of three
parts namely:
(i) Core: This is the reason the client wants to pay for the product. This
also refers to the ability to satisfy the intrinsic need of the client. It
reflects the client‘s perception of importance in this regard.
(ii) Actual: This refers to the specific features that characterize what
the client is buying, for instance, the terms and tenures.
(iii) Augmented: This refers to how the client receives the product - the
packaging. This also includes branding and placement.
To illustrate the three components, as mentioned above in ‗Working

Capital Loan‘ as a product, the description will appear as follows:
19
Core: Provision of fund for business expansion to increase the income of

the micro-entrepreneur. This will eventually translate into improved
quality of life.
Actual: This refers to the terms and conditions of the loan. They include
interest rate (e.g. 2% per month), loan tenor (e.g. to be repaid in six
months), repayment conditions (e.g. repayment of principal and interest
in equal instalments) etc.
Augmented: This relates to the processing procedure (e.g. clients that
have borrowed for three times without default get approval within 24
hours), collection procedures (marketers will collect from the
shops/stalls/houses of the customers) and late/missed payment
processes (e.g. customers that notify the bank at least 24 hours before
the payment is due will not be charged a late loan penalty) of the loan.
In designing financial products, a few things should be given quality

attention:
(a) It is important to focus on the needs and wants of the clients
(b) Product development should be market-focused and market-
driven
(c) It is not always necessary to design a totally new product; refining
an existing product could be a better strategy
(d) Whether new or refined, the same process of product
development should be adopted to ensure a qualitative result.
Some microfinance banks offer general products that can be used for
variety of purposes, whereas other banks design their products more
narrowly. For example, Bunkasa Microfinance Bank in Kaduna State has
a general working capital loan, which clients could use for any trade.
However, there is also agricultural production loan, which the client must
use mainly for farming. The terms and conditions of these loans differ.
From other parts of the world for example, the Microfinance Unit of the
Bank Rakyat Indonesia (BRI) offers a versatile loan that can be used for
almost any productive purpose. Other MFBs offer various products for
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large and small amounts, for working capital and fixed asset loans, for
trade and agricultural purposes, and for short and long terms. Which way
makes the most sense?
The terms and conditions of the loan pertain to the actual product. This
would be the interest rate, loan term, repayment frequency, contractual
savings contribution, guarantees etc. The augmented products include
activities that make the access to financial services possible. The
augmented products include the application process, the collection
process, the repeat borrowing process etc. The augmented products of
microfinance institutions usually spell the difference from commercial
banks. For example, in the application process, account officers of
microfinance institutions go to the place of business or the house of the
client. In commercial banking operations, the clients will have to go to the
bank themselves. The application form for microfinance institutions are
also simple and is normally two pages in length only. The collection
process also involves the account officer of the MFI visiting the client and
collecting it from his or her place of business. On the other hand,
commercial banks require their clients to pay their loan in the bank
premises. With the augmented products of microfinance institutions, we
can say that financial products are brought to the doorsteps of the target
clients – the poor. This enables the poor to access financial services. In
various parts of the world, a lot of microfinance products have been
developed and proven successful. These are micro-insurance;
remittances; micro-housing; micro-leasing; rural finance; agricultural
finance; small and medium enterprise financing – referred to as the
missing middle; and alternative energy.
The most common types of products for Microfinance Banks in Nigeria

are credit, savings and insurance. Some products also combine two of
these categories while some integrated products combine financial with
non-financial services. The definition of a microfinance product includes
the way it is delivered. A savings product available from a distant office
during office hours only is different from the one available five minutes
21
away during weekly meetings – and both differ from a product that is
delivered daily to the client‘s doorstep. Each product provides different
worth to customers and imposes different costs and demands on the
institution.
2.2 Deposit Products

(a) Savings Accounts: One of the requirements of microfinance
clients is a safe place to keep their money so that they can build
up large sums of money. The large sums are to meet several
needs (payment for a shop, payment for residence, school fees,
medical expenses, expenses related to births, marriages and
deaths etc.). Customers usually receive interest on this type of
account subject to not withdrawing more than a certain number of
times in a month (usually three times) and maintaining the
required minimum balance. MFBs usually pay interest per month
on the minimum balance for the month either monthly or quarterly.
(b) Current Accounts: This account is usually designed for the
industrious customer that seeks non-interest bearing banking with
privileges of third party and multiple transactions. Customers that
operate this facility will receive cheque books that are inward
clearing and, in the event of interbank transactions, the MFB will
issue banking cheques through collaboration with its
correspondent bank(s). Customers that enjoy this facility are often
expected to pay the account maintenance fee of a certain amount
(usually five Naira per million. No interest is usually paid on this
account.
(c) Fixed Deposit Accounts: This account seeks to meet the needs
of customers that want the extra discipline of setting money aside
until a pre-set target has been achieved. The target could be
business related or personal. The target could be a set time, or a
set amount and the purpose may or may not be disclosed to the
bank. This account is usually interest bearing. People who want to
earn a higher return on deposits often use this product.
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Customers with fixed deposits can earn a range from as little as

4% to as high as 18% per annum on the principal amount.
2.3 Current Account via Deposit Money Banks

Some MFBs innovatively collaborate with other financial institutions such
as the correspondent banks of the MFBs to meet the needs of their
customers for domestic remittances. These include but are not limited to
customers sending money to their suppliers in other cities and towns;
parents sending money to children and wards; spouses sending money
to each other and other such transfer services required. Fees and terms
are usually decided with the correspondent banks chosen.
2.4 Specific Long-term Savings’ Products

MFBs are developing targeted innovative savings‘ products to encourage
millions of adults, currently saving at home, to save in a microfinance
bank and those already saving are encouraged to save specific amount
over a period towards the achievement of specific goals. This targeted
savings product, sometimes, come with features like:
 Preferential interest rates for long-term balance maintenance
(premiums)
 Preferential interest rates the higher the balance
 Possibility to access credits at lower preferential rates the higher
and longer the amount saved
 Better interest rates for accounts with no or limited withdrawals
 High premium for accounts with no withdrawals
 Zero account maintenance fees and attractive rates
2.5 Transfers and Payment Services

Some microfinance banks offer money transfer services so that their
clients can send or receive money from persons in other parts of Nigeria.
Remittances are particularly interesting for microfinance if they can be
linked with another financial service. For example, remittances can be
used to repay home loans or to deposit funds in a contractual savings
account for school fees.
23
2.6 Loan Products

Apart from deposit products, there are credit products in forms of
overdraft and income generation facilities. Clients raise loans from
microfinance banks to meet short-term funding needs. Some of these
are short-term financing to cushion cash flow challenges from micro-
entrepreneurs. Whatever the purpose of the loan, microfinance clients
access loans to improve their quality of life. This is done through
business expansion to increase their income. Like the rich, low-income
people need loans to invest in businesses, to meet personal needs and
to sail through cashflow crises. Thus the purposes of credit products
are not significantly different from those offered to the upper and middle
class by commercial banks and other formal lending institutions. Credit
products for low-income people are primarily to support micro-
enterprises. Some loan products include:
(a) Working Capital Loans: The largest credit demand of micro-
entrepreneurs is for the purpose of meeting working capital needs.
Owners of micro-enterprises require funds to purchase raw
materials, hire labor on farms and, in some cases, increase their
stock of goods. The owner of a restaurant needs funds to purchase
foodstuff. Working capital loans usually account for a substantial
proportion of loan assets of poverty-lending microfinance
institutions. Working capital loans are often small with short tenor.
Substantial number of working capital loans account for the huge
cost of doing microfinance. The short tenor nature of this type of
loans requires aggressive provisioning.
(b) Business Opportunity Loans: Micro-entrepreneurs desire to
seize business opportunities. Such opportunities could either be
occasional or seasonal. Festival loans are required by clients to
benefit maximally from business booms associated with religious
and community/national festivals. These loans may have terms and
conditions that are different from terms, which apply to working
capital loans. Usually such loans are bigger in size and repayment
periods are shorter. LAPO‘s experience with such loans is that
credit risk is low as cases of failure of funded enterprises are rare.
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(c) Agricultural Loans: The nature and established terms of

conventional loans are usually not responsive to needs of
farming. For instance, most conventional loans are paid in
regular, equal instalments which are not suitable for farming.
However, increasing number of microfinance institutions are
developing farming loan products that meet the income and cash
flows of their clients. Microfinance practitioners in Africa need to
recognize that the business can only be made relevant to the
continent when substantial proportions of loan assets of
microfinance goes to agriculture. Farming loans are usually larger
with relatively longer tenor, thus posing a relatively higher credit
and portfolio risks than the usual microfinance working capital
loans.
(d) Asset Acquisition and Investment Loans: Recent findings
indicate that clients, who are able to acquire assets, are the ones
that are able to break out of the cycle of poverty; thus asset
acquisition and investment loans have a huge impact on the lives
of clients. These are loans with terms and conditions favourable
to acquisition of income earning assets. Business maturity and
expansion could result in the need for equipment. Short-term
small loans of microfinance banks are usually not suitable and
adequate for acquisition of assets for the micro-entrepreneurs.
For example, regular loans which meet working capital
requirement of a restaurant operator will be inadequate for
acquisition of assets such as a deep freezer. The terms for asset
loans are usually different. The tenor, frequency of payment and
sometimes interest rates are different for asset loans. Access to
required equipment on affordable terms increases financial
returns and helps to consolidate the economic base of low-
income people.
(e) Housing Loans: Housing loan is a broad topic, the concept of
which can vary across continents, regions and countries,
particularly in terms of the areas it covers. For example, what is
understood by the term ‗housing loan‘ in a developed country may
25
be very different to what is understood by the term in a developing

country.
The International Union for Housing Finance, as a multinational
networking organisation, has no official position on what the best
definition of housing loan is. However, a selection of quotes below
is offered as a snapshot of what housing loan as a topic covers:
“Housing loan brings together complex and multi-sector issues
that are driven by constantly changing local features, such as a
country‘s legal environment or culture, economic makeup,
regulatory environment or political systems‘‘.
However, in recent years, several other much wider definitions
have appeared:
“Put simply, housing loan is what allows for the production and
consumption of housing. It refers to the money we use to build
and maintain the nation’s housing stock. But it also refers to the
money we need to pay for it, in the form of rents, mortgage loans
and repayments.”
(f) Consumption Credit: Besides asset and working loan
requirements, clients are provided with flexible credit products to
meet consumption requirements. Farmers, for instance, require
cash to meet their needs before harvest. Urban dwellers, on the
other hand, need financial support to acquire furniture and
entertainment items.
2.7 Investment Services: The contents of investment services in

microfinance vary from institution to institution and investment service
means, for example:
 Reception and transmission of orders in relation to financial
instruments and their execution on behalf of clients
 Investment advice, i.e. issuance of a personal recommendation to
the customer for a transaction concerning a certain financial
instrument. Issuance of a recommendation is investment advice if
the recommendation is presented as an option suitable for the
customer or takes account of the customer‘s personal
26
circumstances, for example, in respect of investment objectives or

risk-taking ability. The recommendation may concern the purchase,
sale, subscription or holding of a financial instrument.
 Portfolio management, i.e. management of financial instruments
under an agreement made with the customer in which decision-
making power regarding investment is in full or in part conferred on
the service provider.
 An ancillary service means, for example, safekeeping and
administration of financial instrument, granting of credit in
connection with investment service, and foreign exchange services
connected to the provision of investment services.
Investment services can only be provided by authorised credit institutions,

authorised investment firms and fund management companies authorised
to provide portfolio management and investment advice. Investment
services can also be provided through tied agents.
Investment Advisers are obliged to know their customers

Microfinance Banks providing investment advice must obtain, prior to
service provision, adequate information on the customer‘s financial
situation, investment experience and knowledge concerning the
investment service or financial instrument in question and investment
objectives. The aim of the detailed questions posed to the customer is to
provide the service provider with an adequate understanding of the
customer‘s situation so that the service provider can recommend financial
instruments or services suitable for the customer.
Responsibility for the financial result of investments lies with the

customer
The investment adviser is required to give advice in accordance with the
customer‘s best interests. A responsible investment adviser carefully
explains different product alternatives suitable for the customer. The
advice must not be misleading or contrary to good practice. The customer
must be given an overview of the nature of the financial instruments
27
covered by the service and the related risks, prior to the provision of
investment advice. The overview must highlight the nature of the financial
instrument and the typical risks associated with it in sufficient detail so as
to enable the customer to make an informed investment decision. Even
so, responsibility for the financial result of the investment lies with the
customer.
2.8 Understanding Value Chains

Understanding value chain finance can improve the overall effectiveness
of those providing and requiring agricultural financing. Value chain
finance offers an opportunity to expand the financing for agriculture,
improve efficiency and repayments in financing, and strengthen or
solidify linkages among participants in the chain. It can improve the
quality and efficiency of financing agricultural chains by: a) Identifying
financing needs for strengthening the chain; b) tailoring financial products
to fit the needs of the participants in the chain; c) reducing financial
transaction costs through direct discount repayments and delivery of
financial services; and d) using value chain linkages and knowledge of
the chain to mitigate risks of the chain and its partners. It is important to
note that agricultural value chain financing (AVCF) is not a development
goal; rather it is a means to achieve other social and economic goals.
AVCF is a financial approach and a set of financial instruments that can
be applied. It is an important component of value chains and their
development and can facilitate increased financial access, and reduced
costs and risks of financing agriculture.
The flows of funds to and among the various links within a value chain
comprise what is known as value chain finance. Stated another way, it is
any or all of the financial services, products and support services flowing
to and/or through a value chain to address the needs and constraints of
those involved in that chain, be it a need for finance, a need to secure
sales, procure products, reduce risk and/or improve efficiency within the
chain. It refers to both internal and external forms of finance:
(a) Internal Value Chain Finance is that which takes place within the
value chain such as when an input supplier provides credit to a
28
farmer, or when a lead firm advances funds to a market

intermediary
(b) External Value Chain Finance is that which is made possible by
value chain relationships and mechanisms as it happens when a
bank issues a loan to farmers based on a contract with a trusted
buyer or a warehouse receipt from a recognized storage facility.
This definition of value chain finance does not include
conventional agricultural financing from financial institutions such
as banks and credit unions to actors in a chain unless there is a
direct correlation to the value chain as noted above.
Actors in the Value chain

From the general categories of participants enunciated in the
understanding of value chain, four key participant types can be identified
for mapping purposes along the value chains:
(1) Input suppliers
(2) Producers
(3) Aggregators
(4) Retailers and Consumers.
Input suppliers: Traditionally, inputs into the production process have

been sourced from separate, identifiable suppliers. For crop agriculture,
these often include seed, fertilizer and agrochemicals. For animal
agriculture, key inputs in the production process are feed ingredients,
feeder stock and medicine. The types of technology and their availability
depend on the relations, including financing between the supplier and
producer. Often this does not ensure the most up-to-date technology or
the lowest cost of credit. The result is higher input costs with the ensuing
negative impact on margins and competitiveness. Furthermore, these
relations are not focusing on or promoting aggregation of the financial
process. Within the more structured value chains, the input supply
function is changing from direct in-kind provision of inputs by aggregators
(to reduce diversion), to aggregators entering into agreements with input
suppliers to supply these to producers. Production parameters are also
29
commonly specified in these aggregator-producer agreements.

Depending on the role of the input in the production process, the
aggregator may actually produce the input and/or enter into an
alliance with a specialized firm to produce and supply it. This is the case
in the Turkish poultry value chain, which is typical of many poultry value
chains (Figure 3.1). The processor enters into formal agreements with
breeders and growers. The breeder produces hatching eggs for the
processor. In this portion of the value chain, the breeder is the input
supplier. The transaction is commercial, i.e. the processor pays the
breeder for the hatching of eggs. In the next stage of the value chain, the
processor will supply the inputs – day-old chicks – to the grower, as well
as other inputs such as vaccines and feed. The grower will deliver the
grown chick – a broiler – to the processor in 45 to 50 days.
The supply of inputs may itself be a context specific value chain,
especially when it involves research and development (R&D), and
biotechnology.
Primary Producers: At the producers‘ level, mapping involves

developing an understanding of their operations, and the first-level
marketing structure, i.e., the producers‘ relationship with the immediate
purchaser(s) of their products. Optimally, this would include collecting
information on farm size, average production, yields, yearly production
variations, production costs, and prices received. Existing relations with
input suppliers and aggregators should be identified, including both
formal and informal arrangements, particularly if they impact the prices
farmers receive. Given that the agricultural industry operates in an
information economy, it is also important to identify market and
technology information flows. The results of the mapping exercise should
allow the financial institution to estimate the changes in costs and returns
that may be possible with improved access to formal credit. Additionally,
due to the extent of governmental support to agriculture in many
countries, it is important to identify the types of support to producers in
the value chain, including impacts and limitations.
30
An important advantage of value chain financing is that it represents a

strategy for aggregating or scaling-up the activities of smallholder
farmers, bringing them more deeply into the formal financial system and
offering them the chance to improve farm productivity and income levels
and to help increase food production. Scaling-up operations through
value chain finance turns a money-losing proposition into a feasible
business proposition. For example, HDFC in India estimated that it would
take two years to reach break-even financing medium-sized dairy
operations through the value chain. For stand-alone, direct credit to the
same producer, at the same interest rate, it would take four years to
reach the break-even cost return ratio.
Aggregators: Understanding the aggregator and identifying ‗anchor

companies‘ are important aspects of analyzing the value chain. The
aggregator is defined as an agent that acquires the farmer‘s production
and is the primary vehicle for promoting small producer financing. Using
this definition, the aggregator may be a farmer cooperative or farmer
producer organization that receives and aggregates production from
members for subsequent sale. In this case, the aggregator takes
possession but not ownership. The aggregator may be a
distributor/trader or processor that will turn around and sell the
production to another buyer or aggregator. The number of aggregators in
the market may be significant. The Pakistan case study identified the
number of milk collectors at an estimated 300,000 agents, sometimes
collecting as little as a bucket full of milk.
Alternatively, farmers may be the final seller, as is the case in Mexico‘s

vegetable industry where retailers have established direct relationships
with producers for delivery of their production. On the other hand, it is
frequently the case that producers are represented by aggregators with
regard to other downstream participants or a financial institution. The
aggregator may be a company operating in the domestic market, or
perhaps even in a foreign market.
31
The relationship between the aggregator and the producer plays an

integral part in defining the risk profile for value chain financing.
Ultimately, the producer‘s ability to repay a loan will, of course, depend
on payment from the aggregator. The aggregator conversely depends on
producers honouring their commitments to deliver their production. In
many developing country markets, transactions are based on informal
agreements. This was identified in the Pakistan case study on the dairy
industry, which is characterized by unwritten, year-long agreements. The
quality of the milk is based on trust, rather than laboratory analysis, with
payments made monthly. Where the aggregator is an intermediary or
trader, the credit risk exists not only between the producer and the
aggregator but also between the aggregator and the client. In fact, the
weak point in the value chain may lie in the transactions between the
aggregator and its client. This is often overlooked in credit analysis, and
when mapping the relationships in the value chain.
It is the aggregator that often performs the role as the anchor company.
That is, they represent the point of contact, or entry point, between the
financial institution and the value chain in general and the farmers.
Typically, the aggregator/anchor company or farmer organization has a
pre-existing relationship with the financial institution, which can be
leveraged through a value chain financing strategy. This is of particular
importance since the on-going financial relationship helps to validate, at
least partially, the financial viability of the value chain. At the same time,
the aggregator can undertake the role of a financial agent for the
financial institution and/or even provide a first loss guarantee (i.e., a
secondary source of repayment), thereby partially sharing the risk
involved in the financial operation.
End-market Participants: A common mistake by financial institutions is

to make a credit decision based on production and productivity. An
important part of reducing risk is that the mapping of the value chain
should identify the participants and the role they play as well as what is
happening at the consumer level. This is especially important when the
32
market is situated partially or entirely outside the country. In the Mexico

case study, for example, it is estimated that 45 per cent of 2013
production was exported, up from 34 per cent in 2000. Greenhouse
production was a significant contributor to this growth, as the area in the
Greenhouse production went from approximately 9,000 hectares to
30,000 hectares over the same period. A key driver for the growth in the
Greenhouse area was an increase in consumer demand and premium
prices for the Greenhouse produce in the U.S. market (which receives 90
per cent of Mexico‘s vegetable exports).
Risks in Value Chain Financing (VCF)

The final piece in the mapping process involves identifying the risks
inherent in the value chain and understanding their implications for the
financial institution‘s value chain business opportunities. Among the more
important risk categories that financial institutions should consider for
selection of the target value chain, in addition to the political and
structural risks discussed above, are:
(1) Production-level risks
(2) Side-selling risk
(3) Aggregator risks
(4) Downstream market-level risks
(5) Client-level risks, and
(6) Reputation risks.
Primary Production Level Risks: Production-related risks include

changes in both expected output and product prices. They typically stem
from weather effects, disease or insects, food safety scares or changes
in the international market environment. Many of these can be mitigated
through risk management products such as crop insurance.
Understanding what steps a producer can take to mitigate price risk is
important in selecting a value chain. Sophisticated instruments, such as
derivatives, are usually beyond the reach of smallholder farmers (or most
farmers, for that matter) but may be an option for large aggregators or
33
processors downstream. Standard credit risk assessment may also be

modified when dealing with VCF lending.
Side-selling Risks: Side selling, in which suppliers fail to honour

delivery commitments to the aggregator or the processor and, therefore,
imperil loan repayment is a significant risk. To the extent that there is an
elevated level of competition (many buyers), the risk of side-selling
increases. Given that formal contracts might not exist or might be
unenforceable, experience or track record about honouring delivery
commitments provides an indication of the extent of financial risk. Hence,
gathering existing information on past transactions in a manageable,
useable way is of high value for the stability of the value chain finance
relationship.
Aggregator Risk: While primary production risks and producer

creditworthiness are important, the weakest link in value chain finance
may, in fact, be the aggregator. The financial institution‘s business model
and the aggregator‘s primary interest and standard operating
procedures should be aligned with the market. Similarly, when the
aggregator has a commitment to provide inputs to producers, risks
include not only failure to deliver but also delayed delivery. This is
particularly important given that delayed delivery of inputs may result, for
example, in extemporaneous planting by farmers, impacting negatively
on productivity. Similarly, there is the risk that the aggregator may not
comply with the agreement to acquire farm production in its entirety or in
the agreed upon proportion. At the same time, delay in payment to
producers increases the financial risk, particularly when unsecured credit
is provided to producers. When the aggregator assumes a commitment
in the credit delivery or recovery process, credit risk relies, to a large
extent, upon aggregator performance.
Downstream Market-level Risk: There are three types of downstream

market risks: Compliance risk, competitive risk and management risk.
Many of the risks that exist between aggregators and producers also
34
arise as the aggregator sells or moves product downstream, be it

processed or not. These include payment and contract compliance. In
fact, the true risk in the value chain may reside with the aggregator‘s
buyer. The second source of risk has to do with competition in the
market. The more sellers there are, the greater the competition and,
subsequently, the greater the market-risk related to the specific
aggregator. Similarly, the existence of imports and/or similar-type
products impacts the competitive environment. Finally, there is the ability
of the participants to deal with market-related developments. For
example, market risk is heightened where there is a marked seasonality
of production and/or demand. Here, effective inventory management
becomes important in controlling market risk.
Systemic Risk/Systemic Default: Most value chains are, by nature,

subject to co-variance risks usually associated with weather phenomena
or pests/diseases (e.g., coffee rust in Latin America) that affect the
chain‘s base commodity. Market developments, such as price
fluctuations may also create conditions for widespread/systemic failures
that will result in systemic default. A common related aggravating factor
is government intervention through debt relief or forgiveness, which,
while alleviating the effects for farmers, makes the effects on financial
service providers even more significant. An obvious mitigation for
weather related systemic risk (drought, floods) is geographic
diversification. Indeed, the two partner banks that had already selected a
value chain had used geographic diversification of hybrid seed
production (HDFC, India) and dairy production (HBL, Pakistan) as a risk-
reducing criterion. Portfolio diversification and specific-crops lending
caps are commonly used for the coffee-rust type risk, where disease
damage occurs across different geographies. Price-related systemic
default is usually more predictable, and its mitigation can take advantage
of hedging and insurance instruments (if available), in addition to
diversification to other value chains.
35
Client-level Risks: At the client level (e.g., large aggregator or

processor), typically the financial institution looks at the client‘s financial
situation, concentrating on cash flow criteria. These include:
 Liquidity, which shows how the amount of assets that can be
converted into cash compares to payables within the year, with a
minimum ratio of 1.
 Leverage of cash flow, which considers how debt (bank, supplier

or land) compares to sales and to operating cash flow (using a
conservative scenario of a maximum of 60 percent of net sales
and debt less than three-times earnings before interest, taxes,
depreciation and amortization).
 Payment capacity, which evaluates the relationship between

expected operating cash compared to debt service (interest plus
instalments), with a minimum of 1:2.
 Solvency, which reveals how total debt compares to total assets,

looking for a maximum ratio of 40 per cent. At the client level, the
financial institution often fails to look at the adequacy of the
financial operations.
Reputation Risks: Reputation risk in value chain finance may emerge in

different ways. If, for example, a bank is financing an aggregator who, in
turn, exercises bad practices with the upstream customers (farmers), the
bank will get negative publicity and, possibly, regulatory attention. As
such, due diligence by the bank on the different partners it may have in
the value chain is important. If, for example, the bank is extending non-
lending services to value chain customers, compliance with ‗know your
client‘ requirements – even for small farmers – will be important to
protect the bank‘s reputation.
36
Agricultural Value Chain financing
Source: AgriFin VCF Bootcamp, 2014
2.9 Agriculture Value Chain Financing and Business Model

For an enterprise, the term business model refers to the creation and the
capturing of value within a market network of producers, suppliers and
consumers, or, in short, what a company does and how it makes money
from doing it (Vorley, 2008). The business model concept is linked to
business strategy (the process of business model design) and business
operations. For a value chain, the use of the phrase business model
refers to the drivers, processes and resources for the entire system, even
if the system is comprised of multiple enterprises. If finance is to be
successful, the value chain must be viewed as a single structure, and the
model of this structure provides a framework for further analysis.
Understanding how a value chain is structured and coordinated can

reduce risk and hesitancy of financial intermediaries to lend to the
agricultural sector. The buyers are agricultural processors, exporters or
distributors or, in some cases, supermarkets. Sellers are the producers
or traders who sell their products to these buyers along the chain. The
relationship between these two stakeholders, buyer and seller, can be
described through five types of linkages:
37
(a) The instant or spot market, where producers come to sell their
commodities and prices fluctuate. This is the most risky in terms
of setting market price.
(b) A contract to produce and buy, known more generally as contract
farming.
(c) A long term often informal relationship, characterized by trust or
interdependence.
(d) A capital investment by one of the buyers for the benefit of the
producer, characterized by high levels of producer credibility and
dependence.
(e) A company that has achieved full vertical integration. When
production and marketing is dependent upon a spot market with
fluctuating prices and demands, financiers are uneasy; they prefer
a contractual or partnership structure in a value chain where the
market risks can be more controlled.
This is their comfort zone. As noted in the introduction, although

agricultural value chain finance deals with a range of agribusinesses and
other chain partners who are both large and small, value chain finance is
particularly useful in helping to launch small farmers and agribusinesses
into effective market systems. With models that promote economies of
scale and reduce risks for lenders and buyers, smallholder farmers are
more viable contributors to modern agricultural systems. Because
smallholder production is important in many value chains for both
economic and social considerations, special emphasis must be given to
models which allow them to fully participate in value chains.
Producer-driven Value Chain Models: Producer associations are a

critical component of many value chains. In certain cases, the
association becomes the driver for value chain development – providing
technical assistance, marketing, inputs and linkages to finance. In other
cases, the association may have a financial base, such as in the
Credinka example, whereby a savings and loan association signs a
contract with farmers to guarantee the sale of their product. Credinka is
38
part of a much more complex system of interrelated associations that

support the cacao value chain in Peru, providing contractual
arrangements, finance, processing, market access, inputs and training.
Producer-driven models are driven from the bottom end of the chain.
They can be successful but face two major difficulties. Firstly, producers
may not understand the market needs as well as those in the chain who
are closer to the end user. Secondly, producers often struggle for
financing unless they can find strong partners and/or can get assistance
for financing.
Buyer-driven Value Chain Models:

Buyer-driven models form the foundation for many of the applications of
value chain financing. It is often in the buyer‘s interest to procure a flow
of products and use finance as a way of facilitating and/or committing
producers, processors and others in the chain to sell to them under
specified conditions. Oftentimes, when financing is involved, the
conditions are binding through contracts. Whether these are formally
registered or not, the agreements can still form the basis for loan
recovery.
Contract farming is the most common buyer-driven value chain model.
As the name suggests, it involves farm-level or farmer association-level
contracts but these contracts usually originate from one or more levels
further along the value chain. The contracts can be formalized in the
legal system or can be informal, but binding agreements. Agro-food
chain coordination can be exercised in a number of ways, ranging from
tight vertically integrated operations, with full ownership and control by a
single firm, to more fragmented coordination arrangements, where there
are no formal but rather ad hoc transactions between producers and their
buyers. Contract farming is a modality of chain coordination whereby
transactions between producers and other chain stakeholders are
governed by pre-established agreements that can be more or less
formal. Indeed, some forms of contract farming can even be seen as
outsourced production, often called out grower schemes, typically by an
estate, processor, exporter or other chain agent, to a pool of producers.
39
The contract (formal or informal farming agreement) may involve

advancing inputs, funds and/or technical support, or it might be limited to
product sales conditions, such as prices, quantities and delivery dates
(Winn et al., 2009). The interest in contract farming as a chain
governance strategy has grown considerably in the recent past, probably
because of the trends affecting agro food systems, which are leading into
more tightly aligned supply chains (da Silva, 2007). As a result,
increased opportunities have emerged for contract farming arrangements
to be promoted as conduits to leverage access to financial resources
across agro-food supply chains. Contract farming has some of the
characteristics of a lead firm model, where a large processor, exporter or
retailer provides buyer credit.
However, contract farming often involves stricter terms that specify the
type of production, quality, quantity and timing of agricultural product
delivery. Finance and technical assistance provision, if needed, may be
part of such an agreement. The commitments between the farmer and
buyer – whether contractual or verbal – provide bankers with a signal of
security and seriousness, and a type of delegated screening described in
Box 3.2 (Miller, 2007b). In fact, as a result of the existence of contracts,
funding can be provided to farmers directly by an agribusiness firm or by
a third party, such as a bank. In the first situation, agribusiness firms,
such as agro-processors, will have their operational risks reduced,
because access to raw materials is safeguarded by the contracts
established with producers. This improves a firm‘s credit rating and
allows it increased access to finance. The funds obtained by the firm are
then channelled to farmers, often in the form of farming inputs and
technical assistance. In the second case, since banks tend to consider
producers to be more creditworthy if they have a guaranteed market for
their products, the participation in a contractual relationship can serve as
a form of virtual collateral. Acceptance or not of such collateral depends
upon the lending organization and also upon the lending requirements of
each country. However, in either case, contract farming is often an
important mechanism supporting value chain financing
40
Facilitated Value Chain Models:

In many countries, there is almost a dual agricultural system in which a
developed agro-industry co-exists alongside marginalized producers who
are living at subsistence levels. Facilitation by development
organizations, both NGOs and government agencies, has demonstrated
that external support can open up opportunities for small-holder value
chain integration and financing. Larger buyers and wholesale chains
often seek out large-scale suppliers due to several factors that are
challenging when dealing with small-scale farmers who:
• May not be well organized.
• Have not demonstrated commitment.
• Require higher transaction costs to be served.
• Often pose increased risks such as side-selling.
• Lack both technical capacity and the technologies to reliably
produce the high quality and quantity required in a consistent
manner.
• Tend to lack organizational capacity and resources to deliver the
required products in a timely fashion.
Integrated Value Chain-driven Model: The fourth business model is the

integrated value chain model. It not only connects producers to others in
the chain – input suppliers, intermediaries, processors, retailers and
service providers including finance – but also integrates many of these
through ownership and/or formal contractual relationships. The
integrated model has many of the features of the other models presented
such as strong links with multi-party arrangements, technical guidance
and strict compliance, and also incorporates an amalgamated structure
of value chain flows and services. The first and most common integrated
model involves vertical integration within the value chain. Integration is
normally sought by a large retailer or wholesaler/importer that is focused
on consumer demand, and wishes to ensure that inputs, production and
post-harvest handling will result in products that are responsive to that
demand.
41
2.10 Micro-housing, Micro-leasing and Micro-insurance

(a) Micro-housing
Most micro-entrepreneurs, especially the very poor, operate from their
dwellings. Houses are, therefore, not just dwelling places but also
business premises. Some microfinance institutions include housing loans
in their product mix, to ensure decent housing for living and business
activities. Housing loans are usually for land acquisition, construction and
house improvement. The terms are different from regular loans while
repayment schedule and amount per instalment are sensitive to the
capacity of borrowers and their cash flow patterns.
(b) Micro-leasing
Another microfinance product is a financial lease that allows clients to
purchase or use assets without a major down payment and without
additional collateral. Since the financial institution retains ownership of
the asset until the end of the lease term, the assessment process can be
simple. In addition, the value of the asset and the lease term can be
larger and longer, respectively, than the size and term of most micro-
enterprise loans without increasing risk to the MFB. Micro-leasing
involves the renting out of equipment or fixed assets to the poor who face
the problem of purchasing large equipment or fixed assets relative to
their size. This enables them to compete in the market by accessing
various technologies and equipment that otherwise would have not been
available to them. The access to these was made possible through lease
or rentals and not through outright acquisition. Leasing is an asset loan
where the MFB provides the clients the asset and the client pays over
time. Leasing offers several advantages where the bank wants to
procure the asset and deliver to clients in form of a loan. The leasing
option facilitates stronger security position and lowers collateral
requirements. It also helps to avoid the challenges of loan diversion by
clients. However, it has some challenges.
(c) Micro-insurance
Insurance is a financial service that helps people to manage risks. Micro-
insurance is a risk-pooling mechanism that combines the resources of
the many to compensate for the loss of a few, while many, basically,
42
receive peace of mind in exchange for the premium paid. Micro-

insurance is the provision of insurance services for the poor to protect
them from vulnerabilities and risks. It is a pooling of resources among
poor households against risks that they commonly face. In areas around
the world where microfinance is in advanced stage such as the
Philippines and Bangladesh, micro-insurance is the main differentiating
factor or competitive advantage that MFIs use to compete in the market.
For years, many MFIs have offered basic credit life insurance to repay
outstanding loan balance if borrowers die, but, recently, there has been a
growing interest in using insurance more effectively to help clients and
their families to manage risks, including death, disability, illness and
property loss. Most microfinance institutions recognize that insurance is a
fundamentally different business from savings and credit, and that the
best way to offer insurance to their clients is in partnership with formal
insurance companies. Very few MFBs in Nigeria are exploring this
option.
2.11 Green Finance and Renewable Energy

(a) Green Finance
This refers to financial investments flowing
into sustainable development projects and initiatives,
environmental products and policies that encourage the
development of a more sustainable economy. Green
finance includes climate finance but is not limited to it.
(b) Renewable Energy

Alternative energy refers to energy that is derived from renewable
sources such as solar energy, wind energy and biomass. Nigeria
faces an energy crisis and, therefore, products that revolve
around alternative energy abound. For example, microfinance
clients could access loans to purchase solar lamps so that they
could extend their work hours at night. This increases productivity.
43
Practice Questions
1. The following are example of deposit products of an MFI except

(a) Current Account
(b) Savings Account
(c) Fixed Deposit
(d) All of the above
2. ………………production-related risks include changes in both expected

output and product prices.
(a) Systematic Risk
(b) Primary Production Risk
(c) Fixed Risk
(d) Reputational Risk
3. Side-selling Risk is associated with --------

(a) Agricultural Value Chain Financing
(b) Other Value Chain
(c) Transportation Value Chain
(d) Financing Value Chain
4. Micro-insurance is not the provision of insurance services for the poor to

protect them from vulnerabilities and risks. True or False
5. The following are actors in Agricultural Value Chain except

(a) Aggregator
(b) Input Supplier
(c) Financier
(d) Output
6. …………….is the largest credit demand of micro-entrepreneurs for the

purpose of meeting working capital needs
(a) Housing Loan
(b) Working Capital Loans
(c) Expansion Loan
(d) Aggregation Loan
44
7. ………..is the reason client wants to pay for product. This also refers to
the ability to satisfy the intrinsic need of the client. It reflects the client‘s
perception of importance in this regard.
(a) Core
(b) Factual
(c) Final
(d) Augmented
8. Actual refers to the specific features that characterize what the client is
buying, for instance, the terms and tenures. True or False
9. …………..refers to how the client receives the product - the packaging.

This also includes branding and placement
(a) Augmented
(b) Factual
(c) Actual
(d) Product
10. The under-listed are actors in Agricultural Value Chain except

(a) Input suppliers
(b) Presenters
(c) Aggregators
(d) Retailers and Consumers
11. Discuss Renewable Energy and Green Financing

12. Differentiate between Micro-leasing and Micro-housing
13. Highlight the differences between the various loan products of an MFI
14. What is Agricultural Value Chain Financing? Who are the actors in Agro
Finance Value Chain?
15. Discuss the purpose of Consumption Credit
45
46
CHAPTER THREE
BASIC MANAGEMENT PRINCIPLES, MARKETING CONCEPTS

AND STRATEGIES IN MICROFINANCE INSTITUTIONS
Learning Outcome
At the end of this Chapter, readers should be able to:
 Define Marketing, explain Ethics in Marketing and how to conduct a
Marketing Audit
 Develop insight on how to conduct Market Research, Competition
Analysis and Market Segmentation
 Identify factors that determine the success or otherwise in Marketing
Planning and qualities of a customer-focused MFI
3.1 Marketing
(a) Definition
Marketing is defined as the management process that identifies,
anticipates and satisfies customer requirements profitably.
Private-sector marketing practices can significantly increase the
rate at which organizations acquire new customers and reduce
the number of customers they lose each year.
The most important function of marketing in microfinance is in
creating a customer-centric culture that strengthens the ties
between the organization and the customer in numerous ways,
including:
 Finding the Customer: Marketing helps organizations to
grow their customer base as they expand into new markets
and work with new customer-segments. Marketing also
47
helps organizations to achieve their social missions by

making sure low-income clients are aware of the services
available.
 Listening to the Customer: Although microfinance
organizations are in close physical contact with their
customers, they often lack a systematic approach to listen to
them. Marketing helps organizations to design mechanisms
that enable them to understand what the customer needs.
 Responding to the Customer: The marketing department
is the voice of the customer in the organization. It ensures
that the organization considers the customer‘s needs at
every decision point and finds ways to respond to those
needs.
 Keeping the Customer: Marketing ensures the organization
takes good care of its current customers and keeps them
loyal to the institution.
(b) Scope
Microfinance has been recognized as an effective tool that helps
poor people and develops rural economy since its
beginning in the late 1970s. Empirical research provides
convincing evidence for its significant contribution to social
development in various economies. However, we see huge
variation at their performance level among different economies.
Considering their immense impact on economic development and
poverty reduction, it is important to understand the sustainability
of MFIs. The World Bank defines microfinance as a development
tool through which government or non-governmental
organizations and financial institutions provide a variety of
financial services to help poor and low- income people. These
financial services include microcredit, deposits, and micro-
insurance and so on. Poor people need a diverse range of
financial services to run their businesses, build assets for smooth
consumption and to manage risks. People living in poverty often
48
meet their needs for money through informal credit market.

Credit is available from informal lenders, but usually at a very
high cost for borrowers. Worse still, traditional banks do not
necessarily consider poor people as their clients. The major
concern for commercial banks is the high risk associated with
small-scale lending to the poor. Due to the existence of adverse
selection problem, banks cannot easily determine which
customers are likely to be riskier than others. Banks would like to
charge more interest rates to riskier borrowers in order to
compensate for the added probability of default. However, banks
do not know who the riskier one is and raise interest rate for
everyone which drives safer borrowers out of the credit market.
Besides, the moral hazard problem arises when borrowers try to

abscond with the bank‘s money. If the bank has cheap ways to
gather and evaluate information about their clients, these
problems could be solved. But banks cannot afford the high
transactions‘ costs for gathering and evaluating information.
Another potential solution would be available if borrowers had
assets to offer as collateral. If that were so, banks would
lend without risk. Since the poor borrowers cannot provide
collateral, poor people often are deprived of credit in market.
(c) Ethics in Marketing

Not so long ago, the provision of small and very small loans and
other financial services to relatively poor people in developing
countries and the former socialist countries of Eastern and
Central Europe, known as microfinance, was hailed as a
fascinating and positive idea. It was supported by almost all
policy-makers and development experts. The hype about
microfinance reached the peak in late 2006, when the Nobel
Peace Prize was awarded to Professor Muhammad Yunus and
the Grameen Bank, an MFI in Bangladesh that he had founded in
the 1970s. The Noble Peace Price had the effect that
49
microfinance became suddenly widely known to the general

public and regarded by many as the most humane part of the
international financial system, perhaps even the only humane
part. And, indeed, the prize was awarded for good reason:
Anyone, who strives for a fairer distribution of the opportunities for
personal and economic development by providing loans as widely
and effectively as Yunus and his bank have done for years, is
indeed promoting world peace, since lack of access to financial
services is one of the main reasons poverty is perpetuated,
making massive and long- term poverty one of the greatest
threats to peace. Thus, there is obviously a manifest connection
between microfinance and ethics. But in the summer of 2011, the
situation changed in a fundamental way, and this is not only
because the financial crisis had affected some MFIs as seriously
as many other banks. Much more important is a plainly moral
issue. In India, a series of suicides among borrowers who had
obtained loans from MFIs occurred in 2010.
These tragic events attracted great public attention and tarnished

the formerly unambiguously positive image of microfinance.
Suddenly, general skepticism concerning microfinance spread.
Does microfinance work at all? Can it have any positive effects on
poverty and development? Is the business model that many MFIs
had adopted in recent years appropriate? And is it justified to use
public funds to support microfinance, as had been done on a
considerable scale in past years? All these concerns also touch
on ethical issues. Thus, the relationship between microfinance
and ethics is certainly more complex than the Nobel Peace Prize
for Yunus and his bank as a reward for discovering microfinance
as a means of combating poverty suggests. The complexity goes
beyond the doubts that had already been expressed by
competent observers for quite some time as to whether
microfinance is really a suitable instrument for combating poverty;
even if this claim were inappropriate, it would not imply that
50
microfinance lacked any developmental or ethical value. The

questionable role of microfinance for poverty alleviation, and the
exaggerated claims made in this respect by Yunus and many of
his followers are only a minor aspect of this debate. Of greater
importance are the tensions that seem to exist between moral
standards and economic imperatives in setting up and operating
MFIs. More specifically, it is the role and the merits of what has
become known as the commercial approach to microfinance.
Microfinance has almost simultaneously emerged in two very

different areas in Asia and Latin America: Bangladesh on the one
hand, and Brazil and Bolivia on the other hand. Even if these
areas are very different, they, however, both share the
characteristics that the innovation came into sight from NGO-
based projects. The sector has probably benefited from this link to
the civil society. While many state- owned programs, such as
rural banks or credit-projects, had failed in the past, the
development of a grassroots-level initiative has attracted attention
from many donors. Moreover, the strong leadership of local
microfinance actors, such as Yunus (Grameen) or Poncho Otero
(Accion), has reinforced the legitimacy of the sector.
The primary ethical justification of microfinance comes from three

major arguments. The first one is directly related to the poverty of
the ones financially-excluded by traditional financial institutions. In
many countries, financial institutions only target the wealthy,
leaving behind the majority, or a large part, of the population. The
originality of microfinance may be related to the double bottom
line of MFIs, including both social and financial performances.
Very few MFIs pursue a narrow goal of profit maximization
(Copestake et al., 2005) and the vast majority focuses on the
poor, who are financially excluded by banks (Morduch, 1999). The
poverty-status of the clientele is a first normative justification of
microfinance activity. Moreover, microfinance could bring
51
innovative contracts such as joint-liability group lending and new

attitudes towards the poor but also caring more about
subsidies. It could therefore be a ‗win-win‘ policy where both
clients and institutions profit (Morduch, 1999).
The second argument is partly related to the first one and

concerns the financial product itself: Credit. Contrary to grants or
direct subsidies, credit involves compensation and, therefore,
responsibility and dignity in the use of the financial instrument
(Armendariz and Morduch, 2005). Many practitioners argue that
this compensation provides some dignity to the poor since they
would become regular clients of a financial institution.
The third argument concerns additional financial margins gained

with microfinance. These margins can come from profits
generated thanks to business growth and the fact that
microcredits are normally cheaper than what they used before to
finance their activity (McKenzie and Woodruff, 2006; de Mel et al.,
2008). Indeed, since most of the poor are not served by formal
institutions, they have to use other sources of financing, notably
cooperatives or very often informal lenders such as moneylenders
or pawnbrokers. Since these lenders charge exorbitant rates,
micro-entrepreneurs are either not able to develop their activities,
either at least obliged to leave a large part of the surplus
generated by their activity to these lenders. Microfinance offers
cheaper funds and thus increases the potential for micro-
entrepreneurs to diversify their businesses or simply scale up
their activities. Recent surveys have, for instance, shown that
access to credit is correlated with economic development.
This argument, based on the direct impact of microfinance, uses a

traditional consequentialist approach, which is probably the most
frequent approach for microfinance practitioners. As explained by
Sinnott-Armstrong (2006), consequentialism deems whether an
52
act is morally right on the sole basis of its consequences.

Fernando (2006a) pinpoints that most of the positive claims
about microcredit are based on quantitative indicators such as
the numbers of borrowers and lending institutions, and loan
repayment rates. A good example of consequentialist approach
can be found in Dean Karlan‘s approach of microfinance as
explained in the Financial Times in December 2008: ―If you‘re
trying to make the world a better place but you‘re not, that‘s bad.
If you‘re trying to make profits and don‘t care about people, but
make them better off anyway, that‘s good‖. Consequentialism is,
therefore, opposed to views concentrated on the circumstances
or the intrinsic nature of the act or anything that happens before
the act (Sinnott-Armstrong, 2006). For instance, the usury laws
that fix high interest rates to protect very poor citizen, regardless
of the impact of the credit, are a counter-example of
consequentialist thinking.
(d) Marketing Audit

Marketing Audit refers to the comprehensive, systematic,
analysis, evaluation and the interpretation of the business
marketing environment, both internal and external, its goals,
objectives, strategies and principles to ascertain the areas of
problem and opportunities and to recommend a plan of action to
enhance the firm‘s marketing performance.
Marketing audit is generally conducted by a third person, not a
member of an organization. MFIs conducting marketing audit
should ensure the following:
 The audit should be comprehensive, i.e. it should cover all
areas of marketing where problem persists.
 The audit should be systematic, i.e. it should involve an
orderly analysis and evaluation of firm‘s micro & macro
environment, marketing principles, objectives, strategies and
other operations that directly or indirectly influence the firm‘s
marketing performance.
53
 The audit should be independent. This means it can be

conducted in six ways: Self-audit, audit from across, audit
from above, company auditing office, company task-force
audit and outsider audit. The best audit is the outsider audit
wherein the auditor is the external party to an organization
who works independently and is not partial to anyone.
 The audit should be periodical; generally, companies
conduct marketing audit when problem arises in the
marketing operations. But it is recommended to have a
regular marketing audit so that that problem can be rectified
at its source.
Source: Business Jargons
Components of Marketing Audit
 Macro-Environment Audit: This includes all the factors outside

the MFIs that influence the marketing performance. These factors
are Demographic, Economic, Environmental, Political and
Cultural.
 Task Environment Audit: This refers to factors closely
associated with markets, customers, competitors, distributors and
retailers, facilitators and marketing firms, and the public.
54
 Marketing Strategy Audit: Checking the feasibility of business

mission, marketing objectives and goals and marketing strategies
that have a direct impact on the firm‘s marketing performance.
 Marketing Organization Audit: This means evaluating the
performance of the staff at various levels of hierarchy.
 Marketing Systems Audit: This refers to the maintaining and the
updating of several marketing systems such as marketing
information system, marketing planning system, marketing control
system and new-product development system.
 Marketing Productivity Audit: This refers to the evaluating of
the performance of the marketing activities in terms of profitability
and cost-effectiveness.
 Marketing Function Audit: This is all about keeping a check on
a firm‘s core competencies such as Product, Price, Distribution,
Marketing Communication and Sales Force.
3.2 Distribution Channels and Methodologies/Efficient Network Plan

The following are the attributes of an efficient network:
 Service availability and variety. The financial service must be
available
 There must be 100% buy-in from all stakeholders including
channel providers (agents)
 There must be product flexibility to changing environment (from
product positioning to additional services)
 There must be adequate, timely reward and compensation for
agents
 There must be trusted and reliable corporate brand and
stakeholders
 There must be visibility, that is, there must be easily identifiable
brand identity and strong relationship between all stakeholders.
The channels available include:
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(a) Branchless Banking

Branchless banking is defined as the delivery of financial services
outside conventional bank branches, often using agents and
relying on information and communications technologies to
transmit transaction details – typically card-reading point-of-sale
(POS) terminals or mobile phones. It has the potential to radically
reduce the cost of delivery and increase convenience for
customers. Consequently, branchless banking can increase poor
people‘s access to financial services. It has the following
attributes:
(i) Permits the use of a wide range of agents outside bank
branches, thereby increasing the number of service points.
(ii) Eases account opening (both on-site and remotely) while
maintaining adequate security standards.
(iii) Permits a range of players to provide payment services and
issue e-money (or other similar stored-value instruments),
thereby enabling innovation from market actors with
motivation to do so.
(b) Electronic Banking

Electronic banking is, sometimes, defined as the provision of retail
and small value banking products and services
through electronic channels. It is also often used to describe
processes in which customers can perform banking transactions
without visiting a ‗brick and mortar institution‘.
(c) Mobile Banking Operation

Mobile banking refers to financial transactions conducted over a
mobile device. Mobile banking has the potential to reach more
people, at a lower cost, and with increased convenience than
traditional ‗brick and mortar‘ banking services.
With the rapid global expansion of mobile technology, mobile
banking is helping vast numbers of previously excluded people to
access financial services. Mobile network operators, governments
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and financial institutions, ranging from large commercial banks to

microfinance institutions, recognize and have begun to leverage
the potential of mobile banking. A number of governments and
their central banks have also embarked on ‗cash-less‘ policies to
reduce the use, and, therefore, cost, of cash in their economies.
Mobile banking models are being tested with varying degrees of
success around the world. Its vast success sparked a wave of
start-ups and partnerships that use the service to provide valuable
services, such as utility payments, savings accounts and micro-
insurance.
Researchers are studying successes and failures of mobile
banking to understand the market forces, business models and
ecosystem requirements to support successful mobile banking
deployments elsewhere around the world.
3.3 Market Research

In the microfinance market, research is defined as ―an activity designed
to understand the environment within which an institution is operating
and to identify the needs of current clients as well as those of potential
clients.‖ Armed with information collected from clients and the local
environment, MFIs are better positioned to make strategic decisions
regarding their product offerings, marketing strategies and delivery
mechanisms. What are the characteristics of conducting qualitative
market research? While a market research process can incorporate a
mixture of methods, this guide focuses on qualitative tools because a
keen understanding of the health needs and demands of clients requires
a nuanced approach best achieved through the exploratory nature of
qualitative research. Specifically, qualitative research does the following:
 Seeks to explain underlying reasons for behaviours and beliefs, but
cannot statistically generalize findings to the entire population
 Utilizes dialogue-based methods, such as focus-group discussions
(FGD), participatory rapid appraisal tools and semi-structured
interviews, which are combined to develop a deep and thorough
understanding of key research questions
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 Utilizes methods that are open and flexible, allowing researchers to

adapt the research to examine new issues that emerge throughout
the study
 Fosters an environment in which participants can discuss sensitive
topics
 Accommodates illiteracy through dialogue-based inquiries and use
of verbal and visual data-collection techniques.
3.3.1 Market Research Process

In conducting marketing research, the following process should
be considered:
(a) Design a Market Research Plan: A good market research plan
should identify location for the research, define the market
research goal, establish market research objective and articulate
key market research questions.
(b) Conduct Secondary Market Research: Data from secondary
research sources can be used to refine the market research
objectives and key questions prior to the fieldwork. Combined,
data from both secondary and primary research sources serve to
validate findings or uncover divergences that might need to be
further explored. In conducting this research, it is important to
identify secondary research sources, review and refine objectives
and key research questions.
(c) Select Market Research Tools: This phase elaborates on the
methods and tools used for collecting data from the field. The
phase also provides guidance on identifying the sample of
participants. To do this, review the market research methods and
tools using in-depth interview, Focus-Group Discussion (FGD)
and Participatory Rapid Appraisal.
Additionally, select the tools and research sample to include a
combination of methods: Key-informant interviews, FGDs and
PRA tools. However, while each of the market research tools has
a distinct focus, the use of more tools will not necessarily
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generate better data. The number of times each tool is

implemented also needs to be considered.
(d) Prepare Market Research Tools: This phase focuses on
preparing the market research tools, including the guides for each
tool and the documentation of findings. The scope of this is to
adapt the tools, test the tools and finalize the fieldwork
documents.
(e) Finalize Field Fieldwork Preparation: Once the tools have been
field-tested and finalized, the next major steps include the training
of the research team in implementing the research tools and
finalizing the fieldwork logistics.
(f) Implement and Document Fieldwork: Previous phases
presented the processes for designing, planning and preparing for
the market research fieldwork. This phase provides guidelines for
carrying out the fieldwork as well as guidance on developing and
writing the report of the market research findings.
Fundamentally, this phase is to carry out the fieldwork, transcribe
the data, consolidate key market research findings and document
the results
(g) Analyse Data and Develop a Product Concept: This phase will
provide guidance on planning and implementing a workshop
where stakeholders will utilize the research findings to generate
product concept ideas. The phase concludes with quality
guidelines for finalizing the product concept.
3.3.2 Market Segmentation

Segmentation is the process of identifying sets of individuals with
similar characteristics. Segmenting the market makes for smart
marketing strategies and successful new product introductions. In
microfinance, segmentation tends to be most commonly used to
match the organization‘s credit and savings products to the
customer segment they best suit. A company can use several
variables to segment its customers. The most common in
microfinance is demographics—age, gender and income.
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(a) Segmentation for New Product Development

Building on basic demographic segmentation, a deeper
segmentation based on financial behaviours, is necessary for
product development. With this financial segmentation in place,
organizations can align credit and savings products with their
customers‘ financial needs. For credit products, segmentation
should consider factors such as average monthly disposable
income, household expenditure, household assets and business
assets.
(b) Segmentation for Product and Service Improvements
Another use of segmentation in microfinance is to modify products
and customer service to meet specific segments‘ needs.
(c) Segmentation for Marketing
In the microfinance sector, segmentation for marketing tends to
be used for product and service improvements (as previously
described) in the following additional ways:
 Promoting the right product to the right customer, for example,
offering parallel loans/seasonal loans to clients looking to take
advantage of business opportunities and who have the
capacity to repay the loan
 Segmenting current clients to improve retention strategies, for
example, developing renewal incentives for clients in the third
loan cycle who have high drop-out rates
 Understanding the demand from different client groups for
specific new products, for example, loan officers informing
management that their group loan clients in the fifth loan cycle
want additional credit products and larger loan amounts.
A more sophisticated segmentation considers ‗psychographics,‘ that is,

customers‘ attitudes and behaviours. For example, an institution might
identify women between the ages of 25 and 39, who are married with
children and earn $1 to $5 a day, who are uncomfortable using traditional
banks, who do not like dealing with male loan officers and who have very
little time. This type of segmentation is extremely helpful when designing
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marketing strategies because it provides insight to the customers‘ mind-

set, answering questions such as: What do they need? What do they
want? How do they want to be treated? So far, this type of segmentation
is not often used in microfinance, but it holds enormous potential as an
area of development.
3.4 Competitive Analysis

MFIs typically undertake analysis of the competition and the industry
during business planning. A marketing analysis of the competition builds
on this assessment and adds additional details from a marketing
perspective. This exercise helps the organization to determine how to
use marketing to differentiate itself under the following:
(a) Product comparison: One, analysis of the competition is a
comparison between the organization‘s products and competitors‘
products. Are the products different? In what ways are they better?
In what ways are they worse? To do this analysis, select the
product attributes that matter to the institution‘s clients, e.g. loan
terms, interest rate, requirements, collateral, speed of service, etc.
Then select the competitors that the clients consider as options and
make a comparison.
(b) Brand differentiation: Before investing time and money in building

a brand, an organization should analyse its competitors‘ brands.
Since companies rarely state their brand image publicly, collect and
analyse competitors‘ public communications, i.e. brochures and
promotion strategies. MFIs and most local consumer lenders
always position their brands around fast and easy credit.
3.5 Strategic Marketing and Planning

Marketing attempts to understand the needs of clients and adapt
operations to meet those needs and achieve greater sustainability. It
addresses the issues of new product development, pricing, location of
operations and the promotion of the institution and its products.
Marketing is a comprehensive field aimed at strengthening the institution
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by maintaining focus on the client. In doing so, it creates exchanges that

satisfy individual and organizational goals.
Importance and Role of Marketing Strategy and Plan

The South African-based ARPs were noticeably more sophisticated from
a strategic marketing perspective, but only one of the eight ARPs had a
formalized marketing strategy and plan – this is now being addressed by
most of the organizations. A report noted, ―The importance of formal
planning in association with strategy development and particularly
implementation cannot be over emphasised. Plans serve as the road
map to delivering against strategic objectives and optimize process
consistency, timing, co-ordination, momentum and overall control‖.
Source: MicroSave-Strategic Marketing for Microfinance Institutions
3.6 Use of Internet and Other Social Media for Delivery and Better
Management
‗Be afraid‘, the headline screams. The story reads: ―Social media has
shifted power from companies to customers, which means that one small
misstep can bring your brand to its knees.
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―Social media platforms allow customer networks to be bigger, faster and

better organized. They increase the downside of getting service wrong
and the upside of getting it right.
―The effects are both direct and indirect. Zappos generates so much
buzz with its fantastic service experience that the company can spend
significantly less on marketing than its rivals. This virtuous service cycle
spins faster because the company gets to trumpet its activities on
Facebook.
―In other words, social media improves service by making the market for
peer-to-peer opinion more efficient. This is good news for good service
and bad news for bad service. End of not-so-complicated story.
―Here‘s what makes the phenomenon interesting — you get to play
along. You get to drive awareness and loyalty and other good things with
a complete range of new digital tools. The larger discussion about social
media has focused primarily on this opportunity, as have the venture
capital markets. Promising start-ups like Endorse are in the game of
helping you become a better architect of the social chatter.
―But the opportunity doesn‘t end there, on the revenue side of the
business. Social media makes it easier and cheaper not just to acquire
customers, but also to partner with them operationally, to collaborate with
customers to make your service model work even better.
Here are three ways that social media can improve service delivery:
(a) Service recovery: When UPS screwed up a delivery for us, we
tweeted about our frustration. It was much faster and more intuitive
to communicate with the company in this way — using tools we
use all day, every day — than to wade into the customer service
infrastructure that UPS had designed for us. This impulse is a very
real opportunity for organizations, as it was for UPS, who
responded immediately and effectively. ―Engaging customers on
these platforms means that you can measure, surface and fix
service breaks with unprecedented speed and accuracy. In
addition, you get to display your responsiveness in a highly public
forum, which doesn‘t happen in a call centre.
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(b) Service improvement: We recently heard about a Boston-based

chef who engages anyone who writes a Yelp review about her
restaurant. She sees the process as an effortless way to get
constructive feedback from her most demanding customers, the
ones most likely to make her better. This logic holds for any
company. Social media creates smart, low-cost ways to bring the
right customers into your improvement process. The voices who
self-select to broadcast their advice tend to be valuable in other
ways, too, less price-sensitive and more willing to pay a premium
for good service. Partnering with them makes sense on a whole
bunch of levels. You get better; they get invested.
(c) Customer training: The Wall Street Journal recently ran a delicious
piece about restaurants tweeting the names of no-shows. The story
was cathartic for any company that‘s been the victim of a social
media rant, but it also highlighted the hidden value of social media
tools they also give you one more lever for getting your customers
to behave. Perhaps no service business we know of asks more of
its customers than Bugs Burger Bug Killers. BBBK became a
sensation by guaranteeing complete customer satisfaction (i.e., no
bugs, anywhere) in an industry where everyone else promised to do
their best. But BBBK clients must work hard to get this outcome by
radically changing their maintenance and cleaning procedures.
BBBK used Twitter to help keep customers on track, prompting
them with targeted reminders like when to replace the dumpster.
―Social media changes the service game by creating stronger incentives

to get it right. But these platforms also give us new ways to influence our
customers not just to help them pull out their wallets and tell their friends
about us, but also to partner with us to make service even better.
―We believe that companies are just beginning to unleash the
full potential of the social media. What does the future look like? What
are innovative ways you‘ve seen social media used in organizations?‖
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3.7. Factors Determining Success in Market Planning

Here are some factors that impact the success of a
strategic marketing plan, but none is more important than the other as
you must thoroughly understand the target market, set clear and
measurable goals and objectives, and select communication tactics that
will connect with the audience wherever they are most likely to be:
(i) Demographics: How will the composition of your market change
and what opportunities or hurdles will this create? How will
population and housing demand evolve?
(ii) Current and Projected Economic Conditions: How will inflation,
employment, taxes and other economic factors affect supply,
demand, and pricing?
(iii) Size, Growth Potential and Prosperity of the Market: Will the
size of your market continue to support current business and/or
allow the opportunity for business growth? What are the growth
options for housing availability in your market? Is there vacant
land available? Are there geographic limitations on growth (a
mountain range)? Are there zoning, fees and other restrictions
that might fuel or limit growth?
(iv) Market Potential: Strengths and weaknesses of major
competitors. How can you capitalize on a competitor‘s weakness?
(v) Market Share: What percentage of current transactions in your
market is handled by your company and what factors could
change that percentage either positively or negatively?
(vi) Present Customer Composition: Consideration should be given
to how do factors such as education, buying frequency, age,
income level, occupations and hobbies affect the level of future
demand among existing customers?
3.8 Features of Customer Focused Bank.

The 8Ps of Marketing: According to MicroSave (2005), when asked
about customer service in banking, many people will say that it is all
about how you are treated by staff, but it is a whole lot more than that.
People are often the most visible part of delivering financial services, but
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to meet client expectations and provide excellent service you need more
than just friendly, professional, competent people delivering your product.
You also need an excellent product, delivered in an efficient manner, at
an appropriate price and in an easy to access location with clearly
communicated benefits. Customer service depends on all of the 8Ps.
The 8Ps as defined in MicroSave‘s Customer Service Toolkit are:
 Product: The design and range of products and services offered,
including customer rewards and incentives.
 Price: What customers have to pay to access your products and
services; this includes transaction costs.
 Process: The speed, accuracy, responsiveness and reliability of
your delivery systems.
 Promotion: Information about who you are and what you have to
offer.
 Position: The expectations you raise about who you are and what
you deliver in relation to the competition.
 Place: The location, operating hours and comfort of your service
outlets.
 Physical Evidence: The visible presentation of your products and
services.
 People: Employees role in customer care cannot be overstated.
The same toolkit, however, encourages a focus on the 8Cs rather than
the 8Ps! ―The 8 Cs are a customer-focused version of the 8 Ps. While
the Ps help you think about what you are offering to the market, the Cs
help you think about what your customers want to receive. Looking at the
8Ps from a customer rather than an institutional perspective places a
slightly different focus on the delivery of financial services, one that can
be very useful for improving customer service. After all, the customer is
interested in solutions not products. While the MFI focuses on designs,
features and the range of products being offered, the customers are
interested only in products and specific product features that meet their
needs and wants; products that can solve their problems and enable
them to take advantage of opportunities.
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In setting price, the MFI considers what the customer must pay to
access the products and services being offered. The customer, on the
other hand, looks at price in terms of clear, competitive pricing, that is,
product features and delivery mechanisms that minimize other customer
costs, including transaction and opportunity costs.
Physical evidence includes the tangible, visible presentation of products
and services offered, but the customer thinks of this in terms of
cleanliness and creativity and usually considers the following:
 Clean, tidy, well-maintained branch or outlets
 Attractive, eye-catching marketing materials
 Professionally dressed, well-groomed staff
 Physical proof that the MFI is who it says it is and delivers what it
says it will
Tangible representations of the brand that customers will want to hold on
to (and can use to make referrals).
Positioning is an MFI‘s effort to occupy a distinct competitive position in

the mind of the target customer (e.g., low cost, high quality, security of
savings, etc.). The customers are interested in the commitment and
consistency of the MFI. Can the MFI be relied upon to execute what it
has promised?
For the MFI, promotion includes advertising, public relations, direct
marketing, publicity and all aspects of sales communication. To the
client, this means communication in terms of:
 Clear, accurate information about the benefits, costs, conditions
and procedures of accessing the institution‘s products and services
 Information in a language and format that is easily understood
 Timely notice of any changes
 Feedback on recommendation and other input
The process, for the MFI, includes the way in which, or the system
through which, the product is delivered. For the customer, it means the
following courses of actions:
 Speed and simplicity: Concise, streamlined procedures, minimal
handovers, delays or bottlenecks
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 Reliable systems: Accuracy the first time around, consistency of

results
 Confidentiality
 Clear documentation and instructions
 Realistic conditions and controls
 Sufficient flexibility to respond to customer needs or special
circumstances
The Eight Dimensions of Customer Service
Source: MicroSave Customer Service Toolkit
3.9 Corporate Branding and Identity

A crucial element of supporting the corporate brand is the MFI‘s
corporate identity. Corporate identity is, in simple terms, the total of the
experience, history, culture, strategy, structure and appearance of the
MFI – what the MFI is - its personality. This should not be confused with
the MFI‘s corporate image - how an institution‘s audiences perceive its
corporate identity. Corporate identity is, therefore, the unique
characteristics of an MFI that together define it. On a day-to-day basis,
these include the design of its offices, its signage, staff uniforms (if any)
and its stationery etc. They also include less tangible things like the way
the MFI conducts its business – and these are very often even more
important than the physical characteristics of the MFI.
In developing a corporate identity, it is crucial to ensure consistency
through standardization so that the customers‘ experience of the MFI and
its identity is the same irrespective of which branch they visit. The details
of corporate identity do matter – particularly (but not exclusively) in
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competitive environments. People look for differences upon which to

base their decisions. This is very significant for an MFI in an industry of
look-a-likes. With meaningful differences difficult to find, potential clients
look for signals in seemingly trivial differences: The appearance of the
banking hall, the behaviour of the front-line staff etc.
Source: MicroSave Product Marketing Toolkit
How should we use Advertising to build our Brand?

Look for creative ways to minimize costs in advertising. For example, rather
than buying radio ads, some financial institutions use a truck with a load
speaker to drive around a neighborhood. Of course, this method won‘t work for
all institutions, but think about what will work in your context. Think about your
target client when choosing the advertising medium. For example, if you are
trying to reach a semi-literate target group, radio ads are likely to be more
effective than billboards or newspapers. Consider also the amount of detail you
want to include, as some channels are more useful for building general
awareness of the brand, while others are better at providing specific information.
Use the tactic that will most efficiently reach your target market when they are in
the right mindset.
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What is the role of Personal Selling in building the Brand?

Front line staff are an organization‘s ‗Brand Ambassadors‘ – every interaction
they have with the clients affects the brand. They are, therefore, one of the most
important assets for financial institutions to deliver on the brand. For many
current and potential clients, interactions with front line staff will be the most
important determinant of their perceptions of the organization – so front line staff
must learn to ‗live the brand‘ in each and every interaction they have with
clients. How should we use personal selling to build our brand? Make sure that
your front-line staff understand and believe in the brand, by soliciting their input
in the branding process from the beginning and investing the time to get them
excited about and inspired by the brand. What they say, the tone they use, and
the way they present themselves all must align with the brand – so hold
workshops or training sessions to brainstorm ideas on how to make this a
reality. Arm your front-line staff with brand building materials – such as
brochures to generate word of mouth – and ensure that they can answer clients‘
questions about key attributes and benefits of the organization.
What is the role of Events in building the Brand?

Events can be an effective way of building awareness for the brand, and they
are a particularly good way of building community excitement about the launch
of a new name or logo, a new product line, a new branch, etc. Events should be
designed to align with the brand: The kind of event chosen, as well as its feel
and tone, should reflect what you want the organization to stand for. How should
we use Events to build our brand? Events should be based on centrally
developed guidelines and be approved by the Head Office. They should be
based on the cultural values and norms of the region where the financial
institution is operating, and they should reflect and be aligned with the
institution‘s brand. Consider targeting community leadership and key
businesses and contact the media beforehand to get media coverage.
Brand Development and Positioning Brands are important to MFIs of all sizes –
and all MFIs have a ‗position‘, reputation or image in the market whether they
want one or not. The communities within which the MFIs work give the MFIs
their position – developing and delivering on a brand offers the MFIs an
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opportunity to optimize that position, the clarity of communication with their staff
and clients … and thus their business. A good corporate brand is important to
MFIs‘ business as it provides:
 Instant recognition: So that consumers feel they know what they can
expect and know what to ask for if they are seeking services.
 Warranty: Of the quality and reliability of services offered by the MFI.
 Credibility: So that consumers can believe in the organization
(particularly important for those offering savings services).
 Facilitated Promotion: Since promotion efforts can spend less time on
who the MFI is, and more on its competitive advantages and products.
 Word of Mouth Marketing: So that customers can easily recommend
the MFI and its services, and those hearing the recommendation can
remember the MFI‘s name.
 Differentiation: So that the well-branded MFI can stand-out from the
crowd in a competitive market.
 Goodwill: So that the MFI is better equipped to come through problems,
and better positioned to talk to stakeholders above and beyond its
existing customers – from government officials to donors.
 Reputation: So that the MFI is better placed to attract and retain high
quality staff
Key Lessons in Marketing

Marketing is about knowing your client, your competitor and your business
environment. An MFI should closely monitor client‘s needs and market
conditions to become attuned with changing demand and to stay one step
ahead of the competition.
MFIs should be proactive in collecting and analyzing marketing information but
should tailor their efforts according to the institutions strategic objective,
institutional capacity and available financial resources.
As the front-line contact with the client, loan officers are usually the primary
source of market information in an MFI. Making sure that they are well suited to
the task is critical for the overall success of the institution.
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Market analysis is most important in completely new markets and relatively

saturated markets. In developing markets, demand is great enough to generate
the profits that obscure other problems that marketing programs can solve.
Marketing should be an integrated function within an MFI, where everyone from
senior management to loan officers has a key role to play. This is especially true
for those MFIs with limited resources that do not have a separate marketing
department or dedicated marketing team.
Competition in Microfinance
As noted earlier, at least two recent developments over the last few years have
induced increased competition in microfinance. First, both the number of
microfinance clientele and the number of MFIs have increased very rapidly
because of subsidized funding and supportive activities of governments and
development agencies and diversification of funding sources including
welcoming funding from commercial sources. The popularity of the self-
sustainability model of microfinance operation has also driven MFIs to shift their
focus on funding from the commercial sources. Second, the number of for-profit
commercially-oriented MFIs has increased. To function properly, MFIs largely
depend on soft-information and useful client-institution links. These mainly help
to solve the information asymmetry problems pervasively active in the context of
credit allocation. However, increased competition among the MFIs, led by these
recent developments, have affected MFIs‘ activities in a variety of ways, and
hindered them from functioning properly as described below. The socially-
oriented MFIs and their clients are particularly affected by increased
competition. A higher level of competition in general exacerbates moral hazard
and information asymmetry in the industry. Setting-up a theoretical model,
McIntosh and Wydick (2005) argue that competition reduces the ability of MFIs
to cross-subsidize and increases asymmetric information on borrower quality.
As a result, impatient borrowers become keen to acquire multiple loans, over-
indebtedness increases and repayment rates decrease. Increased competition
also induces the profitable and productive clients of the socially-motivated MFIs
to shift to the profit-oriented MFIs. Such transfer eventually worsens the loan-
portfolio quality of the socially-motivated MFIs and negatively impacts their
cross-subsidisation4 possibilities (Navajas et al., 2003); McIntosh and Wydick
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(2005) and Vogelgesang (2003). Schicks and Rosenberg (2011) find similar
results. They claim that, through its impacts on the clients, increased
competition in microfinance creates information asymmetry in the industry,
coupled with repayment problems of the borrowers and leading to the risk of
over-indebtedness, debt-traps and increased sociological and psychological
constraints. McIntosh, Janvry and Sadoulet (2005) argue that repayment
performance of borrowers may worsen and the amount of savings deposited
with the village bank may reduce as a result of increased competition.
However, Baquero et al. (2012) finds that for-profit MFIs charge significantly
lower loan rates and demonstrate better portfolio quality in less concentrated
markets. But non-profit MFIs are comparatively insensitive to changes in
concentration. In saturated markets, MFIs try to maintain their customer base
and decrease their costs by lowering lending standards or decreasing screening
efforts (Schicks and Rosenberg, 2011), thus leading to higher loan defaults due
to the increase of risky borrowers. Regarding outreach performance, Assefa,
Hermes and Meesters (2012) argue that intense competition is negatively
associated with MFI performance measured by outreach, profitability, efficiency
and loan repayment rates. Hartarska and Nadolnyak (2007) and Lensink and
Meesters (2008) also confirm that increased competition has negative impact on
outreach.
To summarize, increased competition in microfinance thus affects the MFIs and

their clients in at least two ways. First, increased competition leads to a decline
in the borrower quality as better performing clients move to profit-oriented MFIs.
Consequently, loan defaults rise. Second, with increased competition, interest
rates drop resulting in lower profitability and less cross-subsidization. Due to
data unavailability, however, it is generally difficult to apply direct methods to
estimate the degree of competitiveness of a market (Leuvensteijn et al. 2011).
So, there are clear differences in terms of techniques applied and several
indirect methods have been used for measuring competition in banking and
microfinance markets. The stream of literature on this topic can be divided into
two major approaches: The structural (or industrial organization—IO) approach
and the non-structural (or new empirical industrial organization—NEIO)
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approach. The structural method originated from the industrial organization

theory and proposes tests of market structure to assess competition on the
basis of the ‗structure conduct performance‘ (SCP) paradigm. The SCP
hypothesis argues that greater concentration causes less competitive conducts
and leads to greater profitability. This hypothesis assumes that market structure
affects competitive behaviour and, hence, performance. Also, especially in the
banking literature, many articles test this model jointly with an alternative
explanation of performance, namely the efficiency hypothesis, which attributes
differences in performance (or profit) to differences in efficiency (e.g. Goldberg
and Rai, 1996). The SCP method uses concentration indices such as the n-firm
concentration ratios or the Herfindahl-Hirschman index (HHI) as proxies for
market power. In microfinance literature, among others, Baquero et al. (2012)
employed the HHI to measure competition in microfinance markets covering
data from 379 MFIs located in 69 countries over the period 2002-08. To
measure competition, Olivares-Polanco (2005) used data from 28 Latin
American MFIs and employed the percentage of concentration of the largest
MFIs by country, where concentration denotes the market share held by the
largest MFIs in a country.
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Practice Questions
1. Another use of segmentation in microfinance is to modify products and

customer service to meet specific segments‘ needs. True or False?
2. An effective Marketing Audit should be:

(a) Not Periodical
(b) Comprehensive
(c) Systematic
(d) Independent
3. Market Research Process comprises of the following except:

(a) Design market research plan
(b) Prepare market research tools
(c) Finalize fieldwork preparation
(d) Select Market Research Periodicals
4. The following are attributes of a customer focused MFI except:

(a) Product
(b) Price
(c) Provision
(d) People
5. Which of the following are functions of Marketing?

(a) Isolates, Anticipates and Satisfies Costumer requirements
(b) Identifies, Anticipates and Satisfies costumer requirements
(c) Refutes, Satisfies and Identifies costumer requirements
6. How can Marketing help organizations to listen to their customers?

(a) By enabling them to achieve their social missions
(b) By designing mechanisms that enable them to understand
customers‘ needs and wants
(c) By ensuring that the organization considers their customers‘
needs
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7. When was Marketing first implemented?

(a) 1960s
(b) 1970s
(c) 1980s
(d) 1990s
8. Microfinance is defined by the World Bank as

(a) A way for people to purchase and sell provisions, livestock, and
other commodities.
(b) A development tool through which government or non-
governmental organizations and financial institutions provide a
variety of financial services to help people.
(c) A method of advertising goods and services to costumers
(d) None of the above
9. Which of these is a financial service provided by microfinance?

(a) Micro Insurance
(b) Micro Withdrawals
(c) Micro Economies
(d) Micro Housing
10. MFI Marketing Strategy involves all EXCEPT:

(a) Corporate Brand Strategy
(b) Customer Service Strategy
(c) Marketing Strategy
(d) All except one
11. Define Marketing and briefly explain the scope

12. Outline some challenges faced in microfinance
13. Define and explain corporate identity
14. What do you understand by Customer Relationship Management?
15. Write short notes on: Market Research, Competition Analysis and Market
Segmentation.
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CHAPTER FOUR
CUSTOMER RELATIONSHIP MANAGEMENT
Learning Outcome
 Define customer relationship management
 Practice good customer service skills
 Improve customer relationship management
4.1 Overview of Customer Relationship Management (CRM)
There can be multiple definitions of CRM from different perspectives:

 From the viewpoint of the Management, CRM can be defined as an
organized approach of developing, managing and maintaining a
profitable relationship with customers.
 By equating the term with technology, IT organizations define CRM
as a software that assists marketing, merchandising, selling and
smooth service operations of a business.
 To Francis Buttle, the world‘s first Professor of CRM, it is the core
business strategy that integrates internal processes and functions,
and external networks, to create and deliver value to a target
customer at profit. It is grounded on high quality customer data and
information technology.
The primary goal of CRM is to increase customer loyalty and, in turn,

improve business profitability.
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Scope
Here are some of the important ingredients of CRM:
 Analytics – Analytics is the process of studying, handling and

representing data in various graphical formats such as charts,
tables, trends, etc., in order to observe market trends.
 Business Reporting – Business Reporting includes accurate reports
of sales, customer care and marketing.
 Customer Service – Customer Service involves collecting and
sending the following customer-related information to the
department concerned: Personal information such as name,
address, age, previous purchase patterns, requirements &
preferences and complaints & suggestions.
 Human Resource Management – Human Resource Management
involves employing and placing the most eligible human resource at
a required place in the business.
 Lead Management – Lead Management involves keeping a track of
the sales‘ leads and distribution, managing the campaigns,
designing customized forms, finalizing the mailing lists and studying
the purchase patterns of customers.
 Marketing – Marketing involves forming and implementing sales‘
strategies by studying existing and potential customers in order to
sell the product.
 Sales Force Automation – Sales Force Automation includes
forecasting, recording sales, processing and keeping track of
potential interactions.
 Workflow Automation – Workflow Automation involves streamlining
and scheduling various processes that run in parallel. It reduces
costs and time and prevents assigning the same task to multiple
employees.
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Source: Marketing and Customer Relationship Management, Francis Buttle
Objectives of CRM
The most prominent objectives of using the methods of Customer
Relationship Management are as follows:
 Improve Customer Satisfaction – CRM helps to ensure customer

satisfaction as satisfied customers remain loyal to the business and
spread good word-of-mouth. This can be accomplished by fostering
customer engagement via social networking sites, surveys,
interactive blogs and various mobile platforms.
 Expand the Customer Base – CRM not only manages existing
customers but also creates knowledge for prospective customers
who are yet to convert. It helps to create and manage a huge
customer base that fosters profits continuity, even for a seasonal
business.
 Enhance Business Sales – CRM methods can be used to close
more deals, increase sales, improve forecast accuracy and
suggestion selling. CRM helps to create new sales opportunities
and thus helps in increasing business revenue.
 Improve Workforce Productivity – A CRM system can create
organized manners of working for sales and sales management
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staff of a business. The sales staff can view customers‘ contact

information, follow up via email or social media, manage tasks and
track the salespersons‘ performance. The salespersons can
address customers‘ inquiries speedily and resolve their problems.
Types of CRM
Strategic CRM:
Strategic CRM is a type of CRM in which the business puts customers
first. It collects, segregates and applies information about customers and
market trends to come up with better value proposition for customers.
The business considers customers‘ voice important for its survival. In
contrast to product-centric CRM (where the business assumes
customers‘ requirements and focuses on developing the product that
may sometimes lead to over-engineering), here the business constantly
keeps learning about customers‘ requirements and adapting to them.
Then, it risks losing the market share to those businesses, which excel at
strategic CRM.
Operational CRM:
Operational CRM is oriented towards customer-centric business
processes such as marketing, selling and services. It includes the
following automations: Sales Force Automation, Marketing Automation
and Service Automation.
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Analytical CRM:
Analytical CRM is based on capturing, interpreting, segregating, storing,
modifying, processing and reporting customer-related data. It also
contains internal business-wide data such as Sales Data (products,
volume, and purchasing history), Finance Data (purchase history, credit
score) and Marketing Data (response to campaign figures and customer
loyalty schemes data). Base CRM is an example of analytical CRM. It
provides detailed analytics and customized reports.
4.2 Customer Relations

Although the phrase ‗know your customer‘ may seem insignificant to
most people, it has a very important meaning in the business world. The
process of knowing your customer, otherwise referred to as KYC, is what
businesses do in order to verify the identity of their clients before or
during the time they start doing business with them. The term KYC can
also reference the regulated bank practices that are similarly used to
verify clients‘ identities.
MFIs and companies of all sizes have become big supporters of KYC. It
is increasingly common for banking institutions, credit companies and
insurance agencies to require that their customers provide them with
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detailed information in order to ensure that they are not involved with
corruption, bribery or money laundering. KYC policies have been
expanding for some time and they have become very important globally.
With issues pertaining to corruption, terrorist financing and money
laundering becoming so prevalent, KYC policies have now evolved into
an important tool to combat illegal transactions in the international
finance field. KYC allows banks and MFIs to protect themselves by
ensuring that they are doing business legally and with legitimate entities,
and it also protects the individuals who might otherwise be harmed by
financial crime.
Many financial institutions begin their KYC procedures by simply

collecting basic data and information about their customers, ideally
using electronic identity verification. Some countries call this ‗Customer
Identification Program. Pieces of information such as names, social
security numbers, birthdays and addresses can be very useful when
determining whether an individual is involved in financial crime.
Once this basic data is collected, banks generally compare it to the lists
of individuals that are known for corruption, on a list of sanctions,
suspected of being involved with a crime, or at a high risk of partaking in
bribery or money laundering. Financial institutions also look at lists
of Politically Exposed Persons, PEPs.
From there, the bank then quantifies how much of a risk their client
appears to be and how likely they are to become involved in corrupt or
illegal activity. Once this calculation has been made, the bank can make
a theoretical outline of what that client‘s account should look like in the
near future. Once the expected trajectory of the account is in place, the
bank can then consistently monitor the client‘s account activity and
make sure that nothing appears to be out of place or suspicious.
Doing this for one individual also enables financial institutions to compare
that client‘s profile to those of his or her peers. If a bank has two clients
that have very similar occupations and backgrounds, and they are known
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for interacting in their respective field, it is assumed that their accounts

will look rather similar.
4.3 Customer Education and Financial Literacy Training

Customer education is a way to help your customers become well-
informed buyers of your products. As a result, customers will be even
more satisfied with a product or service, because they will have been
completely informed on what to expect before purchasing it. Customer
education can come in many different forms, including learning programs
implemented with learning management systems or in-person
interactions.
In the modern business world, too little attention is paid to customer
education. This is despite companies (especially software vendors)
releasing more technologically sophisticated and innovative products that
can sometimes leave customers scratching their heads. The simple fact
is that new and exciting products require new knowledge and skills from
customers. And if customers aren‘t educated in the uses and benefits of
a product or service, they won‘t be able to recognize its full value.
Therefore ‗customer education‘ is also thought of as ‗customer
empowerment‘. Your product or service should help customers do what
they do best and do it even better than before.
Below is what MFIs stand to gain by investing more in customer
education:
(a) Improved customer satisfaction
Imagine you have just bought a new car fresh off the showroom
floor, and it‘s supposed to sport some mind-blowing new features
that make driving easier and more enjoyable. The only problem is
that you have not driven in years.
Your first drive is meant to be fun, but instead you stall repeatedly
and keep confusing the windshield wipers with the air
conditioning. You are unsatisfied with your purchase. The great
shame is that there‘s nothing wrong with the car, you just need
some training on how to use its cool features.
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The point is, customer satisfaction soars when customers are

properly educated in using the product or service. This is because
they can take advantage of all the tools and features, without
running into problems that make their user experience frustrating.
(b) Boosted customer engagement
Customer education improves each customer‘s experience of the
product, which, in turn, increases customer engagement with your
brand. And, of course, everyone engages more with brands they
trust and enjoy.
Through this increased engagement with the brand, customers
will be more likely to renew or repurchase your product. They‘re
also more likely to spread positive word-of-mouth about your
product and brand to their friends and colleagues.
(c) Increased Loyalty
This probably won‘t come as much of a surprise, but satisfied and
engaged customers are less likely to shop around for an
alternative product or service because they are loyal. Customer
loyalty has many benefits; among them are:
 Lower costs to secure each purchase – securing repeat
purchases costs MFIs much less in marketing than it does to
secure a new customer
 Improved brand advocacy through positive customer word-
of-mouth and testimonials, which translates to free high-
quality marketing
(d) Higher quality customer support
When companies invest in customer education, there are fewer
customer complaints and questions to be handled by the
customer support department. This is because customers can
figure out these snags using their product knowledge.
Removing most minor issues from the customer support queue
means that the customer support team gets to focus on the more
complex issues that are still reported. And because the support
team is free to assist customers with complex issues more
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quickly, improved customer support feeds back into increased

customer satisfaction.
(e) A more trustworthy brand

When customers are empowered to find useful information on
products, services and their benefits, their trust in your brand
increases. And what‘s the value of brand trust? A trustworthy
brand improves customer advocacy and repurchases and
reassures new customers that they‘re in good hands. This
increases customer loyalty and improves return on investment
(ROI). So, make your customer education materials easy to find.
Your customer support team should also be well-trained in
recommending educational materials to customers who report an
issue.
Financial Literacy Training

Financial literacy is a key step toward achieving full financial inclusion. It
helps individuals improve their ability to manage their personal and
household finances, which empowers them to become informed and
effective consumers of financial services.
Financial literacy is also a critical component of customer protection.
Microfinance banks and institutions should strive to educate clients on
the effective use of financial services so that they can avoid the risks of
over-indebtedness. Financial literacy programs should focus on low-
income household members with low levels of education and the content
includes courses on financial planning, cash flow and budgeting, savings,
debt, insurance, investment and banking. The modules should be all
delivered with advanced adult learning techniques, such as interactive
exercise, games and role playing. Where possible, the program should
be made available in audio-visual and print formats, catering to both
literate and non-literate audiences, and in English and local languages.
An essential pillar of any consumer protection programmes is consumer
education through financial literacy, defined as ―the possession of
knowledge and skills by individuals to manage financial resources
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effectively to enhance their economic well-being‖. It is only when most of

the Nigerian population is financially literate that they can participate in
the formal financial system, by becoming aware of and taking advantage
of its opportunities, get financially included and thereby contribute to
the financial and economic development of Nigeria.
The following are the rationale behind financial literacy training:
 Globalization/Evolving Market Place
 Innovation in Financial Products and Services
 Market Sophistication
 Information Asymmetry
 Market Power Imbalances
 Market Indiscipline
 Unsophisticated Consumers (low levels of knowledge &
understanding)
 Shift of Financial Management Risks from Governments to
Individuals
 Weak or Non-existing Consumer Protection Regimes
 The Quest for Financial Inclusion
4.4 Customer Advisory and Counselling Services

According to the American Counselling Association, ―counselling is a
professional relationship that empowers diverse individuals, families and
groups to accomplish mental health, wellness, education, career and
business goals.‖
It is the act of helping the customer to see things more clearly, possibly
from a different and professional view-point. For customer advisory and
counselling to be successful, there is need for relationship of trust and
respect for confidentiality. This role is primarily for interacting with
customers and providing information in response to product or service
enquiries.
Customer advisory and counselling in microfinance, in its simplest term,
is ―the process of assisting and guiding customers, especially by a
trained Customer Service Officer, Relationship or Loan Officers, in taking
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major decisions relating to their account, fund management and business

or investment‘‘.
4.5 Customer Retention

Customer retention is the aim for financial service providers. Customers
will, and increasingly do, change providers if they are very dissatisfied or
if they perceive better value elsewhere, thus increasing the competitive
pressure between institutions.
The most common indicator of customer loyalty is the retention (or
desertion) ratio. Tracking client retention serves two purposes. First, it
provides a blunt indicator of customer satisfaction. Second, it is important
in forecasting the overall financial health of the MFI. To develop accurate
financial projections, an MFI needs information about client retention to
predict the effect on average loan size (which determines revenue) and
on the recruitment costs necessary to replace lost customers. Calculating
a retention rate for depositors is more difficult than it is for borrowers. For
liquid savings‘ accounts, it is necessary to consider both the changes in
account balances as well as the number of transactions. An inactive
account with a low balance is almost as bad as closed account. On the
other hand, a closed account may not mean lost customers if they are
transferring their balance to another savings‘ instrument. For example,
when a certificate of deposit comes due, rather than renew it, the
customer may deposit the funds in her current account instead.
Regularly monitoring retention requires a simple and straightforward
retention formula. For credit, the recommended formula is:
 The number of follow-up loans issued during the past 12

months
 The number of loans paid off during the past 12 months
An institution may also need to monitor average account balance and

dissect the analysis by product and by various segments of the customer
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base. An MFI may not see the number of accounts declining, but it may
experience declining account balances.
4.6 Customer Service Framework

This Customer Service Framework is intended to articulate processes for
the management of feedback, compliments and complaints to ensure
they are drawn to the attention of the relevant staff within the
organisation and managed appropriately. The Customer Service
Framework provides the basis for MFIs to develop procedures for
responding to customer enquiries that are aligned with their available
resources and relevant to their business. This includes the development
of procedures by business units whose customers are primarily internal
to the organisation, to support and facilitate service provision to
residents, businesses and other external customers. It is important to
recognise that requests for service are the basis of most contacts from
customers. This Framework is not intended to prescribe processes for
dealing with requests for service as there are existing operational
procedures and systems across the organisation for this purpose.
(a) Elements of Customer Service Framework
Customer Charter: The Customer Charter sets out what
customers can expect when they contact the MFI. It includes
contact details for the MFI and response timeframes. The
Customer Charter is prepared as a brochure to enable wide
delivery of customer-centric services.
Feedback Opportunities: Several feedback opportunities are
available to customers who interact with MFIs which supports the
review and improvement of policies, procedures and services.
Customer Service Knowledge/Skills Development: Critical to
the delivery of excellent customer service is the continuous
development of customer service knowledge and skills. MFIs
provide access to training and development opportunities through
a Performance Development Review (PDR) process, which
enables the identification of development needs and coordination
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of development activities for staff. Development opportunities will

be made available to all staff to support customer service delivery.
(b) Keys to Monitoring Service Quality
The key to effective quality monitoring includes six crucial steps:
i. Listen to Your Customers by Monitoring Interactions:
Ask questions such as: Are these interactions related to the
company‘s goals and objectives, or are they related to
specific areas of concern such as customer attrition? This is
where analytics comes into play for the contact centre.
Speech analytics identify calls that are relevant for
evaluation and text analytics identifies email and chat
interactions that should be monitored.
ii. Capture all Your Customer Feedback Channels: Apply
the same quality standard that is used for calls to text-based
interactions like email and chat.
iii. Ask Your Customers What They Think: Instead of using
your organisation‘s internal metrics to measure the quality of
a call, ask the customer: ―What did you think of your
experience and the agent you worked with?‘ or ‗Did your
service experience match the promise made in our
advertising?‘ It‘s very important to map high-quality
interactions with your customers‘ expectations, comparing
internal evaluation scores with customer scores.
iv. Use Quality Monitoring to Help Agents Improve Skills:
Evaluate interactions to identify skills‘ gaps and provide
individual learning opportunities where there are
deficiencies.
v. Do Not View Agent Development as One-off Activity:
Provide continuous coaching that will help improve agent
performance and productivity. Coaching is key to consistent
customer service.
vi. Measure Your Results: Keep Track of continuous feedback
and evaluation to monitor and measure progress.
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(c) Remaining Competitive

By monitoring quality across multiple channels, organisations can
learn from their customer interactions, leading to better decision-
making, service and processes. The monitoring, measuring and
managing of performance and service quality must remain a
priority, but the ‗voice of the customer‘ analytics, across multiple
channels, is just as important. By adopting the view that quality
monitoring is a strategic process rather than a tactical one,
companies will begin to see an improvement of their customers‘
experience and their customers, therefore, become their strongest
champions.
4.7 Corporate Social Responsibility

This refers to a movement aimed at encouraging companies to be more
aware of the impact of their business on the rest of society, including
their own stakeholders and the environment.
Corporate social responsibility (CSR) is a business approach that
contributes to sustainable development by delivering economic, social
and environmental benefits for all stakeholders.
CSR is a concept with many definitions and practices. The way it is
understood and implemented differs greatly for each company and
country. Moreover, CSR is a very broad concept that addresses many
and various topics such as human rights, corporate governance, health
and safety, environmental effects, working conditions and contribution to
economic development. Whatever the definition is, the purpose of CSR is
to drive change towards sustainability.
Microfinance has been considered as a veritable tool for reducing
poverty and developing the community, particularly in developing
economies. It is the provision of financial services with a socio-mission.
The target client groups for its initiative include the active poor, low
income earners, ‗unbanked‘ and ‗under-banked‘ population of an
economy. Lack of access to financial services is not the only cause or
perpetuator of poverty. Other factors that have been considered as
perpetuators of poverty include lack of access to good education and
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training, good health care services, and inadequate resources needed to

break out of the poverty cycle.
CSR requires that microfinance service providers should demonstrate a
balanced responsibility to all stakeholders rather that to the shareholders
alone. Stakeholders in this sense would include shareholders, staff,
clients/customers, government and the community/environment in which
they operate. Balanced responsibility on the other hand entails good
financial returns to shareholder, carrying out its business to the target
client groups with an intention to alleviate challenges in the society and
helping to protect and improve the environment/community by
deliberately investing in it.
4.8 Variables in The Internal and External Environment of MFIs

The licensing of MFIs by the Central Bank in 2007 caused the
emergence of greater number of MFBs in Nigeria. The challenges which
contributed to the failure of earlier community banks infected the newly
established microfinance banks and their performances crippled. These
poor performances led to the failure of microfinance banks and the
withdrawal of the license of 224 of them in 2010. Since then, some
microfinance banks have closed shops. This impacted negatively on the
public, the owners of the banks, the staff and the economy of the nation.
Thus, Adeyemi, K. S. (2008) identified some of the challenges which
microfinance institutions face that impinge on their ability to perform to
include undercapitalization, inefficient management, and regulatory and
supervisory loopholes. To these, Mohammed, A. D. and Hassan, Z.
(2009) added usurious interest rates and poor outreach. Further
buttressing the challenges facing microfinance banks, Nwanyanwu, O. J.
(2011) identified diversion of funds, inadequate finance, frequent
changes in government policies, heavy transaction costs, huge loan
losses, low capacity and low technical skill in the industry as
impediments to the growth of this subsector. The most challenged
factors to microfinance banks in Nigeria are discussed below:
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(a) Low Capital Base: Microfinance banks, with their level of capital,
cannot satisfy the need of the sizable percentage of the active
poor that are now relying on them for loans to start business.
Microfinance banks finance their fixed assets and operate with
customers‘ deposits. The result is that microfinance institutions
in Nigeria lack the finance required to extend financial services
to their clients. According to Microfinance Letter (2007), the
problem of microfinance banks primarily arise from low capital
base of the institutions, inordinate fixed asset acquisition,
ostentatious operational disposition, inability to mobilize
deposits, poor lending, and questionable governance and
management arrangement. Onoyere I.A. (2014) believes that
some of the major challenges include poor capitalization and
restrictive regulatory and supervisory procedures. The low
capital base and the isolated mode of operation have hindered
any meaningful contributions to financing activities. A minimum
of paid-up capital of N1.0 billion for a licensed microfinance
bank to operate multiple branches within a state can act as
serious bottleneck for efficient management. As a result of the
problem of finance, Ovia J. (2007) observes that there is
inadequate channelling of fund for real sector development,
especially agriculture and manufacturing. According to him, only
about 14.1% and 3.5% respectively are allocated to these
sectors as against 78% funding for commerce. Low capital base
of microfinance banks hinders their ability to meet the demand
of their clients.
(b) Insiders Abuse: Another factor that hampers the performance of

microfinance banks is insider abuse. Insider abuse in
microfinance banks is made manifest in granting credit. Okpara
G. C. (2009) points out that directors misuse their privileged
positions to obtain unsecured loans which, in some cases, are
in excess of their banks‘ lending limits. This is in violation of the
provisions of the policy regulating microfinance banks.
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Furthermore, they approve loans for friends and relatives

without proper documentation. These loans turn out to be non-
performing credit. In addition, some of these owners grant
interest waivers on non-performing insider-credits without
obtaining approval from the CBN. They are known to have
compelled their microfinance banks to directly finance trading
activities through proxy companies. The benefits that accrue
from such transactions are not ploughed back into the banks.
They use microfinance banks as sources of funds for their
private ventures. Board members are also known to misuse
their positions to obtain loan facilities that are above the
regulatory limits for insider related loans and with no intentions
of repaying such facilities. They also use their positions to
unduly influence and manipulate the recruitment processes in
favor of their cronies. Frauds and forgeries by insiders and
outsiders to the banks are rife and people generally obtain loans
with no intention to repay (Acha I. A. 2012).
(c) Inadequate business opportunities: Business opportunities

authorized by the Central Bank of Nigeria for microfinance
banks are inadequate. As a result, the chances of survival of
microfinance banks are slim. This is unlike Bangladesh and
many other countries where microcredit organizations give their
clients more than loans, offering education, training, healthcare
and many other social services. Typically, these organizations
are not-for-profit and are owned by investors who are more
concerned about the economic and social development of the
poor than they are about profit. The definition of microfinance
bank by Asian Development Bank (2000) as the provision of
broad range of services such as savings, deposits, loans,
payment services, money transfers and insurance to poor and
low income households and their micro-enterprises confirm the
fact that, in Asian countries, microfinance banks have more
business opportunities than they have in Nigeria.
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(d) Frequent Change in Government Policies: The constant change

in government policies is a big challenge for microfinance banks
in Nigeria. Hence, Nwanyanwu C. M. (2004) says policy
instability has impacted negatively on the performance of
primary institutions responsible for policy monitoring and
implementation. There have been cases of sudden reversal of
policy in Nigeria which resulted in abandoned projects and, in
the case of microfinance banks, a sizable number of them could
not survive the storm. Another challenge that faces microfinance
banks in Nigeria is the inability of stakeholders to perform their
roles as indicated in the Microfinance Policy, Regulatory and
Supervisory Framework for Nigeria. The roles include:
 Government to ensure a stable macro-economic
environment, provide basic infrastructures (electricity,
water, roads, telecommunications, etc), political and social
stability
 Government to institute and enforce donor and foreign aid
guidelines on microfinance to streamline their activities in
line with this policy.
 Government to set aside an amount not less than 1% of the
annual budgets of state governments for on-lending
activities of microfinance banks in favour of their residents.
 The CBN to adopt an appropriate regulatory and
supervisory framework, minimise regulatory arbitrage
through periodic reviews of the policy and guidelines, and
implement appropriate training programmes for regulators,
promoters and practitioners in the sub-sector, in
collaboration with stakeholders.
The MFB policy also recognizes the roles of public sector
MFIs and poverty alleviation agencies such as the National
Poverty Eradication Programme (NAPEP) in the
development of the sub-sector. The public sector MFIs and
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poverty alleviation agencies are to perform the following

functions:
 Provision of resources targeted at difficult-to-reach clients
and the poorest of the poor.
 Capacity building: Development of MFIs‘ activities nation-
wide.
 Nurture new MFIs to a sustainable level.
 Collaborate with other relevant stakeholders. Also, donor
agencies are expected to offer free or subsidized funds,
donations or technical assistance for the development of
the microfinance industry in Nigeria. The problem is that
none of these stakeholders makes sincere effort to perform
its responsibility. According to the IMF working paper on
microfinance in Africa, experience in selected countries,
including Guinea, showed that microfinance activities are
regulated by the central banks. Guinea has three main
types of institutions: Credit only MFIs, MFIs that collect
deposits and lend to members only, and MFIs that collect
deposits and lend with no membership restriction. There
are only two well-known institutions that are wholly donor-
financed, micro-lending entities operating in the urban
sector in Guinea. This impacted negatively on the
performance of microfinance banks in the country.
(e) Focusing on wrong group of customers: Microfinance banks in

Nigeria, instead of targeting poor clients whom they are meant
to serve, compete with commercial banks for rich customers.
Microfinance bank activities should cover the rural dwellers who
deal more in agriculture and petty trading. Instead, many
microfinance banks engage in commercial banking activities like
granting big loans to companies and big customers. Taking on
the issue of targeting wrong customers, Udo F. (2012) points
out that many of them have assumed a larger than life clout,
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attempting to finance big projects and other traditional functions

of commercial banks, even when they don‘t have the required
capital base and managerial capabilities. They also tend not to
target the very poor, as targeting them leads to increases in
loan size and improved efficiency indicators, whereas MFIs
focusing on the poorest tend to remain dependent on donor
funds (IMF, 2005). In so doing, they stray from the policy
framework establishing them, leaving the micro-economy to
suffer.
(f) Poor Business Development by MFIs: The culture of

microfinance bank is quite different from commercial banks.
Microfinance banks are meant to visit their customers in their
various locations and attend to their needs. The activities of
microfinance bank are more in the field than in the office.
However, it is common to see microfinance banks staff dress in
suits and sit in air conditioned offices waiting for customers to
come. This is because many microfinance bank managers and
other management staff were, in most cases, commercial
banks‘ staff who joined microfinance banks with the orientation,
philosophy and culture of commercial banks. Akinmutimi (2013)
opines that microfinance institutions should go back to the
people if they are meant for the poor and for the people. They
should concentrate their efforts on going to meet the people
where they are, where they do their businesses and reduce the
level of formality that is in the system today. It must be
understood that microfinance is not micro-commercial bank.
(g) Paucity of Skilled Manpower: There is lack of skilled manpower

within the microfinance space across Nigeria and other
developing nations. Thus, the need to develop the capacity of
operators for quality service delivery cannot be over-
emphasized.
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4.9 Factor Influencing Customers’ Choice of Microfinance Service

Provider
Why invest in customer service? The simple answer is because your
customers want you to. The quality of customer service consistently
ranks high on any list of customer preferences for financial services. In
the CBN/RUFIN/UNDP Baseline Survey of Microfinance Institutions in
Nigeria, 2010, several participants in Focus Group Discussions found
staff attitude, flexibility of terms and speed of service to be key reasons
for choosing a particular financial institution. Similarly, the quantitative
survey found that the second most common reason for customers to
leave financial institutions was congestion in branches and poor service
associated with it. Competing financial services often do not differ greatly
from each other, so the way a financial institution attends to its
customers can become more important than the service itself. There are
five compelling reasons excellent customer service must be a prime
directive for any market-led MFB:
(i) Good service keeps customers.
(ii) Good service builds word-of-mouth business.
(iii) Good service can help you overcome competitive disadvantages.
(iv) Good service is easier than many parts of your business.
(v) Good service helps you work more efficiently.
4.10 Branch Structure

An organizational structure is a system that outlines how certain activities
are directed in order to achieve the goals of an organization. For
example, in a centralized structure, decisions flow from top down, while
in a decentralized structure, decisions are made at various levels.
The organizational structure below depicts how a typical microfinance
institution should be structured even though organisations are at liberty
to design a workable structure.
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Source: Organogram of Abucoop Microfinance Bank Source
4.11 Managing Cash

Cash management is the corporate process of collecting and managing
cash, as well as using it for short-term investment. It is a key component
of a company's financial stability and solvency. Corporate treasurers or
business managers are frequently responsible for overall cash
management and related responsibilities to remain solvent.
Cash consists of cheques, drafts, demand deposits and currency and a
firm needs cash to fulfil the following motives:
 Transaction Motive: Cash balance is required as buffer for
transactions.
 Precautionary Motive: A firm requires cash balance to protect
itself against uncertainties.
 Speculative Motive: Firms like to tap into profit making
opportunities arising from fluctuations in commodity prices, security
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prices, interest rates and foreign exchange rates (Srivastava,

1996).
The problem with cash is that ample cash is helpful to meet unexpected
adversities and useful to exploit favourable opportunities that may come
along from time to time. Furthermore, credit standing of the firm with
sufficient stock of cash is strengthened. A strong credit position helps the
firm to secure from banks and other sources generous amounts of loan
on softer terms. However, keeping excess stock of cash is largely a
waste of resources because it is a non-earning asset and the same could
be invested elsewhere to earn some income. Here the dilemma is
between liquidity and profitability. This dilemma can be resolved by
forecasting and regulating cash inflows and outflows (Pandey, 2010).
The objective of any cash management program should be to increase
revenue but at the same time it should help the firm become cash
sufficient. This can be done through proper control of cash collections,
cash disbursements and determination of minimum cash balance
(Pandey, 2010).
Two of the techniques of cash management are cash planning and cash
budgeting. These techniques help to anticipate the future cash flows,
need of the MFIs, reduce the possibility of idle cash balances and cash
deficits. Planning consists of setting priorities, initiating program and
establishing policies (Thierauf, 1982). Since the current study is about
establishing policies, therefore, cash planning is that effective technique
which will be used for building the present system. Cash is that current
asset which is essential for meeting short term requirement of MFI
customers. It is also the stock which is traded in the microfinance sector,
pointing to a complex relationship between the fund needed to meet
expenses and the fund disbursed by the MFIs. Therefore, cash
management assumes greater importance. It is imperative that MFIs
manage their own cash, as an internal treasury management capacity is
essential for institutional survival (Churchill and Coster, 2001). MIS for
MFI provides information for a better handling of various issues related to
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cash management. Micrfin 4 MIS for MFIs is a spread sheetbased tool

which provides the information necessary for cash planning to managers
(Lunde et al., 2006). A financial self-sufficiency ratio can help the
managers to decide when to employ different control mechanisms for
regulating cash flows. But this tool fails to report the effect of any
regulation on the subsequent cash flow, thus making it difficult for the
qmanagers to put in place effective control mechanisms. DSS with its
qadvanced techniques can help to resolve such issues.
4.12 Deposit Account and Document Management

The administration of deposits includes procedures for opening accounts,
documents required for account opening and procedures for the
reactivation of dormant accounts.
(a) Opening of Accounts
Opening of Current Accounts: The following procedures and
documentation are required by MFBs in the opening of current
accounts: Duly completed account opening form, specimen
signature cards duly completed (usually two), independent and
satisfactory reference forms duly completed by an
individual who maintains a current account with a bank in
Nigeria, passport photo-graphs of signatory(ries), satisfactory
evidence of identity of signatory - Current Driver‘s License,
National ID Card, International Passport, ECOWAS travel
document or staff identity card (residency permit for an expatriate)
– and, in most cases, mandatory initial deposit. Joint accounts
may require mandate instructions while a letter of introduction
from the employer is sometimes required for salary accounts.
Partnership accounts may be asked to produce: Duly completed
opening forms, certificate of registration, copy of partnership
deed, mandate instructions, copy of power of attorney (if
applicable), authority to debit account with search charges,
search report, two duly completed reference forms and mandatory
initial deposit. For companies, MFBs are required to sight copies
of Certificate of Incorporation as well as original copies of the
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CAC Form C07 or CAC 2.3 (particulars of Directors). The law

allows MFBs to open accounts for unregistered groups. Aside
from the forms and identification of representatives of the groups,
they are required to present a copy of the constitution or rules
and regulations of the groups and a copy of the minutes
indicating the following: The MFB is the chosen banker, mandate
instructions, borrowing powers and any form of security (if
applicable).
(b) Opening of Savings Accounts: The following procedures and
documentation are required by some MFBs in the opening of a
savings‘ account: The prospective customer requests to open a
savings‘ account; the officer issues a savings‘ account application
form and specimen signature cards (mandate cards). Additional
requirements may be demanded by the MFB. They include
passport photographs, a form of identification and mandatory
initial deposit). For Joint Savings Account, the requirements
include passport photo-graphs of each signatory to the account;
unregistered group (constitution or rules and regulations of the
group and extract of minutes of meeting of the group); and
children‗s savings account (passport photos of the account holder
and the beneficiary).
(c) Fixed Deposit Account: The following procedures and
documentation required in the opening of a Fixed Deposit
Account: Duly completed fixed deposit account opening form,
mandate instructions, recent passport photos (if applicable) and
independent and satisfactory reference forms each duly
completed.
(d) Account Closure: An account may be closed on the instruction
of a customer or the bank. If the closure instruction emanates
from the bank, a reasonable notice is usually given to the
customer. If the closure instruction emanates from the customer,
the bank should take the following steps: Verify the signature on
the closure request and note the reason for the closure. After the
verification of instruction, the bank will take the following steps:
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Obtain the necessary approval, pay the balance in the account

with a cheque or draft with an acknowledgement, retrieve un-used
cheques and other documents from the customer and mark all
records ― ‗account closed‘ - and separate the file from active
ones.
(e) Dormant Accounts: Current accounts which have not been
operated for a period (some banks state six months) and
savings accounts which have not been operated for a period
(some banks indicate one year) are classified as dormant.
Such accounts are usually separated from the operational ones.
Deposits or withdrawals from such accounts are usually restricted
to authorized bank officials.
(f) Re-activation of Dormant Accounts: To reactivate a dormant
account, a formal application is usually required by the bank.
Reactivation charges are applied by some banks.
Safe Custody Items

 The following steps shall be taken in the deposit and release of safe
custody items:
 Customer completes safe custody deposit slips indicating the
nature of the items and appending signatures which will also serve
as specimen signatures.
 Customer enters the date, description of items, instructions and
other necessary information.
 Entries in the register shall be signed by a bank official and the item
is deposited in a safe.
 In the case of documents, an envelope shall be used which must be
sealed with a sealing wax. Alternatively, the customer can sign
across the envelope.
 Before items are released, the customer shall sign the release
column in the register.
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4.13 Relationship Management, Client Protection and Support

Responsible financial inclusion is being fully transparent in the pricing,
terms and conditions of all financial products. Responsible financial
inclusion is working with clients, so they do not borrow more money than
they can repay or use products that they do not need. Responsible
financial inclusion employs respectful collection practices and adopts
high ethical standards in the treatment of clients. Responsible financial
inclusion gives clients a way to address their complaints, so they can be
served more effectively. Responsible financial inclusion ensures client
data remains private. Responsible financial inclusion protects clients,
businesses, and the industry.
Responsible financial inclusion encompasses core Client Protection

Principles to help financial service providers practice good ethics and
smart business. The Client Protection Principles are the minimum
standards that clients should expect to receive when doing business with
a financial service provider. These principles were distilled from the path-
breaking work by providers, international networks and national
microfinance associations to develop pro-client codes of conduct and
practices. There is a consensus within the financial inclusion industry that
providers of financial services should adhere to these core principles:
(i) Appropriate product design and delivery
Providers will take adequate care to design products and delivery
channels in such a way that they do not cause clients harm.
Products and delivery channels will be designed with client
characteristics taken into account.
(ii) Prevention of Over-indebtedness
Providers will take adequate care in all phases of their credit
process to determine that clients have the capacity to repay
without becoming over-indebted. In addition, providers will
implement and monitor internal systems that support prevention
of over indebtedness and will foster efforts to improve market
level credit risk management (such as credit information sharing).
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(iii) Transparency
Providers will communicate clear, sufficient and timely information
in a manner and language clients can understand so that clients
can make informed decisions. The need for transparent
information on pricing, terms and conditions of products is
highlighted.
(iv) Responsible Pricing

Pricing, terms and conditions will be set in a way that is affordable
to clients while allowing for financial institutions to be sustainable.
Providers will strive to provide positive real returns on deposits.
(v) Fair and respectful treatment of clients

Financial service providers and their agents will treat their clients
fairly and respectfully. They will not discriminate. Providers will
ensure adequate safeguards to detect and correct corruption as
well as aggressive or abusive treatment by their staff and agents,
particularly during the loan sales and debt collection processes.
(vi) Privacy of client data

The privacy of individual client data will be respected in
accordance with the laws and regulations of individual
jurisdictions. Such data will only be used for the purposes
specified at the time the information is collected or as permitted
by law, unless otherwise agreed with the client.
(vii) Mechanisms for complaint resolution

Providers will have in place timely and responsive mechanisms
for complaints and problem resolution for their clients and will use
these mechanisms both to resolve individual problems and to
improve their products and services.
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Practice Questions
1. The acronym ‗CRM‘ stands for

(a) Customer Representation Management
(b) Customer Relationship Management
(c) Customer Resource Management
(d) All of the above
2. CRM can be defined as
(a) An organized approach of developing, managing, and maintaining
a profitable relationship with customers
(b) A development tool through which financial institutions provide a
variety of financial services to help people
(c) The total experience, history, culture, structure and appearance of
the consumer
3. The primary goal of CRM is to
(a) Increase customer loyalty
(b) Improve workforce profitability
4. The CRM system includes the following EXCEPT
(a) Analytics
(b) Workflow Automation
(c) Brand Identity
5. What does lead management entail?
(a) Studying the purchase patterns of the customers
(b) Streamlining and scheduling various processes that run in parallel
(c) Forming and implementing important sales strategies
6. Which of these is an objective of CRM?

(a) Workforce productivity
(b) Customer satisfaction
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7. CRM can be used to make forecasts

(a) True
(b) False
8. Which of these types of CRM is based on customer-oriented business
processes?
(a) Analytical
(b) Strategic
(c) Operational
9. The main difference between product centric CRM and strategic CRM is
(a) With Strategic CRM, businesses constantly learn about the
customer requirements and how to adapt to them
(b) With Strategic CRM, the business assumes customer
requirements and focuses on developing the product that may
sometimes lead to over-engineering
(c) Strategic CRM involves processes such as selling and marketing
10.) --------------is the end user of a service
(a) Customer
(b) Manager
(c) Managing Director
(d) Shareholders
11. What do you understand by Customer Relationship Management?

12. List and explain the types of customer relationship management you
know
13. List and explain four objectives of CRM to an organization
14. Briefly discuss the factors that affect a customer‘s choice of an MFI.
15. What is customer retention? Highlight the importance to an organization
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CHAPTER FIVE
COMMUNICATION CONCEPTS, SKILLS AND TOOLS IN

MICROFINANCING
Learning Outcome
At the end of the Chapter, readers should have:
 Gained excellent knowledge of communication concepts and tools in
microfinancing
 Become conversant with the use of ICT as a tool for communication
5.1 Concept of Communication:

Communication might be defined as the transfer of facts, information,
ideas, suggestions, orders, requests, grievances etc. from one person to
another so as to impart a complete understanding of the subject matter
of communication to the recipient thereof; and the desired response from
the recipient to such communication.
Communication is a way that one organization member shares meaning

and understanding with another. Communication is the process of
passing information and understanding from one person to another.
Communication is the sum of the things one person does when he wants
to create understanding in the mind of another. It is a bridge of meaning.
It involves a systematic and continuous process of telling, listening and
understanding.
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5.1.1 Process of Communication:

The process of communication consists of the following steps or
stages:
(i) Message: This is the background step to the process of
communication, which, by forming the subject matter of
communication, necessitates the start of a communication
process. The message might be an idea, a request, a suggestion,
an order or a grievance.
(ii) Sender: The actual process of communication is initiated by a
sender who takes steps to send the message to the recipient.
(iii) Encoding: Encoding means giving a form and meaning to the
message by putting it into words, symbol, gestures, graph,
drawings, etc.
(iv) Medium: It refers to the method or channel through which the
message is to be conveyed to the recipient. For example, an oral
communication might be made over the telephone while a written
communication might be routed through a letter or a notice
displayed on the notice board.
(v) Recipient (or the Receiver): Technically, a communication is
complete, only when it comes to the knowledge of the intended
person, i.e., the recipient or the receiver.
(vi) Decoding: Decoding means the interpretation of the message by
the recipient – with a view to getting the meaning of the message,
as per the intentions of the sender. It is at this stage in the
communication process that communication is philosophically
defined as ‗the transmission of understanding.‘
(vii) Feedback: To complete the communication process, sending of
feedback by the recipient to the sender is imperative. Feedback
implies the reaction or response of the recipient to the message.
5.1.2 Communication Skills

(i) Listening: Being a good listener is one of the best ways to
be a good communicator. No one likes communicating
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with someone who only cares about putting in her two

cents and does not take the time to listen to the other
person. If you're not a good listener, it's going to be hard to
comprehend what you're being asked to do. Take the time
to practice active listening. Active listening involves paying
close attention to what the other person is saying, asking
clarifying questions, and rephrasing what the person says
to ensure understanding ("So, what you're saying is…").
Through active listening, you can better understand what
the other person is trying to say and can respond
appropriately.
(ii) Non-verbal Communication
Your body language, eye contact, hand gestures, and tone
all color the message you are trying to convey. A relaxed,
open stance (arms open, legs relaxed), and a friendly tone
will make you appear approachable and will encourage
others to speak openly with you.
Eye contact is also important; you want to look the person
in the eye to demonstrate that you are focused on the
person and the conversation (however, be sure not to
stare at the person, which can make him or her
uncomfortable). Also, pay attention to other
people's nonverbal signals while you are talking.
Often, nonverbal signals convey how a person is really
feeling. For example, if the person is not looking you in the
eye, he or she might be uncomfortable or hiding the truth.
(iii) Clarity and Concision
Good communication means saying just enough – don‘t
talk too much or too little. Try to convey your message in
as few words as possible. Say what you want clearly and
directly, whether you're speaking to someone in person or
on the phone or via email. If you ramble on, your listener
will either tune you out or will be unsure of exactly what
you want. Think about what you want to say before you
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say it; this will help you to avoid talking excessively and/or
confusing your audience.
(iv) Friendliness
Through a friendly tone, a personal question or simply a
smile, you will encourage your co-workers to engage in
open and honest communication with you. It's important to
be nice and polite in all your workplace communications.
This is important in both face-to-face and written
communication. When you can, personalize your emails to
co-workers and/or employees – a quick "I hope you all had
a good weekend" at the start of an email can personalize a
message and make the recipient feel more appreciated.
(v) Confidence
It is important to be confident in your interactions with
others. Confidence shows your co-workers that you
believe in what you‘re saying and will follow through.
Exuding confidence can be as simple as making eye
contact or using a firm but friendly tone. Avoid making
statements sound like questions. Of course, be careful not
to sound arrogant or aggressive. Be sure you are always
listening to and empathizing with the other person.
(vi) Empathy
Even when you disagree with an employer, co-worker or
employee, it is important for you to understand and respect
their point of view. Using phrases as simple as "I
understand where you are coming from" demonstrate that
you have been listening to the other persons and respect
their opinions.
(vii) Open-Mindedness
A good communicator should enter any conversation with
a flexible, open mind. Be open to listening to and
understanding the other person's point of view, rather than
simply getting your message across. By being willing to
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enter into a dialogue, even with people with whom you

disagree, you will be able to have more honest, productive
conversations.
(viii) Respect
People will be more open to communicating with you if you
convey respect for them and their ideas. Simple actions
like using a person's name, making eye contact, and
actively listening when a person speaks will make the
person feel appreciated. On the phone, avoid distractions
and stay focused on the conversation. Convey respect
through email by taking the time to edit your message. If
you send a sloppily written, confusing email, the recipient
will think you do not respect him enough to think through
your communication with him.
(ix) Feedback
Being able to appropriately give and receive feedback is
an important communication skill. Managers and
supervisors should continuously look for ways to provide
employees with constructive feedback, be it through email,
phone calls or weekly status updates. Giving feedback
involves giving praise as well – something as simple as
saying "good job" or "thanks for taking care of that" to an
employee can greatly increase motivation.
Similarly, you should be able to accept and even
encourage feedback from others. Listen to the feedback
you are given, ask clarifying questions if you are unsure of
the issue, and make efforts to implement the feedback.
(x) Picking the Right Medium
An important communication skill is to simply know what
form of communication to use. For example, some serious
conversations (layoffs, changes in salary, etc.) are almost
always best done in person. You should also think
about the person with whom you wish to speak; if he is a
very busy person (such as your boss), you might want to
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convey your message through email. People will

appreciate your thoughtful means of communication and
will be more likely to respond positively to you.
5.1.3 Report Writing

A report is written for a clear purpose and to a particular
audience. Specific information and evidence are presented,
analysed and applied to a particular problem or issue. The
information is presented in a clearly structured format making use
of sections and headings so that the information is easy to locate
and follow. When you are asked to write a report, you will usually
be given a report brief which provides you with instructions and
guidelines. The report brief may outline the purpose, audience
and problem or issue that your report must address, together with
any specific requirements for format or structure. This guide offers
a general introduction to report writing; be sure also to take
account of specific instructions provided by your department.
5.1.4 Presentation
A presentation is the process of offering a topic to an audience. It
is typically a demonstration, introduction, lecture, or speech
meant to inform, persuade, inspire, motivate or to build goodwill or
present a new idea or product. The term can also be used for a
formal or ritualized introduction or offering, as with the
presentation of a debutante. Presentations in certain formats are
also known as keynote address.
A presentation program is often used to generate the presentation
content, some of which also allow presentations to be
developed collaboratively, e.g. using the Internet by
geographically disparate collaborators. Presentation viewers can
be used to combine content from various sources into one
presentation. A presentation is a means of communication which
can be adapted to various speaking situations, such as talking to
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a group or clients for microfinance sector, addressing a meeting

or briefing a team. To be effective, step-by-step preparation and
the method and means of presenting the information should be
carefully considered.
5.1.5 Face-to-face interaction (F2F)

Less often, face-to-face communication or face-to-face
discourse is a concept in sociology, linguistics, media and
communication studies describing social interaction carried out
without any mediating technology. Face-to-face interaction is
defined as the mutual influence of individuals‘ direct physical
presence with his/her body language. Face-to-face interaction is
one of the basic elements of the social system, forming a
significant part of individual socialization and experience gaining
throughout one's lifetime.
Similarly, it is also central to the development of various groups

and organizations composed of those individuals. Study of face-
to-face interaction is defined as the process of recording and
analyzing the reactive pattern of individuals when they are
involved in a face-to-face interaction. It is concerned with issues
such as its organization, rules, and strategy. What's more, face-
to-face communication could easily be interrupted or avoided by
just pulling out a cell phone or electronic device. When it comes to
communication and understanding one another fully 93% is non-
verbal, and body language and 7% is written. Face-to-face
interaction is still widespread and popular and has a better
performance in many different areas.
Nardi and Whittaker (2002) say face-to-face communication is still

the golden standard among the mediated technologies based on
many theorists, particularly in the context of the media richness
theory where face-to-face communication is described as the
most efficient and informational one. This is so because face-to-
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face communication engages more human senses than mediated

communication. Face-to-face interaction is also a useful way for
people when they want to win over others based on verbal
communication, or when they try to settle
disagreements. Besides, it does help a lot for teachers as one
effective teaching method. It is also easier to keep a stronger and
more active political connection with others by face-to-face
interaction.
5.1.6 Telephone Communication

According to Graham Williams of Centre-ing Customer Services,
communication by telephone will be reduced to 5 percent of all
business communications by 2015. Businesses have other
options such as digital communication through email, texting and
social media. Telephone communication may be slower than its
new-media counterparts. However it still has benefits in an
increasingly impersonal world. The telephone call, which connects
a caller with a human voice, is still an important business
component.
5.2 Effective use of Communication Technology (ICT) in Microfinance

Financial sector has witnessed transformation with the adoption of
information and communication technology (ICT) in providing financial
services to distant customers at reduced cost. The advent of ICT in the
financial system in general and microfinance sector in particular would
not only scale up access to finance but also attempt to ensure provision
of financial services to the remotest and far-flung areas. Adoption of
technology by microfinance institutions has increased their outreach and
achieved cost reduction but created numerous challenges especially with
respect to regulatory issues and delivery channels. ICT innovations have
an exciting promise to improve the efficiency of microfinance operations
and expand outreach by lowering transaction costs and bringing services
closer to clients. However, many of the organisations that have deployed
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ICT in their operations are either still at the pilot phase or are not really
financial institutions whose main mission is to serve the poor and reduce
poverty. The latter refers to cases of ICT application in mainstream
financial institutions, which may not be necessarily serving the poor. The
number of microfinance institutions that have gone beyond piloting ICT
applications is still limited. They are primarily in countries which have
economies of scale, a relatively developed financial services sector, and
a more favorable communication infrastructure and regulatory
environment. It is also found that it will be a while before MFIs will be
able to fully utilize the potential of ICT. It may be more realistic to take
small steps in applying ICT in some functions of microfinance operations.
For example, MFIs in many developing countries are not ready to make
the full investment in complete ICT solutions. Rather, some of them may
be able to invest in small-scale technology solutions that can result in
concrete benefits worth the cost involved. This suggests the importance
of detailed cost benefit analysis. There is no such analysis available to
date. To extend microfinance services in rural areas, technology
solutions must address these challenges.
(i) ICT Innovations
There is an increasing recognition of ICT potential in contributing to
income generation and poverty reduction. It enables people and
enterprises to capture economic opportunities by increasing the
process of efficiency, promoting participation in expanded economic
networks and creating opportunities for employment. For example,
online portals are providing farmers with a variety of information
including market prices, weather reports and farming best practices.
The portals can also provide isolated communities with access to
the latest health information and treatment and provide information
to officials on rural public health issues. Specifically, in relation to
microfinance, the use of ICT began with the arrival of the Palm Pilot
(also called Personal Digital Assistant – PDA). PDA allows loan
officers to fill forms containing customer information and provide
initial indication of whether loan would be approved or not in the
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field, thereby automating information gathering process (Silva,

2002).
(ii) Smart Cards and PDAs
In recent years, with the coming of the digital age, there has been a
growing awareness of the significance of information. MFIs have
understood that poor information systems have an impact on every
aspect of an institution's performance, from operational
effectiveness to strategic management. As the scale of operations
grows, MFIs feel the need for having an integrated and well
developed information system to handle their portfolio and
transactions. It is also necessary in taking appropriate policy
decisions to provide efficient, effective, and transparent services to
clients, while maintaining effective time management and
increasing outreach. Gibbons and Meehan claim the use of MIS will
improve efficiency and increase outreach (June 2000). Therefore,
there is a need for the use of technology by the microfinance
sector for greater outreach and efficiency at a lower cost.
Below are the most commonly used ICT applications in

microfinance:
 Automated Teller Machines (ATMs) or Point of Sales (POS):
Devices help to conduct many banking transactions that would
otherwise require staff attention. They provide account information,
accept deposits, draw down on pre-approved loans and transfer
funds.
 Interactive Voice Response (IVR) Technology: This refers to the
use of the telephone (either mobile or stationary) to check account
balance, make transfers, learn about products, and find the nearest
branch location and office hours. This saves time for the client and
staff.
 Internet Banking: Clients can make the same transactions as with
phone banking (checking account balance, making transfers,
116
learning about products and finding the nearest branch location and
office hours) on the Internet.
 Personal Digital Assistant (PDA): This can be used by loan
officers to process loan applications by using the preset credit
scoring model, to review a client‘s historical data, and to monitor
loan performance by reviewing the list of borrowers and their loan
repayment status. Virtually all client data and client visit records are
stored electronically and are immediately available in this small
device.
 Management Information System (MIS): This has been
mentioned severally in previous chapters. MIS provides
computerized data processing for management decision making; it
is used primarily for portfolio management, accounting and financial
performance management.
 Credit Scoring: This analyzes historical client data, identifies links
between client characteristics and behavior, and assumes those
links will persist to predict how clients will act. The technology can
help a microfinance institution analyze how its clients have behaved
in the past to make more reliable loan application decisions, devise
more effective collection strategies, better target marketing efforts
and increase client retention.
Complimentary Devices:
 Smart Cards: This is used for financial services such as managing
savings‘ accounts, disbursing loans or making transfers. There are
different forms of personal identification such as biometric
technology and fingerprinting. Smart cards function like an
electronic passbook. There is also a lower cost card, which
operates through a magnetic strip on the reverse side of the card. A
smart card differs in that it operates through more expensive chips
that can store information offline in the embedded chips. Both cards
are used in conjunction with ATMs or POS.
 Biometric Technology: This measures an individual‘s unique
physical and behavioural characteristics, voice pattern and gait to
117
recognize and confirm identity. This is a supplementary technology

used with ATMs or POS. Each of these technologies can help
microfinance operations in various ways. Meanwhile, MIS and
smart cards are of greater utility for product development and
marketing, account maintenance and risk management. On the
other hand, ATMs and POS can be used in all aspects of
operational chain and hence are the most promising and
comprehensive ICT solutions.
The main reasons that appear to influence the uptake of ICT applications
in microfinance are:
• Direct and indirect cost of implementing ICT applications
• Policy and regulatory environment
• Infrastructure development (communications, connectivity, power,
etc)
• Development stage of the financial sector, especially the
microfinance sector
• Level of financial literacy (mentality towards using technology
versus human interaction)
• Population density
• Language.
Dependent on these factors, ICT solutions have been applied mostly in

countries that have a larger population density (such as Nigeria, India,
Mexico and the Philippines), a more favourable regulatory and policy
environment (such as South Africa and Brazil) and a more mature
financial sector (such as South Africa). Cracknell (2004) affirms the
importance of an enabling environment, that is, well developed banking
and retail sectors, a supportive central bank, good communications and a
generally positive policy environment.
Studies indicate that the most common benefits expected from the use of
ICT in microfinance, for clients and for MFIs, are:
118
Clients:
• Access to banking services
• More convenient service – anytime to conduct transaction
• No time to wait in line
• Faster loan processing (with PDA) in the field
MFIs:
• Reduced transaction cost (by reducing staff time)
• Less fraud (better internal control)
• Increased outreach (by making services available 24 hours and
closer to clients)
• Reduction in expensive premises (if ATMs or POS devices are
placed in off-site locations)
• More professional look
• Increased customer satisfaction and loyalty (by introducing new
types of services such as money transfers and direct deposits).
119
Practice Questions
1. The essential goal of any MFI is

(a) Motivate businesses to save
(b) Providing financial services to the world's poorest communities,
and communications technologies
(c) To increase customer loyalty and in turn improve business
profitability
2. Which of these statements is true about communication?

(a) It is a way that one organization member shares meaning and
understanding with another.
(b) It is the process of passing information and understanding from
one person to another
(c) It rarely provides positive feedback
3. Which of these is not a feature of communication?

(a) Communication is a function of every manager
(b) Communication can be a one-way process
(c) Communication is a complete and rational process
4. The process of communication consists of the following steps or stages

Except
(a) Encoding
(b) Listening
(c) Medium
5. Feedback must be received for communication to be complete.

True or False
6. Principle of Brevity means that

(a) The message to be communicated must be concise
(b) The message must attract the attention of the recipient
(c) The recipient must be able to comprehend the message
120
7. Which of these is not a principle of communication?

(a) Principle of the Constructive and Strategic Use of Informal Groups
(b) Principle of Understanding
(c) Principle of Responding
8. Sideward Communication is a variation of which type of communication?

(a) Formal
(b) Informal
(c) Semi-Formal
9. Which of the following is not a feature of Upward Communication?

(a) Reports by subordinates to superiors on work-performance
(b) It takes place among managers, placed at the same rank in the
organization
(c) Grievances, problems or difficulties of subordinates forwarded to
superiors, at appropriate levels
10. Which of these is a communication tool not explored by MFIs?
(a) Skype
(b) Word Press
(c) Banners
11. What is communication?

12. List and explain four features of communication
13. Elaborate on the process of communication
14. Explain what you understand by the term ‗Principle of Rationality‘
15. What are the differences between formal and informal communication?
121
122
CHAPTER SIX
CONTEMPORARY ISSUES
Learning Outcome
 Demonstrate knowledge about contemporary issues in Banking and
Finance
 Learn and explain terminologies that have evolved within the financial
landscape in recent time (Agency Banking, Sustainable Banking, Crypto
currency, Community Microfinance)
6.1 Sustainable Banking

A formal definition for sustainable banking is still being developed. At this
stage, it is widely understood that sustainable banking implies carrying
out banking operational and business activities, with conscious
consideration for the environmental and social impacts of those activities.
Banking institutions implement sustainable banking both in their internal
daily operations (in terms of how they manage their physical
branches/locations, human capital, costs, opportunities, risks) and their
activities relating to external interactions with their clients and the types
of projects they fund. Studies by the International Finance Corporation
(IFC) have revealed that there are several benefits banks have obtained
from incorporating sustainability into their strategy and business
practices, ranging from improved reputation to improved investor
confidence. Because of the number of benefits banks have been
realizing from their sustainable banking activities, there is increasing shift
by banks from simply trying to manage their environmental and social
risks to proactively seeking new opportunities presented by sustainability
principles and using these to differentiate themselves in the market. This
123
has gone a long way towards advancing sustainable development

around the world, and in Nigeria in particular.
Also, the banking sector‘s wider impact as it relates to sustainable
development is strongly linked to the quality of customer interactions (via
services and products). By incorporating sustainability principles into
corporate strategy funding decisions and product/service definition
processes, MFIs can be influential in supporting and promoting
environmentally and/or socially responsible projects and enterprises.
Innovative products and services that target certain populations (e.g.
women) or that encourage purchase of green products (e.g. green credit
cards) go a long way to promoting sustainable practices.
Given the strategic importance of banks in the value chains of critical
sectors such as agriculture, energy and trade, the role of MFIs in the
sustainable development of Nigeria cannot be underestimated.
6.2 Agency Banking

Banking agents help financial institutions to divert existing customers
from crowded branches providing a complementary, often more
convenient channel of accessing bank services. Financial institutions, in
developing markets, reach an additional client segment or geography.
Reaching poor clients in rural areas is often prohibitively expensive for
financial institutions since transaction numbers and volumes do not cover
the cost of a branch (Kitaka, 2001). In such environments, banking
agents that piggy back on existing retail infrastructure and lower set up
and running cost can play a vital role in offering many low income people
their first time access to a range of financial services. Also, low income
clients often feel more comfortable banking at their local store than
walking into a marble branch (Adiera, 1995). The client benefits from
agent banks with lower transaction cost and service closer to the client‘s
home; client would visit stores anyway for groceries.
The benefits include longer opening hours, shorter lines than in

branches, more accessible for illiterates and the very poor who might feel
intimidated in branches, increased sales from additional foot traffic,
124
differentiation from other businesses, reputation from affiliation with well-

known financial institution, additional revenue from commissions and
incentives, increased customer base and market share, increased
coverage with low-cost solution in areas with potentially less number and
volume of transactions, and improved indirect branch productivity by
reducing congestion. (Cohen M., 2002, and Jappeli & Pangano, 2001)
indicate that one of the primary impediments to providing financial
services to the poor through branches and other bank-based delivery
channels is the high costs inherent in these traditional banking methods.
The amount of money expended by financial agent banks to serve a poor
customer with a small balance and conducting small transactions is
simply too great to make such accounts viable. In addition, when agent
banks do not have branches that are close to the customer, the customer
is less likely to use their service. However, with the emergence of new
delivery models as a way to drastically change the economics of banking
the poor, retail points such as agent banking can offer saving services in
a commercially viable way by reducing fixed costs and encouraging
entrepreneurs to use the service more often.
Effect of Agency Banking on Financial Inclusion

The secret of gaining competitive advantage among banking services
providers is by building themselves as brands and target to retain brand
loyal customers. Branding helps banks to distinguish themselves from
competitors. A brand can only be strong if it has loyal customers (Miller,
2003). Brand loyalty gives the brand stability of future sales. On the other
hand, it is less costly to retain customers than to obtain new ones.
Banking has moved from customer acquisition (winning new customers)
towards customer selection (dumping unprofitable agents while seeking
selectively the more profitable ones). Besides signing a contract with the
financial institution it is working for, the banking agent also has to open
an account with the bank. And the store has to deposit a certain amount
of cash in that account which will serve as the banking agent‘s working
capital. But in many cases, rather than asking the agent to come up with
cash deposit (Pandrey, 2004), the financial institution will extend to the
125
store a credit line. The size of the credit line is normally not standardized,
but adapted individually to each agent depending on its size, the
expected volume of transactions and how long the agent has already
been working with the bank. This is how the credit line is used during
each transaction:
 Client withdraws money (cash-out transaction): Agent‘s
account is credited in same amount.
 Client deposits money (cash-in transaction): Agent‘s account
is debited in same amount. In case the agent‘s credit line had
reached its limits, and the agent‘s bank account does not have
sufficient funds to cover the received funds, the POS will
automatically block and can only be unblocked if the funds have
been deposited in the next bank account (Pandrey, N. 2004). The
transaction process for banking services using a bank card is
simple: An existing bank client presents his card at the agent and
requests a specific transaction and the amount to be withdrawn,
deposited or transferred. The agent selects the type of transaction
on the POS device or personal computer, enters the amount,
swipes the client‘s card through the device and lets the client
enter his PIN, dial up or satellite communication connects with the
bank‘s server to authorize the transaction.
6.3 Mobile Money

Mobile money is an electronic wallet service. This is available in many
countries and allows users to store, send and
receive money using mobile phone. The safe and easy electronic
payments make Mobile Money a popular alternative to bank accounts. It
can be used on smartphones and basic feature phones. It is sometimes
referred to as a 'mobile wallet' or by the name of a specific service such
as mPesa, EcoCash, GCash, Tigo Pesa and many more.
6.4 Ethics and Social Responsibility in Marketing

An ethical issue is an identifiable situation and an opportunity which
requires an individual or organization to choose from the actions that
126
must be evaluated as right or wrong, ethical or unethical, etc. Product-

related ethical issues arise when marketers fail to disclose the risks
associated with a product. In pricing, common ethical issues are price
fixing or failure to disclose the full price of a purchase. While ethics and
social responsibility are sometimes used interchangeably, there is a
difference between the two terms. Ethics tends to focus on the individual
or marketing group decision, while social responsibility takes into
consideration the total effect of marketing practices on society.
Marketing ethics deals with the moral principles and values in marketing.
Ethics in marketing is applied in different areas such as in advertising,
promotion and pricing. It also includes the explanation of ethical issues
like: Do children have the capability of understanding marketing tactics?
Do they have the final buying power? Should marketers take permission
from their parents? Do children understand the negative effects of the
products advertised? Let us proceed by giving clarity to some key
concepts.
Marketing
Marketing is basically the interaction with your consumer in order to
persuade him to purchase your product or service. Basically, marketing
is the process of creating, promoting and delivering products and
services.
Ethics
Ethics is the study dealing with what is the proper course of action for
human or living being. It answers the question, "What do I do?" It is the
study of right and wrong in human behaviours; basically, it is the method
by which we define our values and pursue them. Ethics is a requirement
of human life. It is the means of deciding what should be our action. In its
absence, our actions would be haphazard and aimless. Though the
pursuit of social responsibility and ethical marketing does not
automatically translate into increased profit, it is still the responsibility of
the firm to ensure it is responsible for its actions and their impact on
society.
127
On the other hand, social responsibility is when the organization is

concerned about the people, the society and the environment within
which it conducts its business. Generally speaking, socially responsible
marketing is taking moral actions that encourage a positive impact on all
the company‘s stakeholders, including employees, the community,
consumers and shareholders. The main responsibility of marketers in this
aspect is to package and communicate the organization‘s decisions that
will impact the various communities with which they interact. Consumers
have the right and power to decide which companies succeed or fail; so,
marketers have a major responsibility to ensure their practices are seen
as philanthropic without being phony. Ethical marketing is a philosophy
that focuses on honesty, fairness and responsibility. Though wrong and
right are subjective, a general set of guidelines can be put in place to
ensure the company‘s intent is publicised and achieved. Principles of this
practice include:
 A shared standard of truth in marketing communications
 A clear distinction between advertising and sensationalism
 Endorsements should be clear and transparent
 Consumers‘ privacy should always be maintained
 Government standards and regulations must be adhered to and
practiced by marketers.
There are five ethical values that marketers are expected to uphold:
(1) Honesty – Be forthright in your dealings and offer value and
integrity.
(2) Responsibility – Accept consequences of marketing practices and
serve the needs of customers of all types, while being good
stewards of the environment.
(3) Fairness – Balance buyer needs and seller interest fairly, and avoid
manipulation in all forms while protecting the information of the
consumers.
(4) Respect – Acknowledge basic human dignity of all the people
involved through efforts to communicate, understand and meet
needs and appreciate contributions of others.
128
(5) Citizenship – Fulfil all legal, economic, philanthropic and societal

responsibilities to all stakeholders as well as give back to the
community and protect the ecological environment.
Characteristics of Socially Responsible Marketing

Marketers get the right products to the right people at the right time.
Ethical marketers ensure the products meet and exceed their needs,
back up their claims and offer value to the customers over time while
finding opportunities to pay it forward. A company that uses ethical and
socially responsible marketing strategy will gain the respect and trust of
the customers they target and interact with. Over long term, this will
translate to greater benefits all round. Today‘s firms can make their
practices more ethical and responsible by perfecting the following
characteristics:
 Safety: Any product or service that could be hazardous to the
health conditions of people, animals or the environment should
have clear advisories and warnings. Once the problem is identified,
the company can collect data to help improve the product and
reduce or eliminate the danger. An example would be fast food
restaurants eliminating the use of hydrogenated oils even before
transfers were banned.
 Honesty: Ensuring a product satisfies a need it promises to, or aids
in providing a lifestyle it advertises. Advertising should be
transparent about possible side effects and not puff up results, so
clients come to respect the honesty of your advertising.
 Transparency: Any techniques to manipulate and hide facts and
information customers need could harm a company. Just think of
the way people regard a company such as Enron that hid
information and was not open to stakeholders about what was
happening.
 Ethical Pricing: Gathering data about your target market will give
you information on how much they are willing to pay for your
product. The rest of the pricing strategy, in a simplified manner,
should be based on overhead costs and supply and demand.
129
Creating fake shortages and bad mouthing the competition are

considered unethical marketing practices.
 Respecting Customer Privacy: When customers trust enough to
allow you access to their information, selling it to lead companies or
obtaining prospective customers‘ information without permission is
unethical and breaks trust. Nobody wants to buy from the creepy
guys, no matter how beautifully packaged their products are.
Benefits of Integrating Ethics into Marketing Strategy

The following are the benefits of incorporating ethics into MFI
marketing strategy:
 Moral Marketing Compass: This is especially important in economic
downturns, when unethical practices become tempting.
 Win-win Marketing: The focus on customer value will increase
company value.
 Keep marketing legal: Reduce the risk of cutting corners and
turning a blind eye.
 Goodwill: Goodwill and compelling reputation among clients and
associates are the benefits which companies cannot afford to
overlook. Not only will customers believe that the company cares
for them but will also associate the brand with pleasant feelings and
experiences and spread the word.
 Improved quality of recruits and increase retention: A good
company attracts good employees, suppliers, investors and
customers, who will be happy to help the company to achieve its
goals. Great marketing practices make new marketers feel like their
time on the job will make a difference and so will be less likely to
change jobs, as will suppliers and other people involved.
6.5 Community Microfinance

Community banking is a form of empowerment-based economics which
falls under the larger umbrella of micro-finance. Micro-finance is focused
on the entrepreneurship of individuals, generally with a goal of lifting low-
income or disadvantaged groups out of poverty and providing the means
130
for them to prosper. A community banking model in Nigeria is the Credit

Development Division. The need for a community banking model arose
out of the desire to lessen the gap of credit accessibility in rural areas
and to stimulate the economy. Employees in the Division are given the
responsibility of planning and implementing credit programs to
customers, coordinating alongside community members and other local
bodies to distribute lines of credit and offering savings opportunities,
develop credit tools focusing on security, down-payments, loan
repayment periods, and interest and fees. A key component of this
approach is that the target customers of the community banks were
farmers. Ultimately the goal was to increase productivity and establish a
better market for their products. In this model, the bank invests directly
into a project without the use of a middle man or negotiator.
6.6 Bank Verification Number

Bank Verification Number, commonly called BVN, is a biometric
identification system implemented by the Central Bank of Nigeria to curb
or reduce illegal banking transactions in Nigeria. It is a modern security
measure in line with the Central Bank of Nigeria Act 1958 to reduce fraud
in the banking system. The system works by recording fingerprints and a
facial photograph of the client.
6.7 Cryptocurrency
A cryptocurrency is digital asset designed to work as a medium of
exchange that uses strong cryptography to secure financial transactions,
control the creation of additional units, and verify the transfer of assets.
Cryptocurrency is a kind of digital currency, virtual currency or alternative
currency. Cryptocurrencies use decentralized control as opposed to
centralized electronic money and central banking systems.
The decentralized control of each cryptocurrency works
through distributed ledger technology, typically a block chain that serves
as a public financial transaction database. Bitcoin, first released as
open-source software in 2009, is generally considered the first
decentralized cryptocurrency. Since then, over 4,000 altcoin (alternative
coin) variants of bitcoin have been created.
131
Practice Questions
(i) ……………………..is digital asset designed to work as a medium of

exchange that uses strong cryptography to secure financial transactions,
control the creation of additional units, and verify the transfer of assets.
(a) Cryptocurrency
(b) Bankruptcy
(c) Currency
(d) Legal Tender
(ii) BVN means Bank Verification Number True or False?
(iii) Mobile banking allows customers to

(a) Conduct financial transactions remotely
(b) Access services only within bank opening times
(c) Send money only at nights
(d) Make visits to the banks easily and efficiently
(iv) Ethical issues arise when marketers fail to disclose the risks associated
with a product? True or False
(v) What is social responsibility?

(a) When the organization is concerned about people, society and
the environment where it conducts business
(b) Help the poor
(c) Solve the need of customers
(d) A study of how businesses find customers
(vi) An ethical value that marketers are expected to uphold is

(a) Citizenship
(b) Responsibility
(d) None of the above
132
(vii) Which of the following are benefits of Integrating Ethics into Company
Marketing Strategy?
(a) Increased retention
(b) Morale marketing compass
(viii) What does BVN stand for?

(a) Bank Verification Number
(b) Bureau Verification number
(c) Bank Validation Number
(ix) What is the main purpose of BVN?

(a) A security measure to reduce illegal banking transactions
in Nigeria
(b) A security measure to reduce the number of illegal banks in
Nigeria
(c) A security measure to reduce the number of Bureau de Change in
Nigeria
(x) Cryptocurrency uses centralized electronic money? True or False

(xi) What is sustainable banking?
(xii) What is Marketing Ethics? Support with valid examples.
(xiii) Elaborate on the key effects of agency banking on banking.
(xiv) What do you understand by the term ‗Community Micro Finance.
(xv) What are the Characteristics of Socially Responsible Marketing?
133
134
Recommended Textbooks
Achumba I. C. & Osuagwu Linus (1994) Fundamentals of Marketing, (Lagos:

Mulengalan Nigerian Company).
Afobunor S.A.N (1997) Marketing Management, (Lagos: Afrofam Nigerian
Enterprises Ltd.).
Attah, Bernhardt, Dannecker & Ulrich (2015) Loan Pricing of Nigerian
Microfinance Banks: Survey & Methods of Assessment;
Azubuike Okoro (2014) Fundamentals of Financial Literacy (Great Stones
Technologies)
Calvin Miller and Linder Jones (2010) Agricultural value chain finance- tools and
lessons.
Craig Churchill & Cheryl Frankiewicz (2006) Making Microfinance Work:
managing for Improved Performance (International Labour Organization,
Geneva (ILO)
Cole A. A. (1997) Basic Principles of Marketing, (Ikorodu: Beyus Consults).
Frankiewicz, Cheryl and Churchill Craig. (2011). Making Microfinance Work:
Managing Product Diversification, International Training Centre of the
ILO.
Iheanyi C. Achumba (2001) Strategic Marketing Management in the 21st
Century, (USA: Mac-Williams and Capital Publishing Ltd.).
Kotler P. (1986) Principle of Marketing, (New Jersey: Prentice Hall Inter. Books).
Linus, Osuagwu & Vivienne Eniola (1997) Marketing Management: Principles,
Strategies and Cases (Lagos: Malthouse Press Ltd.).
McKenna Regis (1991) Relationship Marketing, (Persons Books).
Muhammed Yunus (2003) Banker to the Poor: Micro-Lending and the Battle
against World Poverty (Public Affairs, United States of America)
135
Onwuchuruba, G. U. (1996) Marketing Financial Services in Nigeria, (Lagos:

Servo Marketing and Management Services).
Sarah Murray (2007). Marketing for Microfinance: A Women‘s World Banking
Education.
Yasmina McCarty (December 2007). Marketing for Microfinance: A Women‘s
World Banking Publication
https://www.microfinancegateway.org/sites/default/files/publication_files/loan-
pricing-survey_giz_nigeria.pdf
https://www.ubs.com/content/dam/WealthManagementAmericas/cio-
impact/cryptocurrencies.pdf
136
INDEX
A
Account Closure - 101 Competition - 7, 13, 72
Actual - 20 Communication - 107
Agency Banking - 124 Community Microfinance - 130
Aggregators - 31, 34 Confidence - 110
Agricultural Loans - 25 Context - 7
American Counselling Association - Contract Farming - 39
86 Corporate Branding and Identity - 68
Analytics - 78 Corporate Social Responsibility - 90
Automated Teller Machines (ATMs) Core - 20
- 116 Credibility - 71
Augmented - 20 Credit Scoring - 117
Available Resources - 7 Cryptocurrency - 131
Culture - 8
Culture of Innovation - 6
B Current Accounts - 22
Banking Agents - 122 Customer Education - 83
Bank Verification Number - 131 Customer Relationship
Biometric Technology - 117 Management - 77
Brand Ambassadors‘ - 70 Customer Relations - 81
Branchless Banking - 56 Customer Retention - 87
Branch Structure - 97 Customer Service Framework - 88
Business Reporting - 78 Customer Service Orientation - 6
C D
Clarity and Concision - 109 Decoding - 108
Client-level Risks - 36 Demographics - 65
Comparative Transparency - 16 Dormant Accounts - 102
Competitive Analysis – 61 Downstream Market Risks - 34
137
INDEX
E H
Effective Internal Communication - 7 Honesty - 129
Efficiency - 13 Housing Loans - 25
Electronic Banking - 56 Human Resource Management - 78
Ethical Issue -124
Ethics in Marketing - 49
Effective Training Department - 7 I
Electronic Wallet Service - 124 Inadequate Business Opportunities -
Empathy - 110 93
Empirical Research - 48 Information and Communication
Encoding - 108 Technology - 114
Instant recognition - 71
Input Suppliers - 29
F Insiders Abuse - 92
Face-to-face interaction (F2F) - 113 Internet Banking - 116
Facilitated Promotion – 71 Interactive Voice Response - 116
Feedback - 111 Investment Advice - 27
Finding the Customer - 47 Investment Services - 26
Financial Institution - 9 Institutional Strategy - 6
Financial Literacy Training - 85
Financial Viability - 6
Fixed Deposit Accounts - 22, 101 J
Francis Buttle – 77
Friendliness - 110
Frequent Change in Government K
Policies - 93 Keeping the Customer - 48
KYC Policies – 82
G
Goodwill - 71 L
Graham Williams -114 Lead Management – 78
Green Finance - 43 Listening to the Customer – 48
Low Capital Base – 92
Low Staff Turnover - 7
138
INDEX
M Open-Mindedness - 110
Overdraft - 12
Macroeconomic Conditions - 8
Macro-Environment Audit - 54 P
Management Information System - Personal Digital Assistant - 116
116 Point of Sales (POS) -116
Managing Cash - 98 Precautionary Motive - 98
Marketing Audit - 53 Premium Price - 16
Market Potential - 65 Presentation - 112
Marketing - 47, 125 Pricing Objectives - 11
Marketing Capacity - 6 Pricing Theory - 14
Market Research Plan- 58 Primary Producers - 30
Market Research Process - 58 Primary Production Level Risks - 33
Marketing Strategy Audit - 55 Product Costing- 8
Market Segmentation - 59 Product Development - 1
Medium - 108 Product Diversification - 13
Message - 108 Product Piloting - 9
Micro-housing - 42 Product Pricing - 11
Micro-insurance - 42 Product Profitability Monitoring - 7
Micro-leasing - 42 Product Launch - 5
Management Information System - 6 Product Rollout - 14
Methodology-Driven - 1 Professor Muhammad Yunus - 49
Mobile Banking Operation - 56 Pilot Testing - 2, 9
Mobile Money - 124
Money Laundering - 82
Q
Qualitative Market Research - 8
N
Non-verbal Communication - 109
Nwanyanwu C. M. - 93 R
Re-activation of Dormant Accounts -
102
O Recipient - 108
Opening of Accounts - 100 Regulation - 8
139
INDEX
Remaining Competitive - 90
Renewable Energy - 43 U
Reputation Risks - 36, 71 Understanding Value Chains - 28
Report Writing - 112
Respect - 111
Responding to the Customer - 48
Responsible Pricing - 14 V
Value Chain - 37
S
Safety -127 W
Savings Accounts - 22 Warranty -71
Segmentation for New Product Word of Mouth Marketing - 71
Development - 60
Select Market Research Tools - 58
Sender - 108 X
Side-selling Risks - 34
Smart Cards - 117
Speculative Motive - 99 Y
Strategic Marketing and Planning -
61
Sustainable Banking - 121 Z
Systematic Approach - 48
T
Task Environment Audit - 54
Telephone Communication - 114
Testing Protocol - 3
Transaction Motive - 98
Transfers and Payment Services -
23
Transparency - 104
140
INDEX
141

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PRODUCT DEVELOPMENT AND

All rights reserved. No part of this publication may be reproduced,

’Seye Awojobi, FCIB

The publication of this Study Pack on Product Development and Marketing

We owe a heartfelt appreciation to the Deutsche Gesellschaft für Internationale

1. Process of Product Development and Management.

2. Basic Management Principles, Marketing Concepts and Strategies in

3. Importance of Customer Relationship Management including Counselling

4. Communication Concepts, Skills and Tools in Microfinancing.

5.2 Effective use of Communication Technology (ICT) in

Recommended Textbooks ……………………………………………..… 135

 Product Development Process 3

 Agricultural Value Chain Financing 37

 Marketing Audit Diagram 54

 Strategic Marketing Framework 62

 Eight Dimensions of Customer Service 68

 Footpath to a Great Brand 69

 Customer Relationship Management 79

 Operational Customer Relationship Management 80-81

 Branch Structure (Organogram) 98

PROCESS OF PRODUCT DEVELOPMENT AND MARKETING

1.1 Introduction to Product Development

attuned to their clients‘ needs and to competitive threats. Today, MFIs

1.2 Product Development Process

a Evaluation & Preparation

b Design and Development

Source: Brand, 2001

i Composing the Pilot Test Team

ii Developing the Testing Protocol

iii Defining the Objectives

iv Preparing All Systems

v Modelling the Financial Projections

vi Documenting the Product Definitions & Procedures

vii Training Relevant Staff

viii Developing Product Marketing Plans & Materials

ix Commencing the Product Test

x Monitoring and Evaluating the Test

Pre-conditions for New Product Development

(a) Institutional Strategy

(b) Financial Viability

(c) Customer Service Orientation

(d) Marketing Capacity

(e) Culture of Innovation

(f) Effective Management Information System (MIS)

(g) Product Profitability Monitoring

(h) Effective Internal Communication

(i) Effective Training Department

(j) Low Staff Turnover

(k) Available Resources

(o) Macroeconomic Conditions

1.3 Product Costing

(a) Why Perform Product Costing?

(b) Product Piloting

blinded by illusions. Rapid growth is one such common illusion

The 10 Steps of Pilot Testing

(c) Product Pricing

In ‗Marketing: Theory and Practice (Baker, 1995)‘, Diamontopolous

Source: Marketing Theory and Practice (Baker)

Product Development & Marketing Management (Module III)

Product Development & Marketing Management (Module III)

Product Development & Marketing Management (Module III)