What about Non-Financial Services?

Lively discussion
During the Technical Committee (TC) meetings leading up to the final methodology for Truelift Assessment and the Pro-Poor Principles, there was a great deal of discussion about non-financial services and whether or not they are essential to pro-poor microfinance. Initially, the TC explored a full dimension of the methodology dedicated to assessing non-financial services when undergoing Truelift Assessment. As these discussions evolved, some broader questions rose to the fore, including the pro-poor intent and strategy behind services provided, and the degree of commitment to pro-poor services in terms of quality, coverage, and duration.

Appropriate non-financial services
The result of the Technical Committee (TC) deliberations ultimately yielded Pro-Poor Principle #2: Services that Meet the Needs of People Living in Poverty. “Services” is perhaps an oversimplification as we include here products, delivery channels, and any other modifications that an MFI has implemented in favor of its poor clients. The indicators in this section of the Truelift Assessment focus on how well products and services meet the needs of people living in poverty. These services may or may not include non-financial services, but the MFI should have a strong theory of change for meeting the identified needs of its clients. A client centric approach to evaluating needs is a critical step in achieving success in this principle.

Thoughts from Technical Committee member Anton Simanowitz, SPM specialist working with Oikocredit and Imp-Act Consortium:

I recently had an interesting conversation with the CEO of a major Latin American MFI, who insisted that they would not provide non-financial services as they are a financial services organisation. However they are investing heavily in designing a new health microinsurance product. The MFI that had identified ill health as a major factor behind loan arrears, and addressing this need was good for the client and the business. When I probed it seemed that the major health problem was diarrhoea, mostly caused by poor sanitation practices. Perhaps a health education approach would have been a simpler, cheaper and more manageable response than designing a health insurance product? Perhaps, but as a non-financial product it was not considered as an option.

We need to recognise that offering non-financial services does not necessarily make an organisation more social. Services that meet the needs of people living in poverty can be quite varied. Financial services help people manage their money to cope with risk and emergencies, to meet anticipated day to day and life-cycle expenditure, and to make productive investments to increase their income. In all of these contexts we can see a potential role for non-financial services, for example: improving financial or business management skills of clients, improving market opportunities, or reducing the risk of suffering from ill health or another emergency.

In these cases financial and non-financial services are complementary, increasing the chances that a client will achieve the outcomes that financial services are designed to provide and therefore making it more likely that the client will repay a loan, make savings deposits, pay an insurance premium and therefore contributing to the financial performance of an MFI. A strategic choice needs to be made based on client need, local context as well as the capacity of the MFI to deliver. These variations suggest that there is no “one right path” to providing services relevant to poor people everywhere.

What has been your experience with
Services that Meet the Needs of People Living in Poverty?

Leave your thoughts in the comments section below

Pro-Poor Principles series
On 15 May 2013 we announced our Pro-Poor Principles in a blog post, found here. In this continuing series of blog posts, we will elaborate on the path that brought us to these Pro-Poor Principles of microfinance. We appreciate any thoughts you have on the Pro-Poor Principles and how best to apply them to practice. If you would like more information, please contact MeasureLearnChange[at]gmail.com.