The transition of the microfinance industry from product-to client-centered is overdue. It is also easier to say than to do.
This slow transition has been accompanied by two clear trends in the industry: (i) the diversification of microfinance toward a broader market, which means serving the low-income communities in general, not just microentrepreneurs; and (ii) the development of a menu of financial products designed to achieve multiple purposes (i.e., not just to help clients' businesses grow).
This paper first explains why microfinance provision needs to expand beyond enterprise loans. Then, it describes a set of financial products that help clients to manage risks and economic stresses. Third, it highlights some motivations for offering risk managing financial services. Finally, in an effort to promote the client-centered approach, this paper discusses the challenges associated with understanding the demand for microinsurance.
BEYOND MICROENTERPRISE LENDING
The evolution of microcredit into microfinance in the early 1990s began to dilute the focus on entrepreneurs. The important addition of savings (at least voluntary savings) into the product menu changed the perspective from 'lending money to microentrepreneurs' to 'providing low-income communities with financial services'. This shift in perspective recognizes that savers and borrowers are often different people. Entrepreneurs are not noted for their savings habits since they often plow excess cash back into their businesses. Furthermore, not all poor people are entrepreneurs and not all entrepreneurs want loans.
The financial transactions in low-income communities are not too dissimilar from those in developed markets. Besides business loans, people may need to borrow if there is a spike in their expenses (or a drop in income). They may want a loan to buy, build or add on to their house. People want a safe place to save their assets, for cash management or investment purposes. They may need money transfer services for bill paying and remittances. And they may even want insurance to cover the losses associated with certain