Client Exit in Microfinance: A Conceptual Framework with Empirical Results from Mali
This paper determines the factors that affect client exit in microfinance.
The paper develops a theoretical model that focuses on the borrower’s decision to exit the microfinance group lending program. This decision depends upon her belief about her partner’s type and her own outside financing option. The model permits the borrower to evaluate her current and future rewards of staying in or exiting the program. The paper collects empirical data from a group lending program in Bamako, Mali, and identifies the following factors influencing client exit:
- Membership duration;
- Belonging to a group with repayment problems;
- Using additional sources of credit;
- Dependency ratio of household;
- Educational levels;
- Loan terms and rewards;
- Reliability of partners.
In order to reduce client exit, the paper recommends that the MFI train its staff to determine clients’ effective demand and repayment capacities. Further, MFIs could reward clients with good repayment track record by graduating them to individual loan contracts. Finally, MFIs must collect and analyze information from current and exited clients.
