Institutional Challenges in Microfinance Sector

This paper emphasizes the need for microfinance institutions (MFIs) to focus their credit approach in a more market-oriented perspective. The paper argues that:

• An MFI must effectively position itself against competition within the industry;
• The importance of planning a marketing strategy is to find ways of effectively positioning the MFI against competition in the mindset of the customers;
• An MFI should frequently compare its products, prices, promotion and delivery of services with its close competitors;
• Even though MFIs are driven by the commitment to combat poverty, the scale and performance of the microfinance sector is slowly approaching the banking system;
• Hence, MFIs should focus their credit approach in a more market-oriented perspective.

The paper examines the microfinance sector in India, and the competition that MFIs face from commercial banks, nationalized banks and other actors. It concludes that:

• MFIs should realize that real customer service through commercialization should be the bottom line for moving forward;
• In a competitive environment, customer satisfaction and commercialization should be the driving force for survival and growth;
• Competition will promote good governance and prudential management in MFIs, improving access to finance, encouraging innovations and variety and paving the way for commercialization of the microfinance sector;
• MFIs should consider challenges in interest rates, marketing strategies, customer feedback and analysis and marketing audits in order to sustain credit operations.