Paper

Client Retention and Overlapping

Analyzing overlap of microfinance services among clients
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This paper analyzes client retention strategies, and assesses the potential risk of overlapping to MFIs and their clients in Nepal.

For MFIs, overlapping is a fast track to sustainability, but it might also lead to loan default. For clients, multiple memberships provide an opportunity to choose institutions and products and obtain services from more than one institution. It does, however, put them at risk of falling into a debt trap. The study finds that policy induced loan ceiling is one of the main reasons for overlap. Other reasons include access to new MFIs with innovative products, need for additional loan amount and interest rates variation across MFIs.

Major MFIs in Nepal have concentrated their business in specific geographic areas. As a result, overlapping is as high as 93% in some cases. The paper recommends that:

  • MFIs should enhance their coverage intensity and increase outreach;
  • MFIs must maintain a mechanism of credit information to ensure that clients with overlapping services are not at risk;
  • Nepal Rastra Bank should develop innovative incentive mechanisms for MFIs to target the poorest clients and also review the collateral free group loan ceiling.

About this Publication

By Rijal, K., Acharya, S., Rupakheti, A.
Published