Deconstructing Drop-Out: Uncovering the Reasons Behind Attrition among Village-Banking Microfinance Clients

In this paper, Freedom from Hunger presents the stories and reasons for dropping out from 59 village-banking microfinance clients representing seven countries and microfinance institutions (MFIs). Clarity on the underlying factors contributing to client drop-out can be a launching point for an expanded discussion on the objectives and measurement methods of client retention. 

During open-ended interviews, clients were asked to explain why they had dropped out of a microfinance program. The results of these qualitative interviews, or impact stories, revealed that it was most often a series of events that led to the decision to leave rather than a single cause for dropping out. Of the reasons for dropping out mentioned, health shocks, business failure and group issues were found to be both the top contributing factors and root causes of client exiting.

The research found combinations of reasons that tended to occur together. For example, when clients experienced a health shock, they were also likely to report their business failed and they defaulted on their loan. If they mentioned having relationship issues, either with other group members or their agent, they also were likely to mention being denied a loan. An understanding of the most common contributing factors to dropping out, namely health, business failure and group issues, can help institutions anticipate and respond to client needs before drop-out occurs. Misdiagnosing reasons for dropping out by focusing on the last link in the chain of events leading to drop-out could result in the wrong interventions being applied.