Lecture from 2012 for Princeton Woodrow Wilson School Lecture on Product development and Microfinance.

1. 1
Product Development
and Microfinance
Barbara Magnoni
President, EA Consultants
November 16, 2012

2. 2
Where do new products come from?
Supply side
“our rural clients should have more appropriate
products for their businesses”
“we need to diversify/increase our funding”
Demand side
“rural clients like having access to short term
loans, why?”
“clients are asking to have savings”

3. 3
Adding donors to
the mix can be...fatal
+
“a donor is asking me
to develop a savings
product”
“there is donor funding
for product
development for
savings, this could be
our chance”
look out for “trendy”
ideas:
we would like to develop a credit product for
our 2,000 rural customers
we would like to design a loan product
especially for women
we would like to offer clients loans for
cookstoves that produce less pollution
we would like an insurance product to protect
farmers’ crops
our project aims to develop 4 new products for
our clients
lets discuss
why this is a
problem?

4. 4
CAUTION:
PRODUCTITIS

5. 5
...but how are they actually
made?
Adapt
processes
product
design
Write product
manual
Adjust cells in
information
systems
forms and
other
paperwork
Train sales,
operations
and IT staff
Regulatory
issues (if
applicable)
Pilot if
applicable$ $$
Why is Productitis a bad thing?
also, products have to be tracked, analyzed (risk & profitability)

6. $
Product design alone is time consuming
1. Decision making
Why do we want a new product? what product are we interested in and why? should we develop it
internally or with outside help?
1. Data mining and segmentation
who are our clients? who will be the target audience?
if they are not existing clients, mine census and other data
1. Establish one or more hypotheses
ie. we are targeting our poorest female borrowers and believe they would be interested in group
loans
1. Market Study
supply side
what are the existing products in the market
mystery shopping
geo-mapping
demand side
focus groups
surveys
1. “practice products/delivery”
delivery
is this the right channel for this product? capacity?
1. is there trust?
Analysis and Design/testing of prototype
1. more surveys?
{product
design

7. ...and then there is piloting
Piloting is essential to fix kinks in operations, but should
not be used to validate demand
Kinks can and must be fixed quickly- Information
Technology is key
“My Board has no patience for piloting, if its a good idea, they
want to see it make money immediately”
- MFI General Manager on rural loan products
“My company gives us one year to prove a product is profitable, if
it isn’t then we can’t continue”
- Director of Mass market and Micro Insurance of a large
insurance company
Piloting is controversial!

8. 8
...what’s the alternative?
Developing New Products
copying what others are doing
lets discuss

9. 9
So how do we make sure the product
is appropriate for clients?
Ask the right people the right questions in the right order
Observe their relationship and
interaction with the institution
understand the incentives of
the people who will sell them
products

10. 10
Sampling is critical when
selecting small groups
1. Define segmentation criteria
• mine data sets from MFI
• mine other data (HH surveys,
census, research)
1. segment clients by large, measurable
categories (gender, life cycle, business
size/type)..MFIs won’t/shouldn’t develop
products for small groups
2. Randomly choose respondents from
target segments for focus
groups/surveys
3. Don’t let the institution pick!
Asking: an art and a
science

11. 11
Research questions should be specific- have a hypothesis but be open to
change
Methodology for the market study can and should vary depending on goals,
existing information, and existing hypotheses
1. focus groups
2. individual interviews (client math)
3. “test” delivery
4. preferred delivery mechanism/trust
Implementation should be done by people who are trained to engage, discuss,
and analyze...not necessary local
The study should inquire about more than just the product
1. how are people currently borrowing/saving/insuring and can we do
better?
2. how does the product fit into the way clients see us?
Asking: an art and a science

12. 12
What’s wrong
with these
pictures?
lets discuss

13. 13
What’s right with
these pictures?
lets discuss

14. 14
is it a go?
Define the scale of your potential market
Calculate a pro forma estimate of profitability:
revenues and costs
Take opportunity costs into account
Ensure there are incentives and resources in place for
the product to sell
Set up simple monitoring of client satisfaction,
revenues, and cost

15. 15
Words of note: academic research can be your
best friend and your worst enemy
research that can point to specific interventions that increase take
up of existing products can be very useful in designing delivery
mechanisms
showing a 5% uptick may be a great academic result, but it won’t
move management decisions
research that shows the benefits of training may not calculate all
direct and indirect costs to the institution
research that shows index insurance allows farmers to leverage is
good...but for who? The insurer will be wary of covering high-risk
farmers
health insurance research pointing to a need for primary health care
rather than hospitalization overlooks the fine line between the two in
under-resourced economies
lets discuss
Keep it
in your
back
pocket

16. 16
Thank you!
Barbara Magnoni
bmagnoni@eac-global.com