Client motivation has already been established as being vital to the success of microfinance. This post mentions a few tools available to microfinance practitioners for improving credit discipline (motivating clients to maintain good repayment rates).
Positive Client Motivation Tools in Microfinance
Positive client motivation tools ‘encourage’ good credit practices (prompt repayment of loans) on the part of microfinance clients (some of these have been mentioned on the Radical Frontiers Blog):
- Offering flexible microloan repayment schedules to clients with good credit ratings
- Provision of larger microloan sizes and lower interest rates to the most productive and responsible clients
- Adapting microloan, micro-savings, and micro-insurance design to suit needs of clients
- Improved service delivery to clients by expediting operational processes (i.e. preferential treatment allows typical 2-week loan approval process to be reduced to 1 week),
- Inclusion in ‘social development programs’ that focus on client welfare.
- Assisting clients to solve their business and personal problems.
Negative Client Motivation Tools in Microfinance
Negative client motivation tools ‘discourage’ poor credit discipline (non-repayment of loans due to improper financial and business management) among microfinance clients. Here are three such tools, as listed on the Radical Frontiers Blog:
- Peer Pressure – the group lending methodology exerts significant peer pressure upon group members to promptly repay their loans (otherwise the credit rating of the entire group may fall, or the group member at fault may be removed from the group)
- Credit Rating – clients with poor credit ratings may be given smaller microloans with higher interest rates to compensate the additional credit risk.
- Penalties – these may include higher interest rates, smaller microloan sizes, removal from lending group, etc.
Can SKS Microfinance buck the industry’s momentum to doom?
When Akula naively disclosed that collections have come in lower than normal post the Andhra Pradesh government ordinance, the effect was a virtual invitation to bears to hammer the stock. And the bears responded with glee. SKS share touched a historic low of Rs 601 in the National Stock Exchange (NSE) – a fall of 60% from its all time high of Rs 1,490 – trading stopped by triggering the 20% downward circuit breaker! Feeling the pinch, Akula and his CFO, Dilli Raj walks into CNBC-TV 18 Newsroom to give an interview in an attempt to stem the tide. The interview succeeded in arresting the decline of the stock, giving it a small bounce and is trading around Rs 710 since.
The question is whether SKS can hold on to its strong support between Rs 705-711 or would this range instead turn into a strong resistance level for that stock? To answer this we need to revisit Akula’s claims on November 18th to ascertain their veracity on the basis of new information now available to the market.
Read More: http://devconsultgroup.blogspot.com/2010/12/can-sks-microfinance-buck-industrys.html