Recently, MicroFinance South Africa (MFSA) conducted a study into the current trends and views held by consumers and the opportunities for those in the microfinance industry.
An all-in-one solution
One of the main opportunities identified by the research is the need for a holistic lending solution. People are most likely to use their loans for, the most popular responses were:
- Education financing
- Business opportunities
- Consolidation of loans
- Home/personal improvements
This means that microlenders who address several needs have an advantage over others. The fields microlenders should look at addressing are:
- Small business funding
- Risk management
- Education funding
- Funeral funding
Consumers view banks as strict and relentless, while finance houses are flexible in their terms and conditions. Microlenders should see this as an opportunity to set themselves apart from banking institutions. Respondents highlighted flexibility as a key reason for remaining at a particular finance house as it’s seen as a sign of good customer service.
Strong relationships also play an important role. Understanding a client’s needs results in strong customer loyalty. This is where smaller microlenders often have the advantage of being able to form personal relationships with clients easier than larger institutions.
The importance of compassion
Because clients rely on microlenders during times of stress, clients base their choice of credit provider on:
- Good customer service
- Established relationships
The research found that people rarely default on payments because of poor debt management, but rather because of a loss of income or employment. It’s during times like these that flexibility and empathy from the credit provider is of utmost importance. The fact that many borrowers apply for loans because of desperation is testament to the fact that microlenders need to be open, flexible and accommodating when clients face challenging situations.
Competing with loan sharks
Because clients access funds for emergencies and tend to be desperate, whether a microlender is registered with MFSA isn’t a key driver when choosing a credit provider.
This desperate need for cash in times of trouble is often the main reason why people still make use of “loan sharks” or “mashonisas”. Because of credit providers’ strict terms and conditions and the strong community relationships with “mashonisas”, many consumers continue to make use of loan sharks.
To compete with this, microlenders need to promote themselves as a dependable alternative.
The importance of advertising
Offering superior customer service, flexibility, personal attention, and efficient loan processing means nothing if your target market isn’t aware of it. The main channels identified by the research are:
- Newspaper ( the Daily Sun as a main source)
- Word of mouth
- Commuter advertising
The fact that the internet doesn’t feature is testament to the fact that microlenders should not rely on it as their primary marketing channel.
Other factors influencing consumer decisions:
- Minimum documentation requirements
- No waiting period for approval
- Loans paid out immediately
- Fixed interest rates.
Key items to focus on
- Offer high levels of customer service
- Timeous and efficient loan applications
- A one-stop-shop solution to cater to individual needs
- Use the correct marketing channels
- MFSA Research identifies market opportunities for microfinance!