Microfinance began as a manner of empowering the low income segment by boosting their economic activities with the help of microcredit facilities, but has evolved over the past two decades into a serious market with a lot of profit potential. Indeed, as of 2013 the Global Microfinance Market is valued at a whopping US$99.56 billion and that number is set to increase at a CAGR of 16.61 percent through to 2016.
Profit potential doesn’t always mean success however, especially when multiple players are chasing the same prize. Presently there are over 3,000 MFIs operating in the six key regions of this market. With such a densely competitive landscape, vendors are forced to lower interest rates in order to draw customers, which is essentially their only way of making money from the services they offer.
So what’s a microfinance company to do?
Well, it comes down to four key factors:
1. Focus on the unbanked segment
Although the origins of microfinance began in the low-income customer segment, this part of the market is still largely untapped. Tapping this large unbanked segment is proving to be a tremendous growth driver for MFIs.
2. Adopt new technologies
Lately, there have been a wide variety of technological advancements which have altered the contours of the Microfinance sector in a positive way. The most impactful of these advancements is the use of mobile banking, MIS, and other software to deliver MFI services. By adopting mobile applications and automatic text messaging systems to notify clients of payment dates, MFIs are able to lower cost and time investments by almost 50 percent.
3. Diversify products and services
Up until now, the offerings of microfinance institutions were limited to micro-credit to services, but companies who wish to remain competitive in the market are rapidly expanding their portfolios by joining up with pension, remittance, and insurance providers to cross-sell products. This allows MFIs to market themselves as a one-stop solution for financial needs and second, giving them the cutting edge over another vendor who may only offer one service.
As is the case in any industry, the higher the demand and money to be made is, the more difficult it becomes to step out of the crowded pack as the go-to vendor for the streams of eager consumers. This is most certainly the case in the Global Microfinance Market. With careful strategizing and deployment of the above drivers however, we can almost guarantee that the profit rewards will offset this challenge by a longshot!
For more info, view our 2012-2016 report on the Global Microfinance Market.
