The microfinance market

Opportunity International’s first loan was $50 to an Indonesian farmer who wanted to buy a sewing machine to start a tailoring business, in 1979.

Co-founder David Bussau’s ideas made him one of the pioneers of the then burgeoning microfinance industry. Today the organisation serves 3.2 million clients in emerging markets worldwide, with low-income consumers in Africa being its key market. It provides microfinance services such as loans, savings accounts, insurance and financial education to what its UK communications manager Mark Kingston describes as “the poorest of the working poor”.

And in a similar vein to mobile operators such as MTN, which also offer savings accounts that work much like a prepay top-up account, Opportunity International is looking to creating niche insurance products. Agricultural insurance for farmers, for example, or insurance that helps people retain stability in the event of civil or economic breakdown.

Kingston recalls that one of the earliest purposes of the industry was simply to prove that the poor could be credit worthy. Success in doing so has seen more global corporate brands, such as Barclays, join the microfinance game. But Kingston says there is a clear distinction between commercial businesses and social entrepreneurship.

First, the likes of Barclays aim for slightly higher income customers than Opportunity International, he claims. And the charitable element of organisations such as Opportunity International means there are no shareholders collecting dividends – any profits are ploughed back into expanding services and even reducing fees and interest charges.

“There was a small town in Mozambique that had a Barclays, but it closed and we then took over the branch. That reflects it was the kind of demographic that would have been better served by us,” Kingston notes. “So we don’t look at Barclays as competition. That’s not to say there isn’t room for commercial players; the market is so big that a purely philanthropic approach would not be enough to serve everybody.”

Commercial players tend to focus on urban areas, Kingston adds, while Opportunity International uses urban branches as a springboard into rural communities to reach the larger, poorer population.

Thus lies the key to his company’s continuing expansion and fulfilling its goal of reaching a further million customers within the next two years. While the microfinance market is estimated to be around 130 million customers worldwide, Kingston says its potential for growth is still immense.

“The figures don’t take into account the people who could potentially benefit from microfinance. There are various statistics on the number of people who live on $1 or $2 a day and it’s into the billions, so it’s a big market,” he says.

While offering free financial education is a key brand-building tool, it also ensures that Opportunity International customers are aware of the purpose and commitment of a loan. It appears to be working – the company’s current loan repayment rate stands at 96%.

An active education agenda is also coupled with a focus on customer care to facilitate the good word of mouth that so many brands in Africa must utilise.

“I can’t overemphasise the effect of word of mouth, and the reason it is so effective is it is based on trust,” Kingston explains. “If you’ve had a lot of experience of institutions being untrustworthy and authoritarian, then you would be suspicious of any institution that orders a loan.

“The way we have expanded our client base has been in no small part thanks to prioritising the relationships we have with our clients. Then when their livelihood starts to form and they see the benefits, people know about it and that news travels. Other means of marketing are important but word of mouth is even more so.”