Client Exit in Microfinance

Abstract

Client exit is an important issue that microfinance industry faces. It affects the sustainability and outreach of the microfinance institution and puts in question the ability of microfinance to effectively reach and serve the poor. The aim of this thesis was to examine the reasons behind client exit and to reveal the extent to which the products and services offered by the microfinance institution reflect the needs and requirements of the poor as well as to discuss how microfinance could be made a more effective poverty alleviation tool. Client exit was conceptualized as an outcome of specific sets of factors that affect clients’ possibilities and inclination to stay in lending relationship with the microfinance institution. The research made in cooperation with an Ethiopian microfinance institution revealed that clients’ exit is affected by systemic and idiosyncratic shocks, which decrease the financial capacity of the clients and consequently reduce the possibilities to continue participation in the microfinance program. The other reasons for exit were graduation or problems related to borrowing in a group. Dissatisfaction with the products and services was not a common reason for exit, but it does not imply that clients were happy with the products and services they received. The analysis of the clients’ perceptions, needs and wants revealed that clients had complaints about the characteristics of the program and products as well as quality of service. The implementation of the relevant changes could not only increase the client retention and participation in the microfinance programs, but could also help microfinance to become a more effective tool in poverty alleviation.