Product Design: Aligning To The Needs Of Rural
Written by Richard Reynolds, Global Director of Products And Portfolio, VisonFund International
Today, due to the development of the microfinance sector and improved technology resources, clients have more options and on the whole industry provision has improved. But access to credit is not enough and as an industry we need to ensure we are creating and providing products to align with the diverse needs of our clients, particularly those based in rural areas.
Historically microfinance was developed out of urban and peri-urban areas and a focus on finance for small commerce. Agriculture, the main activity in rural areas is more complicated. Its seasonal nature, ‘lumpy’ cash needs, increased market and climate risks and additional costs of rural lending all make for different product requirements. This is compounded by a push to provide lower-cost finance for farmers. The challenge is that these do not always add up.
We need better market information that understands what farmers want, and demonstrates their preferences. Everyone wants cheaper loans, but when you are asking farmers if they prefer cheaper loans, more capital or more on-time capital, the answers may surprise those unfamiliar with agricultural cycles.
When we speak to farmers or other entrepreneurs, the most critical points are access to finance in a very timely manner and in the right amounts. Without receiving money at the right time, the farmer can’t buy the inputs needed and their production becomes sub-optimal. It tends to be salaried people who are more concerned about price since they do not have the same urgency a farmer or a micro business owner has in relation to fast access to cash. This is not to ignore price, but it is important to understand why people need finance services that fit.
While VisionFund’s focus is credit, we are increasingly able to offer savings and insurance products to rural clients who are often impacted by disruptive events that change their income flow. These are still in the early stages in many countries, but offer huge potential to improve resilience against shocks whether from major climatic events, or other household events such as illness or provision of school fees. If we can limit the impact of these shocks through increased access to savings and insurance then we have the chance to limit the de-capitalisation of the very business activities that sustain people’s livelihoods.
At VisionFund we continue to strive to make sure our products are designed for farmers and we understand what farmers really need. This will mean a lot more listening to clients, understanding farming systems and creative ways of managing risk.
We must continue to work towards delivering solutions that create lasting and positive change.