Microfinance Channel

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Description of Microfinance Channel. Explanation.


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Microfinance Channel

Definition Microfinance Channel. Description.

A Microfinance Channel is a new distribution channel that has been created after the raise of Microfinance. See also: Channel Management.

Once Microfinance Institutions had established their capillary network in certain regions, they became aware of their direct contact with thousands of people representing homogenous purchasing attitudes and needs. Leveraging their huge base of borrowers, many Microfinance Institutions decided to expand their product lines and extend them to basically any type of product that could accommodate a typical Bottom of the Pyramid customer.

The challenge for these institutions is being able in the coming years to deliver products that can range from soaps, to clothes, consumer electronics, insurance, and so on. The outcome of such ongoing process is the creation of a new distribution channel particularly suited for poor households, what it is known as the Microfinance Channel.

Considering that market access and distribution is a main limitation of doing business with the base of the pyramid, microfinance institutes, through their agents that visit customers everyday, constitute a breakthrough direct channel able to reach this segment.

Microfinance Channel Strategies

Key strategies in order to be successful in serving these type of customers are:

  1. Standardize business processes and products. Following the model of giants, like McDonalds’s, to distribute at the base of the pyramid it is necessary to create simple and standard products that fit all, and make use of latest technology to reduce any time consuming manual work.
  2. Exploit Economies of Scale. The base of the pyramid is made of a huge numbers of price sensitive individuals with homogenous needs: adopt a Cost Leadership Strategy to manage big customers portfolios and offer always the best price on the market.
  3. Focus on Customer Loyalty. More than any other type of customers, those at the base of the pyramid live often in small local communities where Word of Mouth can have strong effects (positive and negative). By listening to customers needs, working aside them and scaling up their loyalty, the viral effect of a positive word-of-mouth will serve as an automated free marketing campaign. Since the Microfinance Channel products and services make large use of loans, only a deep customer loyalty is a viable route to obtain high repayment rate and keep the business profitable.

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Compare with: Microfinance  |  Microinsurance  |  Multi Channel Marketing  |  Blue Ocean Strategy  |  Bricks and Clicks

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