dyn bds MF BDS for by benbenzhou






       Kathleen Stack, Vice President
           Freedom from Hunger

    Middle East/Africa MicroCredit Summit
              October 12, 2004
Why Combine Microfinance and BDS?
           Existing client base
           Potential for large scale impact
           Lower marginal costs
           of BDS with piggybacking
           Opportunity to cover costs
            of business services
           Demand and need of MFI clients
           May improve performance of MFI
Ways to Integrate MF and BDS
Microfinance and BDS services are offered
to the same clients in the following ways:

Parallel -    Two or more programs of
               the same organization

Linked -      Two or more independent
               organizations operating in the
               same area

Unified -     Two services delivered together -
               especially useful when rural people
               have access to few, if any, other
               development services
APPROACH                     Microfinance
                              Institution                         •Group
 •Planning,                  Supervisor/Trainer
 management                                                       •training
 supervision                                                      •Credit
 •Staff                       Field Agent
                                                                  •Supervision and
 Training and
 progress                                                         •Facilitation of
 tracking                                                         business sessions

       20-40      20-40                                               20-40
       clients                     20-40                20-40         clients
                  clients          clients              clients

                 Credit and Savings Groups
                       Regular meetings for financial
                          and educational services
THE SERVICE: Basic Business Education
                                                     Benefits and
Module    Example           Applications           Improved Business
           Session                                   Performance
         Using         Reduced diversion of       More steady and
Manage    credit for     loan capital to             increased working
Your      productive     nonproductive uses          capital
Business investment     Improved tracking of       Reduced input costs
Money     s              actual business returns    Increased business
         Separating    Increased                   profitability and
          family and     reinvestment                profit level
          business      Strategies to reduce
          money         stock loss
         Preventing
Module   Example Topics    Applications       Benefits and Improved
                                              Business Peformance
          Think like a     Increased         Increased product quality
Increase   customer          responsiveness     and diversity
Your      Strategies for    to customer       Increase in repeat
Sales      product           demand in          customers. Increased
           improvement       product            number of customers.
           and               selection and     Increased sales
           diversification   marketing
          Marketing        Changes in
           strategies        selling
          Customer          strategies
           service           (packaging,
Module    Example        Applications         Benefits and Improved
          Topics                              Business Performance
           Importanc     Improved            Fewer cash or
Plan for a e of            decision-            enterprise “crises”
Better      business       making, based       Increased owners
Business    planning       on sales and         draw
           Paying         financial           Increased business
            yourself a     projections          sales and profitability
            wage          Consultations
           Plan for       with suppliers,
            unexpecte      interviews with
            d events       potential
           Plan for       customers and
            greater        product testing
            profits       Setting and
                           earning a target
                          Improved risk
  Traditional Integrated            New Unified Model
         Programs                BDS Market Field Test
Training required             Optional and Required
                              Training are compared
Training delivered up-front Training delivered during
                              the loan cycle
Training requires literacy    Training adapted for
                              illiterate populations
Training requires significant Training offered where (and
classroom time in a central when) microenterprises
facility                      usually go to repay loans –
                              in short, ½ hour sessions.
Training based on western     Training based on local
business concepts and using business practices and using
many foreign examples         customized, local examples.
Training offered for free –   Training requires a fee or
sometimes paying              covered through interest and
participants to come          is expected to contribute to
                              financial sustainability.





BDS Market Development Model

 Development Agenda               Commercial Orientation

       Donor                                         SE
                               Provider              SE

            BDS                  BDS                 SE
         Facilitator           Provider

                               Provider              SE

Basic Principles:
Impact-centered programs;

Specific, focused, tailored services;

Demand-driven services;

Sustainable Service delivery; and

Development of competitive, vibrant BDS markets.
                THE PERU STORY
In Peru, a successful, fully financially viable village
banking MFI requested technical assistance from
Freedom from Hunger to to learn how to provide low-
cost, high impact business education to poor clients. The
idea was to train credit officers of the organization to
deliver business education to village banking clients
during their regular meetings. The two organizations
decided to seek funding to integrate business education
through USAID’s BDS IGP.

     Find a local facilitator
     Identify other interested providers
     Demonstrate demand for business education

    The target group we wanted to serve are poorer than
    typical recipients of business development services. We
    completed a poverty profile of 149 MFI clients and
    compared them with a business survey from a recent
    study of the Peruvian market for business development
    services carried out by IDESI.1

Mercado para Servicios de Desarrollo Empresarial en el Peru, Flavio Flores A., Forrest L. Metz, IDESI

Nacional, Lima, Peru. 2001.
Table 1: Comparison of Poverty Indicators of One
MFI’s Clients with Businesses Surveyed by IDESI
                                                MFI IDESI
% of businesses with no paid employees          87% 12%
% of businesses with <=5 paid employees         100% 79%
% with secondary complete or higher education 38% 95%
% with university or technical institute degree 7.3% 54%
Monthly sales under S/. 2,000 per month         68% 38%
Monthly sales over S/. 10,000 per month         7%   13%
             The Peru MFI/BDS Program Design
Development Agenda                   Commercial Orientation


                                MFI                  VB
                              Provider               VB

    MED                         MFI                  VB
  Consortium                  Provider

                              Provider               VB

                      The Design
The Facilitator
a consortium of microenterprise development organizations
throughout the country
primarily microfinance but a growing technical capacity in
experience in business training oriented to higher-level

Adapt and Pilot Test the services with one MFI
large client demand
strong financial performance
analytical skills
champion for the approach
Board and staff buy-in
willing to invest its own time and money
willing to experiment with voluntary and mandatory education
Facilitator to train 6 MFIs
3 business modules
training of trainers
supervision and management systems

Research - FFH and Princeton-based
We wanted to answer the following questions:

What is the effect of the business training
services on client business practices, business
income, business assets, employment,
household consumption, household income and
household health?
Which adopted business practices are more likely to
yield better business and household outcomes (this
helps understand which training modules work best)?

Is the impact different for those with high versus low
demand for the training services? This has immediate
implications for the optimal pricing structure for the
services, as well as the appropriate targeting approach
for identifying potential clients.
What is the effect of offering business services on the
outcomes for the financial institution; specifically, client
retention, savings level, loan repayment rate, loan
amount and attendance? Furthermore, how does the
method of delivery (mandatory vs. voluntary) influence
this impact?

What is the relative demand for business education
services and are there differences among client
“niches” for these services and the range of packaging
options? What are the best strategies for stimulating
client demand for these services?

1. IMPACT-CENTERED: Who does the
program serve?

Peru program aimed to reach at least 10,000+
very poor microfinance clients with high quality
services offered through 6 MFI providers.

Program included an impact evaluation to
determine the affect of services on clients, their
businesses, households, and the MFI.
  Business Development Services must:
    Address specific SE wants and needs;
    Focus on high-priority issues; and
    Be tailored to add high value to SEs.

Basic business education geared to clients lack of
knowledge and skills in basic business planning,
financial management, marketing and sales.

Lays the groundwork for interest in more advanced
services such as improved production techniques,
and market access, inputs and infrastructure and
technology services.
 3. Demand-Driven Services
     Respond to SE wants and needs;
     Are paid for by SE or commercial actors
     with vested interest;
     Put immediate financial pressure on
     supplier to provide relevant services.

Market Research included 1) a UAI type individual
survey of 149 MFI clients or potential clients, 2) focus
group discussions with an additional 111 MFI clients at
the end of their regular group meetings, 3) a market
test of one business education session.
Market Research Findings: The very poor do not
actively demand available BDS because they

Do not have time
Do not have skills that will allow them to benefit from
 complex value added production services
Cannot pay full cost of services
Do not see services relevant to their own businesses
 therefore do not value them
Are not aware of BDS

The poor need and want basic business education as a
part of the regular group meetings.
Table 4: Awareness and Use of Business Services

                                                                                     USED: %
                                                                                         who      KNOWS
                                                                          USED: %     reported   OTHERS:
                                                                            who        having     % who
                                                                          reported   used, not   reported
                                                                           having    including   knowing
                                     AWARENESS: % who reported              used       the MFI   someone
                                    having heard of, or are aware of …                           who used
                              Obs.   Mean Error          95% Conf.         Mean       Mean        Mean
Training for business           149   11.4% 2.7% 6.8%             17.4%       7.4%        2.7%      10.1%
planning and management
Training for accounting         149     14.1% 3.0% 10.1%         22.1%       10.7%        5.4%      11.4%
and money management
Services for accounting         149      6.7% 2.1%     2.6%      10.8%        4.7%        4.7%       6.0%
and money management
Services to help find new       149      8.7% 2.2%     3.6%      12.5%        6.7%        4.0%       6.7%
clients or access new
Services to help with legal     149      4.7% 1.9%     1.7%       9.0%        2.0%        2.0%       2.7%
Services to help improve        149      3.4% 1.5%     0.4%       6.3%        3.4%        1.3%       3.4%
access to supplies
For producers, services to       11      9.1% 9.1%      -        29.3%        9.1%        9.1%       0.0%
improve product quality                            11.2%
Services to improve             149      0.0% 0.0% 0.0%           0.0%        0.0%        0.0%       0.0%
access to transportation
Technical training              149      1.3% 0.9% -0.5%          3.2%        0.7%        0.7%       1.3%
Information and                 149      2.0% 1.2% -0.3%          4.3%        1.3%        0.7%       2.0%
communication services
                                Business Problems and Sources for Help N=149
                                                                      SOURCE OF HELP: Percentage of Respondents Who
                                                                           Sought Help from Each Type of Source

                                                                                    INFORMAL                FORMAL
                                                                        Sought                         TOTAL
                                                                      help, as a                      FORMAL,
                                                                          % of     TOTAL               as % of
                                                             Report      those   INFORMAL,              those
                                                              as a        who      as % of TOTAL         who
                                                             Proble    report a those who INFORMA      sought TOTAL
                                                               m       problem sought help L             help FORMAL
Marketing      Competition                                    79.9%        11.8%       57.1%   6.7%       22.8%    2.7%
               Low sales                                      76.9%        12.4%       43.3%   5.4%       27.1%    3.4%
               Low purchasing power of clients                69.0%         9.0%       29.8%   2.7%       37.3%    3.4%
Finance        Lack of financial capital                      90.5%        65.7%        6.1%   4.0%       83.8%   55.0%
               Selling on credit                              63.7%         6.5%       31.2%   2.0%       31.2%    2.0%
               Lack of management or finance knowledge 64.5%                9.9%       40.7%   4.0%       20.4%    2.0%
               High costs of doing business                   38.5%         5.5%       12.3%   0.7%       24.6%    1.3%
Inventory      Family consumes my inventory                   40.3%        18.3%       40.3%   7.4%        0.0%    0.0%
               Lack of availability of supplies or materials 32.4%          8.7%        0.0%   0.0%       30.9%    2.7%
Infrastructure Cost of transport                              39.3%         8.8%       15.3%   1.3%       23.0%    2.0%
               Lack of own store                              43.9%        18.5%       32.7%   6.0%       10.9%    2.0%
               Rent of location                               14.8%        18.2%        7.4%   1.3%        7.4%    1.3%
Other          Low quality of employees                       11.5%         0.0%          n/a  0.0%          n/a   0.0%
               Difficult to comply with govnmt regulations 52.8%            2.6%       51.0%   1.3%        0.0%    0.0%
               Difficult to pay taxes                         60.1%         2.3%       29.8%   0.7%       29.8%    0.7%
               Other                                           8.2%         9.1%        0.0%   0.0%        7.4%    0.7%
               AND USE OF BDS
Not only are business development services for this level
of clientele not available, but that without further exposure,
these clients do not even realize what such services would
When clients do report seeking help for their problem,
more often than not they report an informal source of help,
such as family or friends, church or other entrepreneurs.
Seventy-nine percent (79%) of clients stated that they were
interested in more training similar to that introduced during the
market test.

Seventeen percent (17%) said that participation in training
would depend on the cost, what their village bank members
wanted to do, and the timing of the training.

Only 3 percent said they were not interested in training.

Of a total of 95 responses, 53 percent reported willingness to
pay for the training. Another 27 percent would pay if the
training is affordable and if it is “good.”

Business skills are one of the most challenging
services to deliver on a commercial basis. They
help entrepreneurs make the most of the business,
but do not add immediate cash to their pockets.

When offered in a classroom setting results in high
transaction costs of participants – time away from
the business, transportation costs, etc.

Delivering basic business skills training through
microfinance institutions provides finance for the
training and minimizes transaction costs for poor
4. Sustainable Services
BDS should be made available to SEs over the long
run through financially sustainable delivery
mechanisms, institutions, and markets –
In sum, through the PRIVATE SECTOR.

Sustainability depends on:
•Private sector financing (demand-driven services);
•Cost-structure in-line with SE and market ability to
• Independent, financially viable institutions and
delivery mechanisms
    The program aimed to work with
     commercial MFIs -- the private
The MFIs cover all costs of the education service through
interest revenues and fees for services.

The pilot activities with the Peruvian organizations
determine the appropriate packaging, pricing and delivery
strategies to achieve sustainability.

In Freedom from Hunger’s experience, the cost of the
education (both business and health) integrated with
financial services is marginal and can be covered through
the interest earned on the loans.

Separate accounting and reporting of education costs is often
not recommended because it may be as expensive as the
education itself. As Chris Dunford reports in a recent paper,
...of the best performing village banking programs reporting data
to the MicroBanking Bulletin, three with extra education had the
lowest administrative expense and salary expense ratios of the
nine institutions…..For the cost-per-borrower ratio, the three
organizations placed first, fourth and sixth…. Compared to all 22
village banking institutions reporting to the MicroBanking Bulletin,
all three integrated service providers out-perform the norm
(average) for the administrative expense and salary expense
ratios, and two of the three organizations out-perform the norm
for the cost-per-borrower and staff-productivity ratio. While
education might add 6 to 10 percent to the administrative cost
ratio, it is offset by the productivity gains made in the portfolio,
which actually lead to lower administrative-expense ratios.”

    Dunford, C. (2001) Building Better Lives: Sustainable Integration of Microfinance with Education in Health,
    Family Planning and HIV/AIDS Prevention for the Poorest Entrepreneurs. Microcredit Summit Web site:
5. Develop Vibrant, Competitive, BDS Markets
Success is:
 A vibrant, competitive BDS market in which a range
of SEs are accessing a wide selection of BDS
supplied by numerous commercial suppliers that
SEs choose to patronize.
   No BDS available for this market with the exception
   of a few subsidized projects

   High demand from MFIs to provide services

   No commercial BDS providers interested in serving
   the poor since not believe it would be profitable.

   Need for retooling existing NGO providers to
   provide sustainable services to the poor
 Challenges to Building Existing             Advantages to Building MFI
           BDS Suppliers                                 Capacity
 Orienting formal BDS suppliers to       Low marketing costs because the
  a demand-driven approach;                clients have an existing
 Building relationships between           relationship with the suppliers;
  BDS suppliers and a new client          Low transaction costs to clients if
  base;                                    the service is delivered at the
 High marketing and delivery              credit meetings;
  costs associated with a new             Low delivery costs because
  product and a new client                 significant marketing, delivery,
  population;                              tracking, management and
 High transaction costs for clients       overhead costs are shared with the
  having to attend an additional           financial services delivery;
  event;                                  Availability of financing to pay for
 Lack of financing, needing to pay        services;
  up front;                               Consistency and quality of training
 Lack of financial viability due to       because it is delivered through
  built-in high overhead costs of          standard modules by qualified
  formal suppliers;                        trainers and institutions that
 Lack of training skills among            regularly assess training
  informal trainers;                       effectiveness and progress toward
 High cost of working with large          impact;
  numbers of informal trainers to         Financial sustainability because
  reach many people.                       the institutions are already
                                           committed to financial viability.
There was no market for existing BDS from this economic level
of client.
Lack of awareness of business services
Lack of skills to use existing services
Lack of money to pay for services
Lack of perceived value of services to be worth cost

There was a demand for basic business education.
Financial management
Customer service and marketing techniques
Business management

There were no high quality business development services
available for this economic level of client.
Intermittently available subsidized PVO or government services of
questionable quality
Lack of willingness on the part of commercial providers to offer
services to clients unable to pay for them
To create a market for business development services
among the poor and moderate poor it is important to:

Provide a service that imparts knowledge, skills and attitudes
that enable clients to become interested in and make use of
higher-value services;

Provide information and linkages to formal and informal

Find creative ways to cover the costs of these services to
ensure viability, such as piggybacking on microfinance;

Build on networks of peers who can vouch for the usefulness
of the services so clients become willing to use and purchase
prefers traditional BDS providers rather than
microfinance providers
concern that integration of BDS and microfinance will
compromise the financial viability of the MFI
need to demonstrate demand through separation of
payment structures
focus on services that meet the needs of more
sophisticated small and medium enterprises


assumes commercial providers will be willing to
provide BDS to the poor

assumes poor will value business services
without intervention to stimulate demand

focus on proving a market theory based on
theoretical blueprints created by the industry and less
on innovation

There is a need for the BDS sector to allocate

resources for the research and development of

innovative programs to serve the very poor and

moderately poor effectively, sustainably and on

a large scale.

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