Can MFIs Work as a Distribution Channel to Reach the B60?

The story of microfinance has been told several times over. Having proven itself to be a viable industry, the sector has witnessed increased attention from mainstream investors and corporate sector. While investors have been keen to fund the sector, although cautiously, the corporate sector has been looking for new ways to reach the bottom of the pyramid (BoP) market that MFIs cater to.

Several examples exist of such partnerships within India. The most well-known of them being Hindustan Unilever’s partnership with the ACCESS Microfinance Alliance (AMA) for the sale of its Pureit home-use water purifiers. Emami, a leading Indian cosmetics company is currently establishing a partnership with Spandana, one of India’s leading MFIs to engage women entrepreneurs who take their personal care products to previously-untouched markets.

But how effective are MFIs as distribution channels? What sort of products sell best through MFIs? What should MFIs and corporate keep in mind while entering into a partnership? The Monitor Group’s Inclusive Markets team delves into these questions in their latest study, Stretching the Fabric of MFI Networks authored by Nishant Lalwani and Michael Kubzansky.

The report highlights four models from India – Hindustan Unilever Water Filters, Moksha-Yug Agarbatti Manufacturing, SKS Mobile Phones, and Emami Personal Care Products. The case studies bring out several interesting findings. For example, Hindustan Unilver which partnered with AMA to sell their water filters found that the cost of distribution was higher than expected, and additionally encountered after-sales service which proved too taxing. It didn’t help that customers didn’t fully understand the utility of an intangible product such as clean drinking water.  SKS, which sold mobile phones on credit found they were being blamed for technical glitches and poor service customers received from the mobile phone service provider.

Based on the findings of these four projects, the report goes on to establish four viable models for MFI Channel Expansion.  It also offers valuable advice for MFIs and product and service providers. The report concludes that while MFIs have undoubtedly been successful in reaching the B60 (the term used in the report to indicate the bottom 60% of the economic population), one should not assume a “one-size-fits-all” approach, and must careful assess the suitability of a product, the nature of the relationship between the MFI and providers, as well as distribution and sales aspects.

The Report can be downloaded from the Monitor Website.