These tension points (and some quite radical decisions in the face of them) can be seen in the work of AMK Cambodia, highlighted in a new book The Business of Doing Good. Witness a conversation we had with a senior manager. “We will never be a leader in client service,” he proudly announced. In the competitive Cambodian market, rapid disbursement of loans that meet customer demand is an important competitive advantage. Yet AMK accepts that its own loan disbursement is slower and more time-consuming for clients, and its loan sizes are much smaller than those of its competitors. Coming from an organization that is proudly “client focused”, this statement struck an odd note.
AMK, serving more than 360,000 people, is now the largest Cambodian MFI in terms of outreach. How can an MFI that invests heavily in understanding and responding to the needs of its clients be “less customer friendly” than others? The simple answer is that a market-led solution (responding to what clients want and are prepared to pay for) might look different from responding to what clients need in order to address the underlying complexities of their lives (i.e. poverty and vulnerability).
So if fast loan disbursement (which clients might prefer, and which AMK’s competitors are prepared to provide) means compromising the rigor of the detailed loan appraisal process that ensures they are not over-indebted and increases the likelihood of the success of a client’s investment, AMK is simply not interested. AMK recognises the importance of matching loans to client capacity to repay – not just whether they have sufficient collateral to cover them if they default. Central to this appraisal process is a visit to the client’s home, which experience has shown is critical to get an accurate understanding of the client’s situation. This visit takes time, is hard work for staff, and inconveniences its clients. Other MFIs have long abandoned this step, but AMK has made this a mandatory part of their lending process, and its “zero-tolerance” policy (with disciplinary action for client officers neglecting this) is verified through its internal audit function.
To understand what clients need, what they want, and what constraints they face, AMK invests in detailed research and client feedback, rather than assuming that it knows best. In fact this research overturned many common perceptions about rural poor people – showing for example that they had mixed economic baskets (rather than being solely reliant on agricultural income). It also highlighted that they were keenly vulnerable to shocks that affected their income (such as floods or health problems). These insights lay at the foundation of AMK’s product design, and have led to some noteworthy innovations.
Take the credit line loan, for example. It matches loan disbursement and repayments to erratic cash flows, and also cuts costs for clients by allowing them to draw down the amount of credit they need (up to a maximum), when they need it, rather than paying interest on capital that is not being used. On paper, the credit line looks like a risky product. Indeed, there were nervous glances around the boardroom table about how the organization would be able to predict its own cash flow, if clients were drawing down and repaying their loans when they chose to. And in fact in hindsight – although this looked like a case of clashing institutional and client needs – AMK has found that the seasonality of credit draw-downs and repayments are largely predictable. Clients are happy with the product – and AMK’s investors are satisfied that it’s worth supporting.
The credit line illustrates the challenge of balancing client needs with institutional risk and performance. Minimizing risk, while recognizing future benefits, has been at the core of AMK’s strategy. Whilst AMK developed a sound understanding of its clients and their needs, it has always sought to find the “sweet spot” between these needs, organizational capacity, and financial performance. As such, strategic decisions have been made about which of those needs to meet at any one point in time. These decisions were driven by the evolving internal and external context (including organizational capacity, market share, regulation, competition). For example, in the past five years, AMK has evolved from largely a credit-only provider to a multi-channel, multi-service provider (including insurance, savings, and remittances). In the case of savings, its early research revealed that clients can and did save (although not in regular amounts in a secure way), and highlighted the role that savings played in helping clients to cope with the unexpected. However, it wasn’t until regulatory barriers dropped that they were able to offer these in a way that made sense both for clients and the organization – by rolling out an agent savings model that took flexible services to where they were needed most (rural areas).
The Business of Doing Good tracks the ongoing conversation around client centricity over the past 11 years within AMK. AMK’s journey is founded upon a clear understanding of its clients’ needs, and clarity about its purpose within the lives of those clients and indeed the marketplace. As such, this book is relevant to all microfinance organizations, and those that support them to be more effective.
This article first appeared on the Centre for Financial Inclusion blog.