Marketing Lessons Learned From Micro-Finance In India

Besides Wall Street bankers, the poor of the world need access to financial liquidity, too. But loaning money to individuals lacking credit history and formal employment can be a dicey proposition. Indeed, pitching financial services to people in the rural hinterlands takes effort, patience, and a tolerance for risk. It also takes marketing—but perhaps not in the way you might think.

In the dusty and dry northern Indian state of Uttar Pradesh, farmers pray for rain. Ample rain means the difference between a bountiful harvest allowing farmers to sell excess crops and starvation. This year (2009) has been a particularly harsh year for drought, as the monsoon season has been “meager” with roughly 20% less rainfall than usual.

With sporadic rainfall, farmers must find a way to even out their cash flows and this usually means borrowing. However, the Reserve Bank of India cites, “more than half (of farmers) do not access credit from either institutional or non-institutional sources.”

Into the gap come micro-lending institutions; companies or entrepreneurs offering small loans to the poor. Loans traditionally range from $50 to $300 (USD) and sometimes more. While interest rates are .. …

Besides Wall Street bankers, the poor of the world need access to financial liquidity, too. But loaning money to individuals lacking credit history and formal employment can be a dicey proposition. Indeed, pitching financial services to people in the rural hinterlands takes effort, patience, and a tolerance for risk. It also takes marketing—but perhaps not in the way you might think.

In the dusty and dry northern Indian state of Uttar Pradesh, farmers pray for rain. Ample rain means the difference between a bountiful harvest allowing farmers to sell excess crops and starvation. This year (2009) has been a particularly harsh year for drought, as the monsoon season has been “meager” with roughly 20% less rainfall than usual.

With sporadic rainfall, farmers must find a way to even out their cash flows and this usually means borrowing. However, the Reserve Bank of India cites, “more than half (of farmers) do not access credit from either institutional or non-institutional sources.”

Into the gap come micro-lending institutions; companies or entrepreneurs offering small loans to the poor. Loans traditionally range from $50 to $300 (USD) and sometimes more. While interest rates are usually quite high, the economics of risk management and defaults requires these loans to price in a premium.

Micro-lending can be quite profitable—with an average return on assets of 5%, yet the poor still must be educated as to concepts, value propositions, and contractual terms of these financial services. This is where marketing plays a role.

A WSJ article, “What Works and What Doesn’t Work in Rural Finance,” describes trials and tribulations of an Indian company attempting to set up the infrastructure to make micro-finance possible. Banking in remote regions like Uttar Pradesh isn’t as easy as setting up a branch with tellers and an ATM. In some places, electricity is scarce and dirt roads can be challenging to navigate. So the Indian micro-finance company had to take an alternative approach.

First, the micro finance company decided to build franchisees via a partner network. This was probably a very smart decision, especially since some of the risk of failure (and success) would be born by others.

Second, the micro-finance company had to overcome trust issues as only 59% of the adult population of India utilizes a bank account. Many of India’s poor would likely be very suspicious of anyone offering to loan them money. To counter this, the micro-finance company hired local individuals with the realization they would likely be better received into the community than new settlers to the region.

In so far as mistakes, the micro-finance company set up franchises with new kiosks and slick neon signs to create attention and attract visitors. However, the neon signs intimidated the villagers and actually drove traffic away. The micro-finance company learned its lesson, dismantled the neon signs and instead created signage that used “traditional painting techniques used in village homes.”

Another mistake was to bring out slick marketing materials filled with financial jargon that most Western consumers expect. “We realized that (this approach) doesn’t cut ice with villagers,” one of the micro-finance entrepreneurs noted. So the company provided the franchises with less flashy marketing materials that simplified the message.

As marketers, we can look at the successes and failures of this micro-lending roll out and chastise the entrepreneurs for not understanding the value of localization. But to be fair, how many of us (in the Western world) would have made similar mistakes?

It seems counter-intuitive, but as our flat world becomes more globalized and inter-connected, localization strategies will actually take on added importance. Marketers, as we push forward into new markets and emerging economies, we should leverage what we can in best practices and processes, but we should also realize one size will not fit all. In most cases, niche marketing—while time consuming and potentially costly (in the short term)—will drive higher returns on marketing spend.

Questions:

• India has 192 official languages, a very diverse geography, strong religious faiths, a caste system and two dominant opposing political parties. Is better segmentation and targeting the recipe for marketing success in India?
• Many of India’s poor don’t have access to credit, insurance, or savings. Do you see a potentially huge opportunity for financial services—not only in India but in other countries?
• Micro-lending has a goal to “improve people’s lives.” What lessons learned can Western Financial companies take away from this mission statement?

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