Case study

Emergency (Hand) Loan

Developing loan products for emergency financing
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This study describes the design, implementation and results of a pilot emergency (Hand) loan product in India. It discusses product design and implementation, post-pilot data collection and results, as well as lessons learned and planned future enhancements.Field research for the case study identified a need for emergency loans, lack of formal alternatives and problems with existing informal sources in rural Orissa, India. The Hand Loan attempted to replicate the convenience offered by existing informal sources of emergency finance. The product achieved its original intent, but encountered institutional and execution challenges. The experience generated lessons for future product innovation. Conclusions include:
  • Basic, daily money management is one of the central financial concerns of poor households;
  • MFIs tend to offer credit products that are ill suited to meet emergency financing needs;
  • Recognition of people’s need for credit as a smoothing device leads to a different kind of product than thinking of loans as small business loans;
  • People used Hand loans in order to cope with short-term cash-flow shortfalls and did have the income necessary to repay the loan in time;
  • Making the loan amount flexible can meet a greater range of customer needs.