The Hazard of Client Exit in Microfinance

Understanding client exit to improve retention rates
Download 27 pages

This paper aims to determine factors affecting client exit in microfinance. Analyzing client exit is important as MFIs can reduce costs, lower risks and increase productivity by decreasing the rate at which people exit their programs.

The paper states that group lending is not always effective in dealing with information and enforcement issues. Drawing upon theories of job matching and technology adoption, the analysis describes client exit in a choice theoretic framework. The study hypothesizes that client exit is affected by borrowing costs incurred by the borrower as well as the healthiness of the business. Study findings include:

  • When faced with a decision of staying or exiting, a client compares expected benefits of borrowing to expected costs and exits when the costs are greater;
  • Exit/stay outcomes arise when joint liability is modeled into the choice;
  • Different borrower/firms exhibit differences in duration dependence.

The study findings will have major policy implications for many MFIs. By better understanding factors that affect client exit, practitioners will be able to adjust their policies to improve retention rates. This will have a beneficial impact on overall sustainability in the long run.

About this Publication

By Pagura, M.