Microfinance Product Design

With the development of Chinese anti-poverty activities, the conflicts between the lacking microcredit products and the variety of needs for microcredit come up. And it has effected the performance of microcredit and MFIs sustainability. This dissertation explores how MFIs design microcredit products for the purpose of better services to the poor and MFIs sustainability.In chapter 1, I define microcredit as a methodology providing continuing financial services to the low-income population. Microcredit has the following characteristics: (1)Microcredit is a special financial activity because it combines anti-poverty activities tightly with financial activities. (2) the loan size is small. (3) the target markets of microredit aim at low-income population. (4) loans are mainly used for production, and sometimes for other purposes such as education,medical, etc. (5)credit is the main product of microcredit, however, services may also be provided. In China, two categories of MFIs can be identified: financial MFIs and non-financial MFIs. Financial MFIs mainly include rural credit unions and the Agriculture Bank of China. Non-financial MFIs consist of the government organizations and non-government organizations (NGOs). In China, delivering microcredit to the poor is basically a financial MFIs activity but non-financial MFIs also play an important role. The two types are highly complementary. However, both types of MFIs should design products suitable for the low-income population for the purpose of anti-poverty. There are two reasons. First, from the perspective of MFIs development, products designing influences the microcredit programme to be graduated from subsidized loans to market rate loans. Second, from the perspective of operations, successfully designed products can attract clients and meet their needs. In chapter 2, I put foward two principles that MFIs have to abide by when they design the microcredit products. First, when MFIs design the products, they must focus on the poor. Sencond, when MFIs design the products, they should take institution sustainability into account. As we talk about focusing on the poor, we must make it clear which level of poor that MFIs should focus on. The dissertation points out that MFIs should aim at middle and upper segments of the poor. To help the ultra poor should be the affairs of the government. At the same time, the paper also points out that MFIs must control the costs and risks of products to reach financial sustainability so that they can help the poor in the long run.In chapter 3, I analyse the problems about how to design microcredit products. When MFIs design their products, they must take into account various components of the product including loan size, term of loan, repayment method, guarantee method and interest rate. In terms of loan size, microcredit refers to a small loan. But 'small' has no material standard and is a relative concept. It varys in region because of the different socioeconomic level. When MFIs design the size of a loan, they must make sure that the size is fit for its use and measure the risks it bears. In terms of loan term, it should be consistent with the cycle of the loan business. It is proved that installment repayment can be used in most rural area of China. This may be attributed to multiple operational structure in the country of China that can leading to multiple cash flows. But it may face challenge when MFIs delivery credit to the clients of single economic structure in remote country. In terms of guarantee methodology, this article concentrates on group-lending model. It analyses how does group-lending model work in decreasing the risk and cost of loan portfolio of MFIs. It also points out that group-lending model may lose its effects when members of the group didn't know each other well or prepare themselves to pay for others default. In the end, I analyse the price of the product :the interest rate. I analyse the limitations of low interest rate and point out that low interest rate may lead to low reach rate...