Flexible Products in Microfinance: Overcoming the Demand-Supply Mismatch

Abstract

The success of microfinance rests upon product simplicity, standardization, and the capacity to stimulate client discipline. However, poor people desperately need flexible financial products to improve their day-to-day money management and cope with shocks. This paper discusses how microfinance institutions could design flexible products efficiently. First, we clarify the concept of financial flexibility. Second, based on literature in microfinance, banking, and behavioral economics, we summarize the state of knowledge on the trade-off between flexibility and client discipline. Last, we weigh the advantages and disadvantages of the few flexible products already implemented by microfinance institutions worldwide.