This page discusses Shohoz Shonchoy`s `Product 5` in more detail

Shohoz Shonchoy's Product 5: Discussion P5 was designed to do two things:     a: To adapt the SafeSave family of Poor and Their Money-inspired products to a rural setting     b: To extend the series of pilots that had begun with the four earlier products (P1 to P4) in SafeSave`s Dhaka slum branches A: Adapting Safesave to the rural setting: Three differences between the urban and rural settings were taken into account:    1: In the countryside there is less risk of losing loans when clients move home, because they move less frequently than in the town, and they have many family and neighbours nearby through whom they can be traced. Because of this, in P5 loans are not at all secured against savings.    2: In the countryside front-line workers (`Collectors`) are less-well educated than in the town, so rules must be as simple as possible. Because of this, we do not ask Collectors to collect interest on loans in the field: instead, loan interest is taken at the time the loan is issued. This leads to the feature of loans with fixed terms (though still with no fixed repayment schedule).    3: In the countryside population density is lower than in the town. So we do not expect a Collector to serve as many clients (the ratio is about 1:140 instead of 1:200 or more). In the business plan the cost of this is offset by the fact that salaries and rents are cheaper in the countryside. B: Continuing to test new approaches: Thus, P5 tests some features that were not previously present in SafeSave products:    1: there is no link at all between savings and loans    2: loans have a fixed term (chosen by the client)...    3: ...and loan interest is collected upfront    4: this is a lower-volume, lower-cost model

you are visiting `P5 discussion` in:   thepoorandtheirmoney.com Home       Background        The Book        SafeSave        Hrishipara        The Products      Get in touch      Blog

Shohoz Shonchoy's Product 5: Research Research questions: Piloting P5 should provide answers to two questions:    a: Would this lower-volume model (featuring fewer clients with lower-value transactions) cover costs, or would it always require subsidy?    b: With no link between them, what would saving and borrowing behaviour be? (We assumed that because Shohoz Shonchoy was, in 2002, a new MFI in an area that had been plagued by fraudulent operators, loans would, initally at least, be much more popular than savings (indeed, our concern to gain the confidence of clients was one reason for offering wholly unsecured loans in the first place). A further question was:    c: Would the socio-economic status of clients affect their use of the prouct? Findings after 5 years:    a: P5 has covered costs. It made its first monthly surplus in February 2003, after 10 months of operation, at a time when there were 356 clients served by 3 Collectors. Since then it has consistently achieved modest surpluses.(In this analysis all conventional costs are covered, including generous provision against loan loss. The original start-up capital continues interest free, but was in any case very modest). We conclude that low-volume money-management products for the rural poor are viable.    b: As we expected, clients initially borrowed quickly and made modest savings. But, as they satisfied their most pressing needs for capital, and gained confidence in Shohoz Shonchoy, more and more of them prefer to build capital in P5 through saving than to access it through loans. At end 2006 the savings portfolio exceeded the loans oustanding. Of the top 100 savers, all but 4 hold savings balances larger than their loan balances, and 81 of them hold no loan at all. Conversely, 76 of the 100 clients with the lowest savings balances do hold loans, mostly larger than their savings balances. It appears that P5 provides the flexibility for a variety of preferences for saving and/or borrowing, but the overall trend is towards more saving and less borrowing.    c: The analysis of behaviour according to economic status is now underway (mid 2007). We are `wealth-ranking` the 100 oldest clients of P5, in order to examine any differences in saving and borrowing behaviour and volumes between high-ranked and low-ranked clients. Watch this space!