Studying Cash Flow Patterns to Design Better Loans in Myanmar

This post written by Alissa Orlando.

“If you build it, he will come.” Unfortunately, this line that worked so well in Field of Dreams is less effective in the world of social enterprise.  Simply producing and having the networks to distribute a product does not guarantee its success—to be successful, a product must address a customer need.

What better way to understand customers’ needs, wants, and limitations than to involve them in the design process? This customer-centric philosophy is also known as human-centered design (HCD).  I work with Proximity Designs, a social enterprise that sells locally manufactured solar lanterns and low-cost irrigation products to smallholder farmers in rural Myanmar.  Before we launched these products at scale, our team presented prototypes to farmers in the field. Farmers could see, hold, and operate the products and give us immediate feedback on size, color, weight, price, and wattage.

But when Proximity launched its microfinance services in 2010, we had to come up with a different approach. With financial services offerings, there is often nothing tangible to see, hold, or operate, and tradeoffs between product features are not immediately obvious. When designing our loan products, we first consider clients’ cash flow patterns. In the Ayeyarwady Delta, for example, paddy farmers have two planting seasons, in January and June, so we offer a five and a half-month loan twice a year.  The starting loan size is $130, determined by asking farmers and agronomists the amount of money required to cultivate an acre.  Clients repay both interest and principal in a lump sum two weeks after harvest, following an increase in rice prices.  By matching the loan disbursement and collection schedule to clients’ cash flow patterns, we have served over 30,000 clients in less than three years.

Next, we wanted to design a working capital loan for urban small business owners.  We started by roaming the streets of Myingyan, a small town in Myanmar’s Dry Zone, and potential target market. We stopped in teashops, betel nut stalls, and grocery stores to see first-hand customer flows and inventory sizes. Next, we conducted one-on-one interviews with small business owners. We asked how their business costs and incomes varied over the course of a week, month, and year.  We asked how other sources of income, such as remittances, oscillate over time, how often and how much they borrow, and what they liked best and least about their current lenders.  We asked them to describe the features of their ideal loan, including group size, repayment frequency and collateral requirements.

The answers to these questions gave us insight into new product design.  For example, we spoke with a 30-year-old female betel nut stall owner. When we met her, she was borrowing from informal lenders at 10% daily interest, rather than the local microfinance institution, which required groups of 15 people and five full days of mandatory financial education seminars. From conversations like these, we learned that Proximity could serve a real need if it adjusted its loan size by season, required smaller group sizes, simplified the loan application and disbursement process, and lengthened the frequency of repayments.

This feedback helped inform the design of a product that balances flexibility (to match client preferences) and discipline (to preserve the health of the loan portfolio). By learning about clients’ cash flow patterns and preferences, microfinance institutions can design financial products that meet the needs of their target market.

Alissa Orlando is a consultant with McKinsey & Company, a leading global consulting firm, where she serves foundations and Fortune 500 companies operating in developing markets.  She recently returned from a leave of absence in Myanmar, where she helped Proximity Designs, a social enterprise that designs and sells irrigation pumps, solar lighting, and financial services, design new loan products.  Previously, she managed a microleasing project in Haiti, worked with the tourism sector in Rwanda to improve domestic vocational training programs, and coordinated special products at a microfinance institution in Tanzania.  She graduated summa cum laude from Georgetown's School of Foreign Service.