1. MABS APPROACH TO AGRICULTURAL MICROFINANCE Module 1, Session 2 Designing a Micro-Agri Product: Understanding Present Agricultural Lending

2. Market Research2 What is Market Research? “It is the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company.” -Philip Kotler

3. Market Research3 What is Market Research? Define the objectives Design – determine how you will go about the market research, and what tools to use. Collect and process Analyze Report Steps Involved PRODUCT DESIGNING INPUTS TO

4. Market Research4 Why do Market Research? So that the bank can design and offer products and services that the market needs and wants. This is called “market-driven” approach versus the one known as “product-driven”. Product vs. Market-Driven Approaches PRODUCT-DRIVEN – produce something and try to sell it without much regard to market demand. MARKET-DRIVEN –identify and meet clients’ needs on a profitable basis.

5. Market Research5 Objectives of Market Research in Microfinance Understand the environment in which the bank and its microfinance unit operates - Market opportunities and risks - Competition and products they offer Understand the microenterprise/agri sector - Identify the financial services needed by microfinance clients Develop products that respond to the needs of and opportunities in the market

6. Market Research6 Market Research Tools Product Development Product Test Product Review and Modification Secondary data FGD Area mapping Satisfaction FGDs Exit survey Survey

7. Market Research7 Market Research for Product Development: Determining Market Size and Risks Market Size and Risks Research Question : Is there sufficient market in the bank’s target area(s)? What are the risks? If GO, proceed to Market Survey If NO GO, look for other site And repeat the same process Gathering Assessment Market by Competitors Secondary Data Competitor Market Size Size of Market Served Size of “Unserved” Market Decision Point: Market Risks Go/No Go

8. Market Research8 Market Research for Product Development Product Development and Business Planning Research Questions: What product (s) would be suitable? What is the potential market share of the bank? Market Survey Area Mapping Assessment of Supply & Demand Characteristics Estimation of Bank’s Target Market share Product Concept Design Financial Projections Secondary Data “What do clients want?” Focus Group Discussion (FGD)

9. Guidelines in Conducting Market Research for Micro-Agri Product Use Hand-out and Survey Tables and Questionnaire

10. Secondary Data (RMA Tables 1 - 2) Data ElementSource Population NSO # of households NSO # of Farming Households Mun.Agri. Office Barangay Office # of HH w/ at least 1 ME MPDO/ Brgy. Office activity Major sources of income MPDO, interviews

11. Data on Competition (RMA Tables 3 – 4) Information Loans: Types, terms & conditions Table 3 - Formal and informal sources Savings: Types, terms Table 4 - Rural banks - Commercial/thrift banks - Credit unions - Paluwagan

12. Data on Target Market (Survey Questionnaire) Profile of Target Market 1. Agricultural Activities 2. Non-Agricultural Activities (Micro-enterprises) 3. Credit Practices 4. Savings Habits

13. Determining the Size & Risks of the Microfinance Market

14. “Know your market – know your clients”

15. Why Measure the Size of the Microfinance Market? The size of the market determines the potential scale of your bank’s microfinance operations. An estimate of the market size can be used to generate more realistic growth projections.

16. Market Size Estimation of Farming Household based on Total Number of Household Based on Farming Household Comparative Results

17. Estimation Procedure: Based on the Total Number Household 1.Find the total number of households from the latest census data 2.Assume that the number of households engaged in farming or agri activities as their primary source of income is 10-20% of the total 3.Estimate the number of households engaged in agri ------------------------------------------------------------------------------------------------ Example: 1.Total number of household11,485 2.% engaged in agriculture10% 3.Size of the Agri Household Sector = Total # of HHs * 10%

18. Estimation Procedure: Based on the Total Number of Farming Household 1.Get the total number of farming households from city/municipal and barangay records 2.Determine the % of farming households to the total number households 3.Assume that 10% of the active farming households are inactive ----------------------------------------------------------------------------------------- 1.Total number of farming household1,285 2.Less: 10% inactive/land conversion 10% 3.Size of the Farming household= Total No. of Farming HH * (1 - 10%)

19. Comparative Results of Two Estimation Procedures Based on Number of Total Households: 1.Total number of household11,485 X 10% 2.Size of Farming Household =1,148 ---------------------------------------------------------------------------------------- Based on Number of Farming Households: 1.Total number of farming household1,285 2.Less: % of inactive/land conversion 10% 3.Size of the Farming household = 1,156

20. Results of Estimation Procedures The results are initial estimates When the result of either estimation procedure shows a very small market potential, consider looking at another area. When there is a large disparity between the results of the two estimation procedures, look at the other characteristics of the area, such as: Are the households generally dependent on wages? Is the area predominantly commercial? or Are data on the number farming household incorrect?

21. 1.Draw a road map of the barangay Invite key informants to help draw a map Divide the area of assignment, distribute the work among interviewers Color code or use numbers in identifying the households with agri activities 2.When area mapping is not possible, get a list of farmers from the barangay office. Randomly choose respondents from the list. Area Mapping

22. 1.Interview adult respondents from three barangays Total # of respondents (municipal)- 150 Total respondents/Brgy. - 150 / 3 Desired number of respondents/Brgy.- 50 2.Get the total # of farming HH per brgy. Total Farming HH in a Brgy.- 200 Divide by # of desired respondents- 50 To be interviewed based on list or map – 4 (choose every 4 th HH, or 4 th farmer in the list as respondent) Conducting the Survey

23. Assessing Risks Risks from competition Risks to household incomes Risks to the farm Other risks

24. Assessing Risks from Competition  The bank’s risk from competition can come from: Institutional lenders active in lending to small farmers in your target area (such as other banks, cooperatives, NGOs, government agencies) Informal lenders  You will use RMA Tables 5 & 6 to gather information about the competition and the loan and savings products they offer.

25.  Give particular attention to Microfinance Institutions (MFIs) that are active in your target area.  If the present client outreach of the MFIs already covers most of your target area, consider the following: look for alternative sites for market-testing your microfinance product; or target a market niche not being served as yet by the competition. Assessing Risks from Competition

26. Major household income sources - Seasonal patterns - Threats to household income flows: natural calamities, seasonal income fluctuations, unemployment/lay-off of workers, peace and order Risks to Agriculture - Natural calamities, low farm commodity production, low prices, high production, fire, rainy season Assessing Market Risks

27. Other Risk Factors - Rate of migration (in and out migration) - Level of ownership of dwelling - level of indebtedness of farmers - loan repayment experience of other lenders - previous or current experience of the bank in lending in the area. Assessing Market Risks

28. PRODUCT DEVELOPMENT CYCLE Market Research Product Design Product Test Product Rollout

29. The MAP following the MABS Approach The Product Development Process: Market Research Product Design Product Test Product Review Product Rollout

30. REMINDER: Keys to a Successful Product Design and Development THE TEAM. Multidisciplinary skills and a product champion. BUY-IN. Support within the institution for the process. MARKET SEGMENTATION. Definition of the customer group to be targeted. MARKET RESEARCH. Identification of unmet or poorly met financial service needs and design of the product prototype. -.

31. Thank You!

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33. MARKET RESEARCH What is Market Research? Market research is a scientific technique of identifying the possible opportunities available to microfinance institutions (MFIs), and the risks involved. There are different tools the bank can use to identify the nature of the demand for microfinance services (microenterprise & micro agri), the size of the market, competition, and the demographics of the target clients.

34. PRODUCT DESIGN Product Design involves: Designing and developing a product Developing a product manual (containing loan policies and procedures) Determining any adjustment to MIS requirements (MIS gap analysis) Preparing financial projections

35. PRODUCT TEST Product Test involves:  Orientation of Bank Officers and Staff  Hiring and Training of Account Officers  Product Testing  Product Monitoring  Product Performance Evaluation (operations review after six months)

36. PRODUCT REVIEW Product Review is conducted 6 months after the Product Pilot Test or Bank has already 100 clients. The review is conducted to assess whether: Projected # of borrowers, portfolio quality and revenues are met? If not, why? Staff and clients like or dislike the product? If it’s the latter, what are the ways by which the product can be improved?

37. PRODUCT ROLLOUT Product Launching involves:  Orientation of officers and staff of expansion branches  Market survey of areas of expansion  MIS enhancement/installation  Hiring and Training of Account Officers  Lending

38. Thank You!