Getting a Handle on Client Retention

Publication Date: Jun 2006
Published by: Small Enterprise Education and Promotion (SEEP) Network
Document Type: Newsletter

View this Document   Email this Document

Is client retention a suitable indicator of long term financial performance of an MFI?

This SEEP technical note evaluates the history of efforts to measure client retention and proposes several options for improving this measure.

Stressing the importance of client retention, the note states that:

• Without high client retention, young microfinance institutions (MFIs) will find it impossible to reach sustainability;
• In saturated markets, client retention is one of the keys to operational success;
• Client retention can help decrease an MFI’s institutional costs, improve staff productivity and morale, lower loan risks, and increase income.

The note discusses the difficulty in defining and using common client retention measures, such as:

• Active clients;
• Graduation or product desertion;
• Resting period and down time.

It states that these measures are not adequate indicators of client satisfaction, and suggests that MFIs do the following when creating a ratio for client retention:

• Establish a time frame for resting;
• Track active clients, not active loans;
• Include only clients who have reached a decision point during the measurement period.

The note concludes by:

• Presenting the final adjusted client retention ratio that the author suggests;
• Recommending improvements in the management information systems that would allow the calculation of this ratio.