A Tale of Two Products Part One: The Power of Paradigms

The setting is a market research workshop held in Mbarara, Uganda in July 2007. In attendance are staff from a housing NGO representing several country programs and representatives of two microfinance institutions. The workshop is working towards an objective of forging housing microfinance partnerships between the NGO and MFIs. The participants study several MicroSave market research tools, develop some of their own and go out to test them in the field with clients from one of the MFIs. They come back from the field, share their experience and split into groups to develop rough housing microfinance product concepts as a learning exercise. Looking at the exact same data and having worked together in the field, the groups come up with prototype housing microfinance products that bear almost no resemblance to each other. How could this happen?

Housing is often more ideological than we imagine. In Housing Microfinance: A guide to practice, Franck Daphnis writes: 

“A defining characteristic of some housing microfinance programs is the provision of construction advice or supervision to clients. Some institutions view this form of technical assistance to the client as an important part of any housing microfinance loan. Others do not perceive any particular value added in providing construction assistance services.” [1]

One might suppose that these different approaches could arise from disparate environments or differing demand preferences as measured through objective market research. In reality, housing microfinance product design often has more to do with the housing ideology or paradigm held by the designers. Daphnis demonstrates this with an example of FUNHAVI, which sees non-financial services to clients as a mission cornerstone and ADEMI, which believes that construction assistance to clients would be against the institution’s philosophy. [2] It is not unlike American Democrats and Republicans who look at the same health system in the same environment and come up with completely different interpretations and resulting solutions.

Some questions that would bring out the different underlying assumptions between conflicting housing ideologies or paradigms might include:

• What makes a good house?
• To what extent are low income households capable of making housing decisions and managing their own housing process?
• Which is more important for a low income target group, the product features related to pricing and terms or the product features related to the construction of the house or home improvement?

If we look at the answers in terms of Provider and Supporter Paradigms of housing (see posting from 8th August on housing paradigms and housing microfinance), I would suggest that they might look like this:

(click on table to enlarge)

The different underlying assumptions about housing will lead to very different housing microfinance products.

One of my own early assumptions about paradigms and products was that staff from a housing NGO would lean towards the provider paradigm and building complete houses (or including heavy construction technical assistance) and that those from an MFI would be more inclined to emphasize the finance side of the loan product over the construction side. I am no longer sure that is necessarily true. In the Mbarara workshop example, the two divergent products were developed by groups that were composed of mixtures of housing NGO and MFI staff, with the champion of each product coming fom the opposite type of institution from what I would have assumed. Paradigm positions do not necessarily correspond to the type of provider. The housing ideology of an institution’s leaders, however, will almost always strongly influence the type of product developed. Where the leadership is divided within a single institution, there will probably be considerable confusion, conflict and challenges in successfully launching a product, as opposed to institutions in which the leadership is strongly aligned with one paradigm or the other.

In my next posting I will continue the tale of two products with the rough product concepts themselves as they came out of the Mbarara market research and product development workshop. They are not particularly extraordinary in their own right, but they are representative of two opposite ends of housing microfinance product design.

[1] Daphnis, F. & Ferguson, B., eds. (2004). Housing Microfinance: A guide to practice. Bloomfield, CT: Kumarian Press. pp. 9-10

[2] Daphnis & Ferguson (2004) p. 11