+ 12/31/2009 
DIG will continue to further housing finance for the poor despite -  
+ 5/8/2009 
CapStone makes 1,000th Loan -  
+ 4/1/2009 
DIG presents Market Assessment and Strategic Plan to Angola Partner -  

Market Research
 
Note: The material in this section is adapted from Chapter four, Market Assessments for Housing Microfinance, by Dr. Mayada Baydas, from the book Housing Microfinance: A Guide to Practice .  Should any part of the section below be referenced, please specify that it is adapted from Dr. Baydas' work.

In most developing countries, a national census does not exist, does not provide enough information, or provides inaccurate information about housing needs and financial histories.  This is especially true when looking at the poor, whose income is usually from informal employment and whose homes are self-built on land with unclear title.  When tying to understand potential clients’ financial flows and capacity, there is even less quality information.  So, the need to undergo assessments of the potential market demand for financial products is that much more urgent when there is unclear information.

Market assessments can be tailored to provide information about clients in a number of ways.¹   The main objectives for conducting market assessments in the microfinance sector are to assess the overall demand for microfinance services, profile the current and potential clientele, gather information about the most appropriate technology by which to reach the clientele, and document details about the nature of the financial products demanded.  Designing the terms and conditions of any housing finance product, the method of delivery, and how it fits within the overall financial structure for the clientele will be based on information derived from the market assessment.

But, how do you go about doing that?  To do a market assessment from scratch, you need to develop:
  • A questionnaire (or survey instrument) based on the kinds of financial and economic questions that will help you measure the market potential
  • A way of making sure that you survey the right kinds and numbers of people (your “sample”)
  • The methods for performing the survey and collecting the right data
  • Methods for analyzing the data and interpreting results to both measure the potential market and design an appropriate financial product for it

Below, you’ll find brief guidelines about how to do this along with sample tools to tailor to your own needs.

Preparing
The first stop at getting information about the market can come from others: especially official public data, housing practitioners and experts, and formal financial institutions.  Many times, census data, municipal planning surveys, foreign donor consultants, and local building contractors can give good insight into a region’s population, its housing stock, and the cost of home improvements. Even basic site visits to the target markets can delivery a sense of the housing and living conditions. 

Important information can be gleaned from existing organizations providing housing finance services to the target market.  Information from the formal organizations should be reviewed, their offices and branches visited, and their staff interviewed.  New institutions can even act as “mystery shoppers” by pretending to be potential customers and getting all of the information about potential credit terms and requirements.  Ultimately, you want to get information on:
  • Income limits of current customers
  • Other loan requirements, like collateral and title
  • Size limits of the loans themselves
  • Terms (time duration) and price (interest rate and fees)
  • Methods of disbursement and repayment (branches, loan officers, etc.)

Informal suppliers of finance (like neighborhood money lenders or family members) are obviously more difficult to assess.  So, a good market assessment needs to ask about this source of funds too.  But, the only way to get this is to go out in the community and begin to ask.

The Survey Instrument
The instrument is just the questionnaire that is used to get accurate responses to specific questions that are consistent regardless of whoever asks the questions and whoever answers.  You want to get as much as possible, but you also don’t want to ask so much information that the interviewee gets tired or bored, or that you spend too much time on irrelevant information.  Usually, 15 to 20 minutes is a good length of time for asking and answering a questionnaire.  Since some of the clients might have trouble reading and are not used to filling out forms, you usually send someone to interview them and fill out the form as they go along.  This is described more below in the Survey section. 

But first, you need to ask the right questions.  You generally want to know 5 things about a potential housing finance client:
  1. basic information about who they are,
  2. how much money they make and spend,
  3. where they get money beyond their income,
  4. their housing history, and
  5. whether they’re interested and capable of borrowing money for a housing need.

The first questions usually ask for basic information about the client in order to make sure that they “fit” the profile of the target market.  This includes questions about where they live, if they own or rent a house, how old they are, how much money the make, whether they have their own business, etc.  All of this information should focus on the status of these items in the present—not on the past or what the person plans for the future.

The second set of questions should get into more detail about the financial flows (income and expenses) of the individual or individual household.  You usually ask for a monthly average over the past year, though this could be complicated since many people might not be able to calculate this when their monthly income can change dramatically from month to month.  In those cases, you can ask through a variety of ways, including going through every month’s income and expenses for the past year though this is very time-consuming and, sometimes, inaccurate.  If the interviewee has a salary, this could all be easy.  If the she has her own small business, though, detailed questions about the kind of business, the suppliers, the clients, and the methods of tracking money have to be asked too. In the end, all of this information is important because it will help you assess how much the client can afford paying monthly on a regular basis. 

The third group of questions delves into the clients’ financial history, including the details of all of the loans from formal institutions, informal lenders, savings accounts, credit or debit cards—basically any method that the person or household has used to acquire money.  To save time, you can often ask for details about just the largest of all past loans rather than about all loans.  This helps you understand whether they have a track record in borrowing as well as how they have borrowed. 

Fourth, you need to know about their home since you want to figure out whether they need money to buy or improve it.  Housing microfinance products are geared mainly towards home improvements, so questions to be asked should focus on things like what the house is made of, how many people live in it, whether it has certain utilities, if they have improved it recently (and how), or plan to do so soon (and how).

Lastly, you should ask questions about whether they would be interested in the specific kind of housing finance product that you are planning to offer.  Or, if you have no product design at all, you can simply leave this as one question about their interest in a housing loan in general. You can sometimes include these questions as part of the third set of questions after asking about their past and current borrowing record. 

Here is a summary of these sets of questions and some important data to collect:

Category Questionaire Items
Basic Information Name, home address, age, gender, household size, homeownership, employment, business details (if applicable: location, type, staff, problems and constraints, etc.)
Finances
  • Household Income
  • Household Expenses
  • Business Income (if applicable)
  • Business Expenses
  • Business Clients
  • Business Suppliers

 

  • Monthly Average
  • Housing, food, clothing, medical, education, other
  • Monthly average revenues and profit
  • Labor, material, equipment, storage, transport, etc.
  • Types, sales, payment methods and terms
  • Types, purchases, payment methods and terms
Financial History
  • Formal Loans
  • Informal Loans
  • Savings
  • Groups (Formal and Informal)
  • Other Financial History
 
  • Past and current loans (size, terms, price, type)
  • Past and current loans (size, terms, price, type)
  • Accounts (size, interest, type)
  • Contributions, withdrawls, size, type, purpose
  • Credit/ATM/debit cards, store credit, insurance
House and Home Improvements
  • Current Housing
  • Past or Current Improvements
  • Planned Improvements
 
 
  • House purchase history, size, construction type
  • Type, timing, cost, financing
  • Type, timing, and cost
 
The questionnaire should be pretested to make sure that:
  • it takes only a certain amount of time to answer it on average
  • that the questions are easily understood
  • that the multiple choices for each response are easily understood and cover all potential answers
  • that the format can be understood by anyone doing the interviewing.
The specific questions will change for every context. For a sample questionniare, please refer to the questionnaire utilized by DIG for the South Africa Market Assessment.
 
Once the questionnaire is set, you can begin to plan how to do the interviews by selecting the sample group of interviewees.
 
The Sample
To get information about your target market, you can ask every single individual within that market.  Since you don’t have time or money for that, you can ask just a small group—the sample—that represents the bigger population well.  So, making sure you get a group of people that meet certain basic criteria is usually the key.  Some criteria for a housing microfinance product could be:
  • Current homeowner
  • Specific income levels (usually, low-income salaried employees and micro- or small-entrepeneurs will be your target and their salaries are tracked and known)
  • Residing in a specific region
  • Possibly, previous borrowers (depending on the target market)

Sometimes, you might want to include additional criteria to make sure that you are getting all subgroups in your market. For example, you might want to make sure that you have enough women answering the questionnaire (since they are usually harder to locate) even though the product is not only meant for women.  Making sure you get equal responses in different neighborhoods in a region is also important.  So, you can include questions about these and monitor how many you have in each subgroup as you go along.

Questions like these can be included in the first section of the questionnaire (and if certain response are given that signify that the interviewee is not part of the target market, you end) or used as a filter before administering the questionnaire.  You can pre-select the individuals that you consider for your sample, but this is usually not practical in the populations you’re working in.  So, you usually want to keep performing the questionnaire until you have the total number of responses you want (including total responses in each subgroup).  You will need to monitor and keep track of this well, then.

Generally speaking, a good-sized sample can run anywhere from 200 to 2,500 responses depending on the target population and how confident you want to be about how the sample represents the population.  If your target population is 500,000 households, you might try to get about 300 responses.  The bigger your sample, the better the results, but you can always use other resources to assist in the calculation. (Try http://www.surveysystem.com/sscalc.htm)

The Survey
After you have identified the sample size, there is a lot of leg work involved in conducting the actual survey.  Usually, you will hire a market research firm that has experience in conducting surveys and then train them in the methods and issues involved in surveying poor and informal communities.  Extensive training to make sure that interviewers know how to ask each question, make sure that they get a response to each question, and insure that they can verify any inconsistencies in responses is absolutely critical.  Often, interviewees will provide two different answers to similar questions; for example, stating that their business has a certain income but then stating that the household income is smaller or larger.  Inevitably, errors and inconsistencies will come up and it is important that the interviewer catch these quickly to ask the question again, change the responses appropriately, and get the missing pieces of the picture.

Generally, the surveys are administered by doing random walks in the target market’s locations.  This is the most practical and effective method of surveying in a poor community because it captures individuals and households that are not listed in official registries or business records.  Making sure that the interviewer knows how to engage interviewees, track their location, and maintain the interviewee’s privacy as much as possible can be included in the training.

As surveys are completed, they should be regularly entered into a spreadsheet, a database, or other computational tool for analysis.  The easiest tool is a basic Excel spreadsheet with the questions numbered horizontally and the individual responses inputted vertically as they come in.  There is often a lot of error included in data entry, so the data entry individual should be trained in addition to checking for errors in the interviewers’ recording. 

The Analysis
Once all of the surveys have been completed and entered (that is, the number of completed questionnaires matches the desired sample, there are no errors or inconsistencies in each questionnaire’s responses or across the questionnaires, and the entry is complete), some basic analysis can begin and findings developed. 

The most basic information you want to derive include means and medians for numeric questions, and frequencies for questions for verbal responses.  You probably want to know things like:
  • The average income
  • The average cost of home improvements
  • The percentage of interviewees who have take out formal loans
  • The percentage of interviews who plan to improve their homes

Basically, you want to develop a profile—or group of profiles—of your potential client or clients so that you can design your product to fit their needs and capacity.  All of the aggregate data should lead you to making these inferences.  For example, previous loan histories reflect a borrower’s preference for the type of lending technology (e.g., individual versus group loans) while current debt burdens will tell you about the client’s repayment capacity.  So, summaries of the data and explanations of how they shape the design of a new product should then be formally drafted to serve as a justification for moving forward.

Market research involves much effort and attention, and it should be repeated regularly to check for changes in the population or when a product needs to be redesigned.  However, the effort is worthwhile since these kinds of surveys are often the only and best way to understand the market.