Thursday, September 1, 2011

NFS 101: What are Nonfinancial Services?

Written by Kiva staff and Christopher Dunford, Freedom from Hunger

Organizations offer many types of services to individuals and communities in an effort to alleviate poverty. Each service potentially plays a vital role in the life of a client. These services are often offered in isolation but in some cases efforts are made to coordinate different kinds of services to enhance accessibility and overall efficiency.

Ideally, clients would have access to a coordinated combination of microfinance and other development services (nonfinancial services) to improve their businesses, income and assets, health, nutrition, family planning, education of children, social support networks, and so on. In general, Kiva tends to favor microfinance institutions (MFIs) and organizations that offer an integrated approach to poverty alleviation as we feel a more well-rounded approach best serves our clients.

Nonfinancial services can be offered to clients by coordinating the delivery of different sector services to the same people. There are three common methods used to deliver integrated services: linked, parallel, and unified delivery.

Linked: different organizations, different service delivery staff, same end users

In a linked model of delivery, financial services provided by a specialist microfinance institution are offered to clients concurrently with nonfinancial services provided by one or more independent organizations. When there are several specialized service providers in a target area (as in many urban and peri-urban areas), an organization reasonably may choose to specialize as a microfinance institution, instead of also offering a combination of financial and nonfinancial services. Ideally, independent organizations offering services from different sectors would coordinate their marketing, service delivery and referrals according to the needs of clients. Many specialist microfinance institutions are in a position to embrace this scenario, but very few have reached the “ideal” of coordinated marketing and distribution with independent nonfinancial service organizations.

Parallel: same organization, different service delivery staff, same end users
In a parallel model of delivery, an organization offers financially self-sustaining microfinance services through specialist microfinance staff at the same time as offering other sector services (usually subsidy-dependent) through other staff to the same clients. While the specialist staffs may be managed in legally distinct entities (like a regulated MFI and a nonfinancial NGO), the multi-purpose organization typically controls them all. If there are few available services in an area, and an organization can afford a long-term commitment to provide two or more services with different specialist staffs, then it makes sense to deliver a variety of complementary services in parallel. BRAC in Bangladesh--and its subsidiaries throughout the world--is the prime example of this parallel scenario.

Unified: same organization, same service delivery staff, same end users
In a unified model of delivery, the same staff of the same organization offer both microfinance and other sector services to the same clients. When the clients have access to few, if any, other development services, as in many rural communities, and the organization cannot afford a long-term commitment to provide two or more services with different specialist staffs, it reasonably may choose to field only one set of staff tasked to provide microfinance with another service, most commonly education. Many organizations are able to cover recurrent costs of the NFS solely with revenue generated by the credit service while generating profit to fuel growth of outreach. The Credit with Education programs of Freedom from Hunger partners are the prime examples of this unified scenario.

The upcoming series on nonfinancial services will bring in guest speakers from prominent organizations to highlight their areas of expertise in health care, women’s empowerment, enterprise services and education.

Please read Part 1: Health Care Services, written by Christopher Dunford from Freedom from Hunger.

For quick links to each part of the series click on Introducing Kiva's Nonfinancial Services Blog Series