Determinants of Buyer power The sector closed the year serving approximately 2 million active borrowers with an outstanding

loan portfolio of PKR 25.5 billion and nearly 3.3 million active savers with collective savings of PKR 11.9 billion. (Khalid, 2010) Unfortunately, micro insurance outreach suffered a decline although most of this loss was due to a change in the coverage policy by one of the largest micro insurance providers.(Khalid, 2010) Given the fact that many clients are repeat borrowers in Pakistan the potential market served is quite less, in turn reducing their bargaining power.

Furthermore, the switching costs of buyers of micro finance are very low as compared to the MFPs. As already mentioned above, the Pakistani Market is known to be characterized by repeat borrowers who also take simultaneous loans from various MFPs at the same time. On the other hand the Micro finance Providers need to make background checks and to ensure the quality of loans. This requires a lot of paperwork and increases their switching costs resulting in an overall higher bargaining power of buyers. Thanks to the efforts of Pakistan Micro Finance Network, State Bank of Pakistan and other Micro Finance Organizations to reduce the information asymmetry buyers and suppliers are more informed but there is still room for improvement and in order to increase the bargaining power of buyers efforts need to focus on reducing their information asymmetry. Lastly price sensitivity or interest sensitivity as you may call it in micro finance terms, is generally known to be high among micro finance buyers. A recent CGAP (Consultative Group to Assist the Poor)-commissioned study by Innovations for Poverty Action measured borrowers sensitivity to interest rates at 132 branches of Mexican MFI Compartamos. A randomized trial offered some potential borrowers a lower interest rate relative to another group of potential borrowers, offering a range of interest rates from 3 to 4.5% a month. The results were interesting. Loan uptake was 22.3% in low-interest rate clusters, versus 15% in high interest-rate clusters. Evidently, interest rates mattered to a substantial numbers of clients. (Rosenburg & Mazer, 2010)