Mariana is a 42 year old single mother living in the outskirts of Lima. Microfinance loans have helped her to start a business, put herself through school as an adult, and even leave her philandering husband. When we met her, Mariana’s main financial goal was to pay tuition for her daughter, “Yessica”. (Names have been changed to protect identity.)
However, Mariana had fallen behind in her microfinance payments after the family was a victim of an extortion scheme that caused the loss of most of the family’s savings. Mariana felt that her microfinance provider (MFP) was indifferent to her plight, and was surprised to learn that she would have to pay late penalties associated with her loan. She said, “They did not inform me very well… the girls [MFP employees] that call you for the loan say, yes, we will give you this loan, and this and that, and they don’t explain in much detail… They give you the payment schedule, but then [if you have a problem] you will be surprised.” As Mariana describes it, she took out these loans “blind” because she did not understand the interest rate or fees.
Although she struggles with her existing credit payments, Mariana is constantly tempted by offers for new loans. She says that representatives from MFPs, banks, and retail stores often stop her in the street or call her cell phone offering loans. Recently, Mariana bought anti-theft insurance on the street because the salesperson was persuasive, but Mariana does not know how she would make a claim if she were to be robbed.
Mariana’s story highlights three central themes discussed in the report, “My Turn to Speak”, and the four accompanying country-specific reports from Benin, Georgia, Pakistan and Peru. These reports summarize research under the Client Voices project, which was carried out by Bankable Frontier Associates on behalf of the Smart Campaign. The project began with qualitative work to hear directly from clients about the kinds of problems they experience when using microfinance services. It followed with quantitative work to provide information about the frequency of the kinds of problems clients reported.
“I was blind… I took out the loans blind.” – “Mariana”, microfinance client in Peru
Mariana’s story shows first that even when MFPs are complying with disclosure requirements, clients often do not understand key features of their products, such as late penalties. The Client Voices research found that clients have an inadequate understanding of the basic attributes of their microfinance products, even though they receive some information about their loan products from MFPs. Overall clients report low levels of understanding of their loan terms and conditions, regardless of education level. In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions. Providers should care that clients do not understand their products, because such misunderstandings lead clients to feel cheated and lose trust.
Second, like other respondents in Benin, Pakistan, Peru, and Georgia, Mariana wanted her microfinance bank to treat her with empathy and offer flexibility following a family emergency. A few months before we met her, Mariana’s daughter Yessica received a call from a fraudster saying they had kidnapped her mother. The fake kidnapper knew personal information about Mariana, and since she could not reach her mother, Yessica deposited nearly all of the family’s savings, including the money designated for microfinance repayment, in the scammer’s account. This misfortune set the family back financially and led Mariana to miss two loan payments and incur fees. Mariana expected her lender to be more understanding of her plight. Across all four Client Voices countries clients are demanding more flexible products and requesting compassion in the face of the emergencies and crises that punctuate life at the bottom of the pyramid.
A basic demand from clients is for respectful and humane treatment. In Pakistan and Benin clients complain that MFP staff lack human decency in dealing with clients who have problems paying their loans. In these countries, clients view the public shaming that is used to force repayment extremely unfavorably.
Finally, Mariana struggles to say no to special offers on credit products. In Peru and Georgia, the Client Voices research detected possible aggressive selling practices. In Peru, about half of clients complained about regularly receiving calls and visits from MFPs offering credit, with 10 percent reporting that they have felt pressured by MFPs to take out a loan. Having the ability to identify the “good” clients through the credit reporting system may contribute to aggressive sales tactics. In Georgia, clients report receiving prepaid cards that they can use to activate a new loan. Similarly, in Peru clients spoke about receiving checks in the mail with an automatic approval for a new loan that they could cash at any bank branch, increasing the temptation to take out a loan, despite not needing one at that moment.
A few ideas for financial service providers resulting from the Client Voices research include:
- Simple, elegant products that can be described in one or two sentences may more effectively grasp clients’ attention.
- Providers should present information in innovative ways, as Georgian microfinance banks have tried to do with videos. Other ideas include calendars for literate populations, songs, and simple infographics.
- Providers should ask clients to describe their understanding of their product, with staff correcting any misunderstandings. Institutions could even apply a short quiz after presenting information to verify that clients have understood key details, such as the term, how often payments should be made, late penalties, or the currency of the loan, with the goal of ensuring understanding.
- Respectful treatment and empathy are important to clients. Products that build in grace periods for a small number of repayments would satisfy clients’ demand for more flexibility and understanding of emergencies that inevitably come up. Variable repayment amounts could also be helpful for clients with irregular income sources.
The Client Voices findings compile hundreds of stories like Mariana’s through qualitative and quantitative research. You can learn more about the findings, read the reports, and explore the data from the Client Voices research here.
Have you read?