New Technologies for Greater Efficiency and the Client/Loan Officer Relationship

> Posted by Chris Dunford, Senior Research Fellow, Freedom from Hunger
Chris Dunford of Freedom from Hunger responds to a question we posed at the end of the recent post regarding Avanza: How does such new technology affect the client/loan officer relationship that is so central to the operations of many MFIs? The post begins:
Although less celebrated than solidarity group and loan contract innovations, another unique feature of microfinance is the regular face time between clients and agents of organizations from outside the isolated world of a poor person.  Agents variously known as loan officers, credit officers, field agents, promoters, or animators can accompany and guide poor clients on their journeys toward mainstream society and economy and can be social intermediaries between the poor and whatever services and opportunities are available in the larger world outside their communities.  The importance of such facilitation increases in proportion to the isolation of the poor, which is especially severe for women and those in very poor, rural communities.
Microfinance providers can be divided into those who recruit, train, supervise, and incentivize their frontline workers to become facilitators for the poor—and those who don’t.  The effects of the various technologies being introduced to increase efficiencies and reduce costs to clients depend on which side of the divide a microfinance provider falls.  I believe that clients will miss face time with field agents only if those field agents had been trained and motivated to be more than loan sales and collection agents.  Like all such arbitrary divisions, there are many cases straddling the borderline, but please bear with this dichotomy for a moment.
In one of my posts on The Evidence Project blog, I explored evidence that addresses these questions: Is attendance at microfinance group meetings solely a cost that some people, especially women, are willing to pay for access to services?  Or do clients value the group, its members, and its meetings for their own sake?  In other words, is this a benefit over and above the value of the financial or other services made available through the group?
Group dynamics are very important.  Of course, the culture and personalities of group members are huge factors, but the recruitment, training, supervision, and incentives for frontline staff seem to be key determinants for healthy and happy group dynamics.  This effect seems to be an underappreciated by-product of the training and support of frontline staff by microfinance providers who offer some form of education at regular meetings with their clients.  In the experience of the partners and affiliates of Freedom from Hunger, Pro Mujer, and Opportunity International and several independent microfinance providers, training and support to enable field staff to become facilitators of a learner-centered process (suited to adult learners with considerable life experience) teaches the field agents to interact with their clients in more respectful, supportive and mutually satisfying ways.  Some microfinance institution leaders believe such training and support for their field agents make them better agents in all respects, not just for offering education to their clients.
Frontline staff members engaging their clients in education seem, on average, to have much more personal and respectful relationships with their clients than those who solely perform as loan officers and collection agents.  While the evidence is hardly conclusive (particularly because so few efforts have been made to find such evidence), I can offer one intriguing result from a natural experiment that occurred in Bolivia during the 1999 debtors’ revolt, when microfinance clients throughout Bolivia were organized and encouraged by political opportunists to default on their loans en masse.  All the major microfinance providers were hit extremely hard by this collective action—except for CRECER and Pro Mujer, the only two that provided good-quality adult education to client groups.  We asked several of the CRECER clients why they did not join the revolt and default on their CRECER loans.  The typical answer was, “Because we can tell that CRECER cares about us.”
Such positive relationships seem to turn group membership and meetings from a net cost to the client (in terms of travel and time at meetings and peer pressure to repay) into a net benefit (in terms of knowledge of options, personal and group self-confidence, mutual assistance, and connections with the outside world). This effect seems to occur regardless of particular education content other than group self-management and knowledge of the microfinance provider.  If training field agents to be education facilitators was in fact the cause of CRECER and Pro Mujer clients declining to join the debtors’ revolt, the benefit of the training accrued not only directly to the clients but also indirectly to the microfinance institution as increased client loyalty.
This benefit is what clients will miss as new technologies reduce or replace face time with field agents and fellow clients.  They won’t miss the “just business” loan officers and collection agents; I would encourage their employers to move full speed ahead to replace that kind of face time with new, more personalized but impersonal technologies.
On the other hand, I predict that the poorer the clients, the more likely it is that lack of good-quality face time with real people will hinder their financial inclusion and the positive impact of microfinance on their lives.
The good news is there is plenty of opportunity for innovation with new technologies to complement rather than replace quality interaction with real people.  Can you offer examples or possibilities of such innovation?
Image Credit: Pro Mujer
Have you read?
A Call for Caution in Judging the Merits of Financial Education: ‘A Review of Bridging the Gap’
Social Motives, Generosity, and Africa – Top Picks of the Microfinance Blogosphere
Keep on Talking about Impact