February 23

Jeffrey Riecke

Microfinance Clients Make Their Voices Heard: New research reveals their thoughts on how they’re treated by providers

Do microfinance clients believe financial services providers treat them fairly? And what are their interactions with these providers like?

The Smart Campaign is proud to present the results from the Client Voices project, a four-country research investigation that directly asked clients about their experiences with financial providers, and their thoughts on what constitutes good and bad treatment.

This release includes the main synthesis report as well as country reports from Georgia and Peru. The Campaign has already released comprehensive country reports for the other two countries in which research took place, Benin and Pakistan.

The Campaign commissioned Bankable Frontier Associates (BFA) as research partner on the project to talk with thousands of lower-income microfinance clients face-to-face in the four diverse country markets. The intent was to hear from clients in an open-ended way, without pre-judging their concerns, and then to follow-up this qualitative work with quantitative surveys to determine how representative the concerns expressed were. The intensive research captures, first-hand, clients’ interactions with the institutions that lend them money and keep their savings, and are therefore instrumental in their lives.

Through the project, the Campaign sought to learn whether assumptions made about what constitutes problematic treatment of poor clients (such as those embodied in the Client Protection Principles) rightly reflected what clients themselves worry about. The research was conducted so that it might serve as a catalyst for improvement in client protection by financial service providers, regulators, industry associations, consumer advocacy groups, and others – not only in these four countries, but as guidelines for the protection of lower-income clients around the world.

Here is some of what we found.

The research in all four countries found that clients are generally satisfied with their financial institutions. Many respondents described the important and beneficial role microfinance plays in their lives. However, some troubling themes arose that damage client trust, such as inadequate explanations of loan terms, lack of redress mechanisms and opportunities, and disrespectful treatment.

Transparency. As you might have read in our post last week, clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products. In Benin, Pakistan, and Peru, for example, 50 percent, 49 percent, and 43 percent of respondents reported that they understood loan terms only somewhat or not at all at the time of taking the loan. This lack of understanding exists even when institutions follow mandated disclosure rules. Because transparency efforts have focused on complying with disclosure requirements, rather than making sure users understand, information provided tends to be copious, technical, and complicated.

“[Microfinance providers] don´t inform you, they should give you complete information [about the loan charges]… There is an easier way: we should be able to understand, to see what our options are and what is best for us, to find the [product] that suits us best,” wrote a female client in Juliaca, Peru.

Low levels of client understanding of compulsory savings in Benin and loans issued in U.S. dollars in Georgia reveal the high stakes of a failure to communicate basic information to clients. In Benin, 9 percent of current clients and 17 percent of former borrowers reported being unable to withdraw all of their savings. In Georgia, 13 percent of clients were surprised to learn that they had borrowed in U.S. dollars instead of Georgian Lari, a misunderstanding with considerable financial repercussions following a major devaluation.

Respectful treatment. A basic demand from clients is for respectful and humane treatment. Clients view the public shaming that is used in Benin and Pakistan extremely unfavorably. It causes long-lasting social stress for the clients who experience it, and damages the reputation of financial service providers. Poor treatment is most often experienced when consumers are late with loan payments. In Pakistan and Benin for instance, clients told us of the social and psychological pain they suffered from being publicly shamed for late payments. While extreme incidents were rare, the rigidity in loan collections can create a problematic and stressful cycle for clients, even those who pay on time.

“My son was suffering from cancer. He died. They did not leave. They said they just want their money. They insulted me so much. They did not even understand that one brother of five sisters had died — everyone depended on him! They had no sympathies. Then what’s the use of this bank? They take money from us and on the top of that they insult us so badly,” wrote a male client in Karachi, Pakistan.

The reports offer broad-reaching recommendations for improving client protection in the areas of transparency and respectful treatment. These range from a radical reframing of transparency and disclosure requirements and practices, to the abolishment of practices that could incentivize collections agents to shame clients. The reports also counsel that financial products should build in grace periods for a small number of repayments, which would satisfy clients’ demand for more flexibility and understanding in the event of emergencies.

Credit bureaus play an increasing and valuable role in protecting clients, helping to leverage their desires for continued access to credit to induce repayment. Credit reporting can reduce the need to rely on social shaming to force clients to repay, which clients find objectionable in Benin and Pakistan. Indeed, problems of shaming clients in collections that we found in Benin and Pakistan are almost entirely absent in Peru and Georgia, countries with strong credit bureaus and regulation.

However, clients lack information about how credit bureaus work, and seem unaware that they can build a positive as well as negative credit history. In Peru and Georgia, for example, clients report confusion about the consequences of having a negative record in the credit bureau, and how to clear one’s name.

Researcher: “What happens if you miss a payment?

Respondent: “They notify you at home. They write in the walls ‘delinquent,’ the bank tells you that you should pay. They put you in INFOCORP. And that is it, you don’t get out of there! Sometimes I would like to know how much time does it takes for you to get out of there, and nobody tells you anything,” wrote a female client in Urban Juliaca, Peru.

Complaints. Most clients don’t know how and where to complain, and given the poor quality of recourse they experience with all kinds of formal institutions (schools, clinics, etc.), they do not think their complaints will be resolved by financial service providers. Across all countries, less than one-fourth of those who reported having a reason to complain actually filed a complaint. The ‘complaints book’ in Peru is one example of a complaints mechanism that clients view as largely symbolic and ineffective.

Where recourse channels exist, clients are not sufficiently informed about them. In Benin, only 14 percent of respondents recall being told by financial institutions who to consult in case a problem arose. Even in Peru and Georgia, with strong microfinance and consumer protection regulatory environments, only 25 percent and 38 percent of clients recall being told where or how to address concerns.

“If you go to complain to [the financial institution] office, or elsewhere, you won’t get another loan,” wrote a male respondent in Parakou, Benin.

The reports suggest a broad array of actions that actors in the financial inclusion sector should take to address these challenges. Stay tuned in the coming weeks for more posts on the project, including deep-dives into the results from specific countries.

To access the report, My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru and Georgia, click here, and for the four individual country reports, available in English and in their national language, head to the Client Voices page on the Smart Campaign website: www.smartcampaign.org/client-voice.


Photo: A woman works in her stall in a market in Puno, Peru. Image credit: Bioversity International, via Flickr.


This post was originally published on Accion’s Center for Financial Inclusion blog. It is cross-posted with permission.


Jeffrey Riecke


financial inclusion, microfinance, research