> Posted by Debashis Sarker, Centre for European Research in Microfinance (CERMi) and University of Mons, Belgium
With estimates indicating that less than 1 percent of microfinance clients around the world are persons with disabilities (PwDs), it’s clear that sizable barriers exist to the financial inclusion of this largely unbanked population segment. One such barrier is discrimination on the part of microfinance institutions. Two features of microfinance lending make it especially hard to reach definitive statistical estimates of discrimination. One is the complex stages of the microfinance lending process. The second is the self-reinforcing cycle of exclusion that results from the legacies of discriminating microcredit organizations.
A pilot project conducted in Uganda in partnership with the Association of Microfinance Institutions in Uganda (AMFIU) and the National Union of Disabled Persons of Uganda (NUDIPU) demonstrates the discrimination that often occurs in microfinance practices. The project worked with AMFIU microfinance institutions, applying interventions to combat practices discriminatory to PwDs. Along with addressing PwD exclusion by microfinance staff, the initiatives targeted exclusion by other microfinance clients, low self-esteem, product design, and informational and physical barriers. In two years, since the sensitization and accessibility efforts began, attitudes of MFI staff towards PwDs improved and, across eight queried MFI branches, there was an average 96 percent per MFI increase in clients with disabilities. Another study, also based in Uganda with AMFIU and NUDIPU, examined biases against PwDs across different MFI staff. Surveying eight MFIs between 2008 and 2009, staff were asked questions on aspects including risk of loan default among PwD clients. The responses of credit officers indicated they were more biased against PwDs than other MFI staff.
Given these findings, what measures can be taken to combat this?
First, let’s take a closer look at discrimination within the stages of the lending process, noting that discrimination in one stage has the power to influence the characteristics and resources of potential borrowers at a subsequent stage. For instance, if microfinance institutions systematically divert disabled people to apply for government lending facilities, while non-disabled people are encouraged to apply for conventional loans, then records and analysis of loan approvals become complicated and ineffectual.
Here’s an overview of the stages in the lending process in terms of discrimination of persons with disabilities:
Accessing Offices and Staff: Microcredit organizations usually do not lend to disabled people, and loan officers might even try to avoid them due to perceived risk of interfacing with them. MFIs use an array of communications tools for outreach to non-disabled customers, but these might not be effective in reaching persons with disabilities. Disabled people often face challenges in accessing and navigating the microcredit provider’s office premises. It’s very rare that special facilities are provided to ensure PwD clients’ access.
Credit Inquiries and Evaluation: Along with potentially receiving less attention from the office personnel in querying on the terms and conditions of a loan, PwDs may be assessed for different kinds of loans, or receive dissimilar encouragement and assistance on how to deal with the application process and approval. PwDs might receive biased consideration of their creditworthiness. If the lender approves a loan, the amount might be less than what was demanded or the loan product not up to the borrower’s expectation. Research shows that disabled people get lower loan amounts even if there is no income difference.
Loan Administration and Renewal: It is possible, though not proven, that disabled people might be especially vulnerable to unnecessarily harsh penalties for missing one or more installments, or they might receive lower loan amounts or be unable to renew their loans even after repaying well.
Capacity Building: Disabled clients might not have access to MFIs’ capacity building initiatives for enterprise building or other kinds of competency development training. Along with challenges in MFI willingness to train PwDs, disabled people have limited capacity to travel to capacity building training sites.
Complaint Management: As complaint management is a shortcoming of many microfinance institutions, this is an area of concern.
Based on our analysis at the Centre for European Research in Microfinance we offer a handful of recommendations for PwD-inclusive policy development in the microcredit market. Studies show that race-based discrimination in loan approval rates decreases as the number of employees that are racial minorities goes up in a lender’s overall workforce or its management staff. Similarly, research finds that when one has a disabled relative, the chance of discrimination decreases, suggesting that discrimination is not static. Accordingly, microcredit institutions could institute policies on employing disabled people (as well as minorities) in their workforces.
To promote accessibility, repayment installments could be collected in locations where disabled people have easy access. Perhaps this function could be completed by competent disabled staff.
Institutions should institute anti-discrimination internal policies. Loan officers and other staff involved in the lending process should be trained on the possibilities of discrimination and on such organizational policies.
Minor changes in terms of collateral or flexible repayment rates given transportation challenges could be necessary for some PwD client cases. Cross cutting loan review could be useful to ensure there isn’t discrimination by the direct reviewer. Tandem to this, when there is an effective flow of information from finance providers to industry stakeholders about credit assessment criteria, explanations for rejecting loan applications would help to address misconceptions about discrimination.
Building profitable marketing relationships using accessible communication channels would help lenders and clients achieve win-win benefits. Micro-lenders need to invest more in developing relationships with disabled borrowers.
Interest rate caps set by the regulators and effective monitoring can reduce the chance of discrimination in the form of high interest rates. Regulators can also make it mandatory for MFIs to include disabled people as a specified portion of their mainstream programs – both as staff and clients.
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