> Posted by the Smart Campaign

What are microfinance clients’ thoughts on fair treatment from financial services providers? The Smart Campaign’s Client Voices project went to the source and asked clients what they think. Clients were consulted on what they believe constitutes good and bad treatment and their experiences with microfinance providers.

The Client Voices project, a qualitative and quantitative investigation, covers four country markets: Benin, Pakistan, Georgia, and Peru. Today we are releasing the results from Benin and Pakistan, and this post focuses on the results from Benin. Stay tuned for another post on Pakistan soon.

Over the past six years, the Smart Campaign has worked extensively with financial institutions, regulators, networks, rating agencies, and other financial inclusion industry actors to strengthen client protection policies and practices. But until now, we had not heard directly from clients. To embed the process in the local scene and ensure it would be actionable, in each country, the Campaign convened a group of researchers and market leaders to provide local insight and guide the research. In March 2014, the Campaign and its research partner Bankable Frontier Associates (BFA) began investigative efforts, which included focus groups, in-depth interviews, photo association exercises, and surveys.

So, what did we find in Benin?

Here are a few of the high-level takeaways:

  • Clients lack basic information about the terms and conditions of their financial products. In Benin, 67 percent of borrowers report that they know how much they will pay in total (principal plus interest), but 33 percent of clients could only report their monthly repayment value. Only 12 percent of clients know their percentage interest rate. And there is much confusion about other terms and conditions, such as the treatment of forced savings (see next point).
  • The most common consumer protection problem among MFI clients in Benin involves loss of loan-related savings deposits. As in many markets where clients have limited collateral to guarantee loans, MFIs in Benin commonly require clients to save in advance of borrowing to demonstrate repayment capacity before an initial loan is issued. These compulsory savings are often held as a guarantee in case of default. Our research found that clients in Benin are confused about how much of their savings they can withdraw and when. What’s more, in our quantitative survey, 9 percent of all clients reported that they were unable to withdraw their savings.
  • Problematic treatment is concentrated around late repayments. Across all the Beninois clients consulted for the Client Voices project, 13 percent reported experiencing a consumer protection problem. However, the incidence of problems is much higher among clients who report having paid late at least once. Among the 16 percent of clients who have ever been late with a repayment, nearly one in three experienced problematic treatment. It is well known that MFIs resort to negative treatment during collection of past due payments, and this research reveals that negative treatment creates lasting harm for the clients who experience it.
  • Clients do not have faith in complaints processes. MFIs in Benin could improve by putting complaints processes in place and informing clients about recourse options. Eighty-six percent of clients report that they were not told where they could complain if they had a problem, and 61 percent report that they did not complain because they are not informed about where they could. Other clients did not complain because they believed it would be ineffective.
  • Clients report that engaging with MFIs is bureaucratic and slow, involving what clients call “tracasseries” or bureaucratic red tape. Clients reported that engaging with MFIs in Benin, especially when applying for a loan, involves many trips and dealing with slow bureaucracy. Tracasseries is the word that came up most often during the qualitative research. These hassles are the main reason it is difficult to obtain a loan from an MFI, our quantitative research found. However, it’s important to note that clients reported similar service problems in their dealings with other institutions, like hospitals, schools, and municipal offices.
  • Fake MFIs undermine confidence in the sector. A number of clients described being taken in by organizations that pretended to be MFIs, took in compulsory savings, and then disappeared. Below is a photo of an institution by one of the clients who was asked to illustrate client protection problems. Although this photo purports to illustrate the fake MFI phenomenon, it may well be a legitimate institution, which demonstrates the damage to the sector as a whole that occurs when scams and frauds are present.

“With the hope of being able to get a loan, several people saved their money and then one day, we learned that it had just disappeared.The risks are on our side as well as with the MFIs. We run the risk of seeing our money disappear, while the MFIs risk the non-payment of their loans. There are risks because most of us are illiterate and we don’t know who tells the truth.”           –Woman, current client, Benin 

It’s our hope that the Client Voices project will not only shine light on microfinance clients’ experiences, concerns, and worries, but also serve as a catalyst for industry actors to improve their client protection ecosystems.

For more details and findings from the Benin research, click here. And for the Client Voices Pakistan report, click here.

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