> Posted by the Smart Campaign

What’s the state of client protection in Georgia? A few weeks ago we launched our Clients 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. The four countries studied in the project are Benin, Pakistan, Peru, and Georgia. After previously spotlighting Benin and Pakistan on this blog, today we’ll take a look at some of the research findings specific to Georgia.

The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. In the qualitative research phase, they used focus group discussions, individual interviews, and a photography exercise to understand what constitutes good and bad treatment by MFIs from the clients’ perspective. The quantitative survey that followed included a sample of 800 current microfinance clients and 200 former clients.

What were the results?

Overwhelmingly, microfinance clients in Georgia are satisfied with their MFIs. The large majority of respondents rated their experiences as “good” or “very good,” with only 5 percent of all respondents expressing a “bad” or “very bad” experience. In Georgia, clients appear to value maintaining a long-term relationship with MFIs. Sixty-six percent are happy with their institutions and stay with them for a long time. In the quantitative survey, approximately 60 percent of respondents had taken multiple loans with the same MFI over time. This is in contrast with findings in Pakistan showing that clients maintain short-term relationships. Microfinance institutions’ service and treatment was ranked as matching or exceeding that of commercial banks. Clients repeatedly ranked microfinance organizations as among the institutions (both financial and non-financial) that treated them best.

As we found in every country, client understanding of loan terms and conditions is lacking. Only 4 percent of respondents claim that MFIs did not provide them information on loan features such as the total amount to be repaid, penalties, or other consequences of late repayments. However, 28 percent of clients did not know the interest rate on their loan, and another 22 percent could not recall the total amount to be paid on their loan. Other clients appear confused by terms such as interest rate, fees and commissions, or insurance, and many lack sufficient confidence to ask clarifying questions. This lack of understanding may facilitate greater client dissatisfaction which can lead to feeling cheated or frustrated. Survey data shows that better informed clients are happier clients.

“The contract is written in such a way that it’s hard to understand what it means. You should have special education to understand this terminology.” – Male, Urban Kutaisi

In particular, many clients did not sufficiently understand the high risks associated with taking loans in U.S. dollars. About 30 percent of clients have a USD loan outstanding, and 13 percent of these did not realize this prior to taking the loan. A relatively large percentage of those with USD loans (18 percent) did not think they would pay more. Unfortunately, between January and October 2015, the Lari depreciated 27 percent compared with the U.S. dollar, causing monthly payments to jump by a similar amount – eating deeply into the available income of many borrowers.

“Those who have borrowed in Lari will have fewer problems. Lari [loans] are also expensive but [borrowing in] dollars cause more losses.” – Female, Urban Tbilisi

Households that currently have a line of MFI credit report a median ratio of 37 percent of monthly income allocated to debt repayment. Thirty-seven percent of clients have also had to take a loan from another source to pay a debt to an MFI, and 21 percent also reported reducing food consumption to repay a debt. In addition to servicing MFI credit, nearly half of all respondents owe money for installment purchases, 22 percent of clients owe money to pawn shops, and 21 percent are borrowing from commercial banks. In the quantitative sample, the average number of credit sources per household is two, and 15 percent of households have four or more different types of credit instruments. MFI marketing practices – such as frequent credit offers via text messages and pre-approved cards – may tempt clients to borrow more.

“Now we are finishing repayment of a [MFI] loan, so they are calling and offering us to take a new loan, but currently we do not have need.” – Female, Rural Telavi

Clients are not aware of how CreditInfo Georgia, the only Georgian credit bureau, works. Many MFI clients are preoccupied with the negative consequences of what they refer to as the “blacklist”. As a result of this fear, clients may be making sacrifices to comply with tight repayment schedules. One of the positive consequences of having a credit reporting system in place is that the MFIs do not need to resort to harsher methods to convince clients to repay on time.

“No matter whether you don’t pay once or 10 times, if you violate [the repayment terms] once they will make you finalize that loan and will never issue a loan again.” – Male, Rural Gurjaani

Clients’ willingness to take out loans for others may present risks to clients and providers. Ten percent of loans were taken out in someone else’s name, usually by another household member or family member. While clients may view this type of behavior as a favor, a relatively higher proportion of these respondents have a negative record with CreditInfo Georgia. This suggests that they may be borrowing via another formal borrower because they are unable to borrow themselves. Clients may not be aware of the risk of borrowing for others. Providing more information to clients about the risks of sharing loans would help to reduce the practice of borrowing in others’ names.

Most clients do not need to complain, but if they do, channels are lacking. Only 4 percent of respondents said that they have ever had a reason to complain to an MFI. This suggests that treatment by MFIs is generally positive. However, only 38 percent were told where to complain, and almost all of these were directed to a loan officer or group leader, rather than to a specialized complaints channel. Additionally, some clients feel that their voice would not be heard if they were to file a complaint.

Respondent: “As for complaining… I can’t complain and sue such a big company.”

Moderator: “Why? Won’t your claim be satisfied?”

Respondent: “I think I can’t win against them… they are able to hire an expensive lawyer and we are not.” – Male, Telavi

For more details and additional findings, read the Georgia report from the Client Voices project.

Have you read?

My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia

What Do Clients Care About? Results from Benin

What Do Clients Care About? Results from Research in Pakistan