After reading my colleagues Akhand Tiwari, Anvesha Khandelwhal, and Minakshi Ramji's case study (PDF) on what microfinance clients understand of their loan contracts, I was reminded of a similar situation we have experienced during our surveying in West Bengal. In their study of 350 microfinance clients of SONATA and BSS, Tiwari et al. found that 35 percent of clients believed that their assets would be confiscated if they failed to repay. When presented with a hypothetical scenario of default, 55 percent of clients believed it was acceptable for an MFI to confiscate a client's assets in the face of non-payment.
One of the sections in our survey asks clients to value their household assets. On multiple occasions, our surveyors have found that clients are either reluctant to answer these questions, or systematically undervalue their assets. When we pried further, we found out that clients were fearful that if they failed to repay their loans, the MFI would use the information from our surveys and confiscate their most valuable possessions. How clients came to believe this, I do not know, as the MFI we work with does not employ such coercive practices, but it would only seem to reinforce the findings from the CMF case study.
4 comments:
That is very interesting. Makes me wonder - if we see an increase in assets from baseline to endline is it because of real accumulation or growing trust in the surveyors.
Even though the MFI you mentioned does not employ coercive practices, I wonder if the clients intermingle their perceptions of moneylenders with MFIs and as such expect the same coercive practices. Especially if clients are not truly aware of interest rates, how do they distinguish the practices of moneylenders versus MFIs?
Alex,
My thought would be that some MFIs have used coercive practices, and that clients have heard of this occurring. Whether or not the MFI Emmerich works with uses coercive may not be too important to clients' perception, just as whether a given moneylender uses coercive practices for repayment may not matter too much. If a client has heard of coercion happening at any MFI, they may be wary.
Just to respond to Alex and Michael -- of course its possible that some MFIs have used these tactics or that clients are confusing MFIs with moneylenders or banks or others whose contract states that assets will be seized in the event of default.
However, in my opinion, the real reason why clients feel this way is that loan officers probably do use this as a threat to compel clients to pay. I am not saying the threat actually happens in reality, its just that loan officers have to resort to desperate measures to collect and this may be one of them. As a result, clients may live in fear that this may actually happen. In fact, as the study mentions, this points towards the fact that perhaps it makes sense to regulate what MFI staff must tell clients about their loans in the event of default.
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