The top 5 reasons why microloan repayments are more than a “micro” pain
By Julia Kastner, KF9 Mexico
What does it take for you to repay your credit card? A click of a button? A check in the mail?
Yesterday marked my last day at Fundacion Realidad A.C., a microlender based in Mexico City. Over the three months of my first Kiva placement, I’ve visited a lot of clients and witnessed a lot of repayment sessions (when groups gather weekly or bi-weekly to gather funds to pay back their loans). You, the lender, just get a nice email saying the loan’s been repaid, but I wanted to share with you some of the issues the MFI and the borrowers face in getting that money back to you.
1. Limited banking: Micro-borrowers usually are “unbanked” meaning all their financial transactions are in cash. This leads to a whole mess of issues. First of all, without a savings account, checks and account transfers are out of the question. Hence the need for in-person meetings. But not having a history of using a bank can lead to all kinds of other issues. The bank may be far away, requiring a separate day-long trip for the borrower. It also means cash. I went to one repayment session where the president put the hundreds of thousands of pesos into a shoe box wrapped in snowman and Christmas-tree covered wrapping paper and then wonder how in the world she was going to take it all to her house through the dark streets of her low-income neighborhood. Luckily, that time we had a car and were able to give her a lift, but the loan officer recommended that she invest in a safe for the future. Finally, being unfamiliar with banking leads to errors. I met one group where the president got an account number wrong, and the loan officer had to spend quite a bit of time with her to figure out what went wrong and how to fix it.
2. Scheduling: Not only do the borrowers all have packed schedules, many working from sunset to sundown every day, but the loan officers also have little time between group visits. It takes some negotiating at the beginning of every loan to set a time to meet, and then if someone gets sick or the loan officer is running late thanks to a previous meeting, the group waits around until everyone is present. Rescheduling is almost impossible, because not all group members have phones, let alone cell phones.
3. Transportation: Loan officers have to attend all repayment sessions in person to give financial guidance to the group. Getting to the repayment meeting is an enormous time-consuming challenge. Roads are bad, buses run late (or not at all!), and distances may be long. My longest trip to a borrower was four hours, because their road were especially poor and when it rained vehicles couldn’t use them at all. On average, though, I’d say it took a solid hour to get to a client meeting, and loan officers often had to attend up to 6 meetings in a day!
4. Counting: When all the members or their surrogates and the loan officer finally arrive at the session, the counting begins. You’d think counting some cash shouldn’t take too long, but you’d be surprised. The amounts are large for Mexican standards, but the bills most people carry around are small. It’s like that awkward moment at the end of a large dinner at a restaurant when it’s time to split the bill. Even though everyone knows what they have to pay, at the end, it’s sometimes a tiny bit short. Sometimes someone mis-counts. Or sometimes a bill slid under a baby bottle or a taco. For some reason, it just takes more time than it should.
5. Paper accounting: The main responsibility of the loan officer at these meetings is to help with the accounting. Every group president and treasurer are responsible for accounting for not only the repayment, but any fees charged members (if they are late or delinquent) and any voluntary savings deposited by the members. These numbers are written on paper for each group member each week by the president and by the loan officer and then calculated by hand for accuracy. Every time I saw this take place, an Excel spreadsheet popped into my head – if only! I went to one repayment where the books didn’t match, and we had to spend hours to come to agreement.
Seems like a huge mess, right? But that’s not even the end of it!
Assuming the transaction is complete but part of the payment was late, things get even more complicated. While visiting a Kiva client in Cuautla, a city in Mexico State outside of Mexico City, the FRAC loan officer and I made a side trip on our way back to the regional office. There was a group loan that had a partial late payment, and the group member in default had put up a piece of equipment – a machine that cooks a certain kind of Mexican tortilla-shaped pastry called “obleos” – as collateral. Fundacion Realidad didn’t want to keep this machine for lack of good use, so they found a member of a different lending group who was interested in buying it. We had to escort the buyer to view the machine and ascertain its true value, to ensure that the loan could, in fact, be paid off. Not only does this seem to me like a lot more collections work than normal, it also required yet another two hours of transit time to complete the additional visit!
So next time you get one of those lovely repayment notification emails from Kiva, I hope you take a minute to remember all the work involved in getting that money back to you!/>