Second Chances (Part 2)
By DJ Forza, KF16, Georgia
In Part 1 of this series, I shared how a second chance lead to positive change and opportunity for (personal) growth. In Part 2, we’ll take a look at an innovative new program developed by Credo that will help bring to help bring Kiva loans, financial services and client protection education to the most vulnerable of borrowers: previously rejected loan applicants who wish to start a new business.
Rejected: from bad to worse?
If modern microfinance was designed to help those at the base of the poverty pyramid- the poorest of the poor- what happens when a potential borrowers loan is rejected? The answer has often been quite harsh for the most vulnerable poor. Previously, upon rejection, a borrower typically has several (often unsavory) options or combinations thereof:
1. Seek out a different lending institution and attempt to borrow beyond their ability to repay, risking over-indebtedness.
2. Seek funds from an informal lender, a.k.a the “Moneylender,” “Loan Shark,” and/or collateralized loans from pawn shops; and risk facing exploitative and often illegal practices.
3. Do nothing. Continue to live in subsistence poverty, unable to start or grow an entrepreneurial endeavour, risking that any one of many common financial “shocks” (illness, crop failure, livestock death) may lead to destitution- becoming unable to afford basic human needs such as food, clean water and shelter.
For Credo, preventing these troubling scenarios is at the core of their mission to provide sustainable financial services to the entrepreneurial poor. Credo has embedded client protection, transparency and innovation into its culture by building a framework to support its strong commitment to the SMART Campaign and ongoing social commitment to the borrowers of Georgia.
Credo reached out to famed Georgian artist, Zaal Sulakauri, to create a campaign called “Loan Benefit or Trouble: This is Your Choice” to help borrowers understand the perils of over-indebtedness. Marketing materials and ad clips, available in Georgian, Russian, and English, are displayed in each of the 19 branch offices, distributed door-to-door, and by loan officers during client meetings.
In rural areas, Credo employs another resource: The Village Council. This person typically has held a long-term position of responsibility and grew up in the region. The role of the Village Council is two-fold; 1) to serve as a liaison to the community as their trusted advisor and 2) to be a point of escalation should the borrower have concerns about their experience with a loan officer, the application or repayment process. Because the Village Council can not approve or reject applications, both the borrower and Credo can quickly resolve issues and allow the borrower to gain the highest possible advantage from appropriately designed financial services.
Credo also invests in “Mystery Shoppers” – recruiting local villagers to go through the entire loan application process to document and report their observations and feedback. Spot checks by branch managers, third party research studies and specific training programs with testing for loan officers round out current efforts to ensure client protection.
As we learned in this excellent post on the Necessary “No”, rejecting a potential borrower’s loan application is, well, often necessary. Due to the threat and risk of rejected loan applicant’s falling prey to predatory lenders, Credo is launching an innovative new program to bring Kiva Loans to these most vulnerable borrowers. With the development of Credo’s Poverty Score Card, a complex matrix of variables are measured to define an individual client. If it is determined the client’s application was recently rejected primarily due to an absence or lack of business income and their repayment capacity; they may yet qualify for a loan with Credo.
The process to reevaluate these previously rejected clients position will require much more engagement by Credo and the loan officer. More time will be spent educating the client about over-indebtedness and the loan officer will create an individual income and asset statement, balance sheet and business forecast for each of these clients, to ensure repayment capacity. Careful consideration and review will be given to each re-submitted loan application. The goal will be to make Kiva Loans available to these clients with the aim of providing support to enable the poor to increase household incomes and reduce their vulnerability; enabling them to build a meaningful, sustainable and self-determined livelihood.
“Kiva Lenders make it possible to expand the scope of this initiative, allowing Credo to provide the vulnerable poor at second chance to improve their lives.” - Zaza Pirtskhelava, Chief Operating Officer, Credo.
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