Reducing client interaction (without mobile devices)
In order to receive Swadhaar’s individual working capital loan, a potential client has to pass a CTP (capacity-to-pay) Evaluation, in which a loan analyst goes through a questionnaire that assesses the client’s various income and household expenses—all of which have to be calculated with a calculator for 20-30 min. at the client’s business. This evaluation allows Swadhaar not only to tailor the loan terms to the client’s ability to repay, but also to confirm that the client’s stated income and expense numbers actually add up—essentially, to make sure the client is being honest.
A few weeks ago, I accompanied Dhathasolat, a branch office Area Manager, in jumping on two moving buses to reach a client zone and then winding through the zopadpatti (slum community) to see three CTP Evaluations. The first client sold saris (Indian dresses), jewelry, and a few other items out of her home. In spite of first hearing about the group loan product from her neighbors, she chose the individual working capital loan because it allowed her a bigger loan size and to “avoid the headache of worrying about other women.”
Looking at the questionnaire beforehand, I had thought it was rather long and detailed, but Dhathasolat was able to move through the calculations rather quickly, partly because of his experience and partly because the client had her info together—she had already repaid on time every month for a year for her first loan and was being evaluated for a second loan cycle. She’ll easily qualify for a second loan, Dhathasolat told me afterward.
The next client, a tiny convenience store owner, had also repaid on time for a year, but at nearly every question, he was slow to answer about his unit sales and expenses, which weren’t adding up. After half-an-hour of difficulty with getting straight answers, Dhathasolat discovered that the client’s actual expenses were far higher than he had claimed. Flustered, the client told us that our loan process was too complicated and that he didn’t want a second loan.
This big waste of Dhathasolat’s time highlights the importance of the new project Swadhaar is working on to streamline the evaluation process with standardization—using client data to identify commonalities in the profit margins of certain business types and commonalities in household expenses. Certain parameters that provide consistent income/expense data would serve as proxies to approximate business income and household expenses in place of the tedious and inefficient process of evaluating each individual client.
The standardization process has its limitations of course, but the potential benefits to both Swadhaar and clients are significant: simplification of the loan evaluation process, increased efficiency and consistency of evaluations, ability to scale the individual lending model, and enhanced understanding of market segments for more tailored product offering.
Swadhaar has little similar experience from other MFIs to rely on in this standardization initiative, so rolling it out, implementing it, and determining its success will be time-consuming. The results, however, are likely to be shared with the microfinance community at large for what may very well be a giant leap forward in financial inclusion.