Why can't you repay your loan?

Together with Mary Helen, another ACCION Ambassador, and along with 3 interns from Fundacion Paraguaya, we are conducting a study to determine “causes of arrears among women’s committees”.

In simple words: “Why women can’t repay their loans  sometimes ?”

1.       The problem

A group meeting

The portfolio at risk (PAR30 for the experts) [that is the part of Fundacion Paraguaya’s loan portfolio that is at risk of not being repaid by the clients] is currently very low among group lending’s clients (women who borrow in groups of 15 to 30): less than 1%. That is particularly low compared to the 4% of individual lending. Yet, this percentage has recently been increasing. And worrisome, defaulting on a loan (ie not being able to repay it) now happens to women who are in their very first loan cycle, after only 1 month of taking out a credit.

So, is there something wrong with women themselves? Is the Paraguayan economy the one to blame? Is there something wrong with Fundacion Paraguaya’s credit methodology (be it the selection process or the groups’ follow up)?  Is there something wrong with microcredit in general? And what can be done to prevent it?

This was the agenda given to us a month ago: finding the causes and making recommendations to prevent defaults in the future.

2.       The method

Going at client's houses

Defining a methodology to proceed has been the hardest part of our study. It took us almost a month to have everybody agree upon it. After a few field tests, we came up with a mix of quantitative and qualitative tools. The purpose is to give Fundacion Paraguaya the largest overview of the problem. Therefore, we have decided to investigate 1. The figures; 2. Loan officers who know their clients more than anyone else; 3. Clients themselves.

Our study focuses on the Metropolitan area of Asuncion, because our data analysis showed us this is where 80% of the problem lies.

We have decided to conduct 15 qualitative interviews with every loan officer of the area to get their insights on what can lead women to difficult situations, and share their ideas to improve the loan follow up process to avoid those cases.

We have decided to interview nearly 30 women groups to have a qualitative discussion on what happened, and why they found themselves in a difficult situation. Especially, we want to understand why the group dynamic is not working. Because as you may (or not) know, in group lending, women are responsible for one another’s loans. That means if Sara cannot repay her weekly installment, the rest of the group is responsible for covering it, if they do not want to all default as a group and have fines to pay. And helping each other is what they usually do, because it happens to almost everyone during the course of a 4 months loan to encounter temporary difficulties (such as a kid being sick,…) preventing you from being able to pay that week. Although women are encouraged to have savings, they only have compulsory group savings with Fundacion Paraguaya, and it is really up to them to set money aside for difficult times (which they unfortunately rarely do).

On top of that, we collect quantitative data on each group member, to perform our analysis of causes, and profiles of women in arrears (whether there is actually a profile or some common characteristics of women who defaulted)

We have been conducting those interviews for 3 weeks now, testing our Spanish and Guarani skills (the other official language and often the mother tongue or only language of those women) and our resistance to temperatures above 90s (35° for Europeans)…

We do not have it all yet, but we do have some insights…