Consider this the sequel to my last story about the Client Protection Principles. Planet Rating is visiting this week to conduct an organization-wide evaluation in order to decide if Fundación Paraguaya will be eligible for SmartCampaign certification.
(Tip: If some of these names do not sound familiar, probably better to read the prequel first).
Planet Rating has been so nice to let me join them on one of the days, which at the time of writing was yesterday. We visited the branch of Villa Elisa, a city in the Central Department of Paraguay that borders with the capital Asunción. At the branch, Anali from Planet Rating conducted interviews with three focus groups:
- Asesoras & Oficiales de Crédito
- A group of 8 male clients
- A group of 5 female clients (we hoped it would be more)
Some of the more interesting observations were:
- Almost every client has also taken out a loan with one or more other financial institutions. Cooperatives are the most popular one, followed by some of the more obvious competitors like Financiera El Comercio and Banco Familiar. Also the loan officers admitted that most clients do not exclusively take out a loan with Fundación Paraguaya. There are however some clients that are ‘married’ to the Fundación. Señor Santa Cruz was one of them, being already 27 years with the institution as a client. Nevertheless, based on this much too small sample, the urban microfinance sector in Paraguay seems rather saturated.
- When the loan officers go out to promote the Fundación and its products, the first thing clients will ask is what the interest rate or the weekly payment will be. It seems that additional programs like the Poverty Stoplight could potentially increase loyalty of existing clients, but to attract new clients, it remains crucial to remain competitive in terms of pricing.
- Speed (maximum of two days between loan request and disbursement) and respectful, family-like treatment are the biggest competitive advantages according to the client groups. The slightly higher interest rate than the competition was mentioned as something the Fundación could improve. The shorter term of the loans were a competitive disadvantage according to the male group. Interestingly enough, the female group preferred shorter-term loans and more rollovers as they valued having the option to re-assess their situation and choose the next loan.
- Rosalino, one of the male clients, has heard that Fundación Paraguaya is receiving funding from international institutions that they don’t have to pay back (“grants”). He is wondering why the Fundación does not use those grants to lower the interest rates.
- The male group mentioned that they receive information about the interest rate at a very late stage in the process, namely at time of signing all the papers just before disbursement. As they are not mathematicians (quote), they are not able to do calculations on the spot and they will do this at home after receiving the loan. This was shocking to hear, because it means they do not know exactly how much they will pay for the loan until they have actually received it. There was also a definite lack of initiative from the client’s side to communicate this and other problems to their contact persons at the Fundación. In my opinion, this is where the Client Protection Principles play a crucial role; to protect the clients when they don’t have the tools and/or motivation to improve the situation themselves.
All in all, a super interesting day!
And on an unrelated note, here are some pictures of the breathtaking Iguaza Falls I visited last weekend:
Dennis van Erp is working out of Asunción, Paraguay, where he’s collaborating with Accion partner Fundación Paraguaya on developing a business plan for their microlending program.