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Up for Review: the Client Protection Principles at Fundación Paraguaya

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:

  1. Asesoras & Oficiales de Crédito
  2. A group of 8 male clients
  3. A group of 5 female clients (we hoped it would be more)

Some of the more interesting observations were:

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A glimpse inside the “Joint Liability Group” lending process

Sangita, Sarita, Rekha, Kavita and Reshma arranged themselves in an orderly row against the flamingo pink-colored wall in the narrow, two floor home. They listened intently as the Swadhaar loan officer explained, in detail, the lending and payment collection process they were about to embark upon.

As he slowly reviewed the material before the group, he emphasized the power of saving daily and the dangers of overindebtedness. The women periodically asked questions, and laughed at each other’s light hearted responses while Reshma’s young son cooed happily in her lap. Part way through the session he got restless, and they called for another young boy who picked him up, propped him on his hip and went hunting for chocolate down the block. (He returned about 20 minutes later with a chocolaty grin.)

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Of the group of five women, two were new to Swadhaar and three were on their second loan cycle. They were employed as house maids, tiffin cooks and papadum manufacturers and together, they had formed a joint liability group (JLG). Through the JLG, the women would guarantee each other’s loans against default.

As per standard Swadhaaar procedure for JLG loans, these women had already completed an appraisal meeting where they reviewed basic loan information (presented in a visual fashion), applications and KYC (Know your Customer) details. Next, they cleared a group familiarity crosscheck, designed by Swadhaar to ensure the group members were truly acquainted with one another. Finally, they passed a home verification visit, done on an individual basis to further confirm application details.

Now, going through their second group meeting, they were one step closer to receiving their loan. If all goes well, they will soon be invited to the branch office for financial education training and disbursement.

During the second half of the meeting, I had an opportunity to chat with the women while the loan officer finalized the pre-printed paperwork with each borrower and any remaining KYC documents.

I asked them what they liked about Swadhaar and one woman responded, “I feel easier with Swadhaar.”

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Another woman remarked on Swadhaar’s low interest rate relative to other informal sources she had borrowed from in the past.

Swadhaar, bound by the RBI microlending guidelines, charges 26% per annum (on a declining principal balance). Though this might seem unreasonably high for readers in the US accustomed to rates sub 5%, mortgage rates in India sit comfortably above 10%, not to mention the increased operational costs and collateralization concerns associated with the microfinance industry and its clients.

While her comment does not surprise me, considering the rate charged by informal lenders routinely falls over 100%, the interest rate debate rages strongly in the international community following events like the Andhra Pradesh Crisis of 2010 (which as my fellow Ambassador recounts here, strongly shapes the domestic sentiment towards the industry). Continue reading

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The Importance of Getting to the Field

“If you want to be involved in microfinance, get to the field, ” was the advice that Accion CEO Michael Schlein gave to our group of Ambassadors during training in Boston last month.   Here I’ve realized the importance of getting to the campo, or countryside, where the majority of Genesis’s clients are.  As microfinance institutions everywhere, especially in Latin America, adapt to a changing market and growing competition, it’s crucial that management “gets to the campo” as they form strategies and policies.

Last week I had the priveledge of acompanying Flor de Salguero and Diana Enriquez, the women who lead Servicios de Desarrollo Empresarial (SDE), into the campo for four days.  Throughout the week I was inspired by their leadership which shone through their empathy for both clients and employees and through their intentional feedback practices.  I was also inspired by the clients themselves as I got to know a little more about their lives and their involvement with Génesis.

Me, Flor, and Diana waiting for a training session to begin at the farm of one of the clients.

Me, Flor, and Diana waiting for a training session to begin at the farm of one of the clients.

Sunday morning Flor, Diana and I set out from Guatemala City on the six(ish) hour trek to Petén.  It didn´t take long to realize Diana was a race driver, and I had to brace myself everytime we would fly around a mountainous bend or bounce aggressively over a camoflauged speed bump, but the three of us laughed and joked and sang the whole ride so I can´t really complain.  Plus, the views were unbelievably gorgeous; Guatemala has an ever changing landscape through mountains and vallies, jungles and forests, and volcanoes and lakes.

One perk of the rainy season is the appearance of rainbows in the already impressive landscape.

One perk of the rainy season is the appearance of rainbows in the already impressive landscape.

Throughout the week the three of us attended training sessions in different villages around the region, moving from hotel to hotel every night and sometimes traveling over 6 hours a day.  Flor and Diana were evaluating the training facilitators on a new training methodology called CEFE, Competency-based Economies through Formation of Enterprise.   I was observing and interviewing clients and practitioners on various aspects of the training program.  Most importantly, I was experiencing first-hand the work of the campo, which is quite different than urban microlending.  This exposure will add validity to my recommendations to Flor and Diana over the coming weeks, as I continue to plan a proposed short and long term growth plan for SDE.

This week brought new meaning to the concept of “high transaction costs” in microfinance.  Transportation costs, for example, have long been explained as a key driver of higher interest rates.  When I was a Loan Officer for US-based clients at Accion East, many of my clients had the option of using our online lending platform to expedite the application process and save precious time for both Accion and the clients.  (Other transaction costs certainly apply to microlending in the States, but I won´t get into that here.)  Clearly, this type of technology is not an option for the clients of Génesis that live so far out in the campo where there is no running water, let alone cell phone service or internet access.  The only way to get there is (precariously) by motorcycle or an agressive 4 wheel drive, and often the final stretch must be done on foot.  Loan officers and training facilitators make this trek every time they visit a client, an important part of the relationship building process.

an example of the road through the countryside.

an example of the road through the countryside.

The rigorous commute and indigenous languages of the campo call for a strong group of loan officers and training facilitators, but of course the most noteworthy part is the clients themselves.  Many make their living off of coffee or cardamom, commodities that are very vulnerable to market or environmental changes.  For example, cardomom is experiencing a pricing crisis, leaving its farmers in a tough economical spot.  Génesis is helping with this crisis in two main ways: 1) through specific training to combat the thrips pests that are attacking the crop, and 2) a new loan product that will help current borrowers make it until the next harvest.

A training facilitator leads a training on fighting the cardomom crisis.

A training facilitator leads a training on fighting the cardomom crisis.

At the end of every training, Flor addressed the group of clients with words of encouragement and a call for questions.  She commented to me multiple times the importance of learning from the clients, and of basing the future of SDE (and Génesis as a whole) on the needs of its client base.  As Michael advised, it´s not enough to have worked in the industry for years or to have high pedigrees or a passionate heart.  To effectively innovate, management needs to jump in a four wheel drive, throw on some rain boots, and hear from the clients themselves.

Name block - Sherri 2014