Multiple Borrowing among Microfinance Clients

Part 3: Focus Group Discussion Results

Prepared by Ronald T. Chua and Erwin R. Tiongson

July 26, 2012

Focus Group Discussion Background (1)

• Objective– Get qualitative perspective of changes in lending and borrowing

behaviour and trends in Commonwealth

• Methodology– Focus group discussions of MFI Clients and Staff in

Commonwealth• Scope and Limitations of Methodology

– Get range of behaviours and patterns observed in area– Qualitative, not quantitative– Highlights presence of range of patterns– Does not provide information on frequency of observed patterns– Not representative– Based on participant views/observations– Mention/observation does not provide indication of actual prevalence

Focus Group Discussion Background (2)

• Three focus group discussions • Participants

– MFI members known or who have admitted to having loans from at least one other MFI

– Branch staff

• MFI clients were selected by MFI staff

Discussion Topics

• Observed trends and behaviour among lenders and borrowers

• Reasons for multiple borrowing

• Benefits of Multiple Borrowing

• Risks of Multiple Borrowing

• Consequences of trend towards presence of many lending sources

Focus Group Discussion

FGD 1&2

FGD 3&4

FGD 5&6

Total

Date Conducted

June 24,2011

July 12, 2011

October 13,2011

MFI Client Participants

5 6 5 16

MFI Staff 4 3 6 13

FGD Participant Profile - Client

Length of Residence 11 to 30 years ave, 20

With Multiple Livelihood activities

5 / 8

With reported leadership position

5

Years experience with MFis 2 – 30 years, average 7.3 years

No. of MFIs borrowed from 2 – 4

No. of Current Loans with Distinct MFIs

1 - 3

Lenders Identified by FGD Participants

FGD 1&2 FGD 3&4 FGD 5&6 MFI Staff

8 10 8 45

Lenders Mentioned

ABS-CBNBAOS Coop Emmanuel KS Bank PMDF Sunlife UPLIFT

Advance Big B Gcash LifeBankRed

Lending Tanglaw Will

AKAPBPI

Lending GSIS NOVADECIRobinson's

Bank TechtonYellow

Lending

Alay Buhay CARD ICAN OK BankSacred Heart

Transnational

Armando CARITAS JNL OMB SB TSKI

ASA CCTKasagana

Ka Orakie Shali TSPI

Bangladesh Dreams KMBI Pagasa Sunny Inc. UKMA

Lenders and Lender Behaviour

• Increase in number of lenders in area in past 12 months preceding date of discussion

• Fewer “5-6” Lenders in area• “5-6” reposition as bridge financiers• More product offerings• Better/improved product offerings• Changes in borrowing requirements• More benefits• Changes in credit investigation• Different lending models• Recruiting through agents and providing incentives• No increase in interest rates

Changes in Offerings

• More flexible repayment terms• Change from group to individual guarantee or guarantor

system• Shorter/faster processsing time• Top ups• Insurance and wider insurance coverage (family

members)• Other services – scholarships• Multiple loan products – education, emergency, etc,,,• Allow two loans simultaneously• More flexible terms on savings – lowered minimum

required savings

FGD Participant Preferences

• Liked more lenders because have more choices• Range of loan products• Allowing more than 1 loan• Range of benefits• Individual guarantee over group guarantee• No minimum savings required• Has Bible study• Not waste borrowers’ time• Can double up payment• Hiring of client children as staff

FGD Participant Dislikes

• Group/Center guarantee

• Many lending terms, conditions and requirements

• Penalties for late payments

Patterns of Multiple Borrowing

• Serial – one lender after another

• Single – multiple – single

• Single – multiple

• Multiple – single

• Multiple - stop

Reasons for Multiple Borrowing

• Maximize benefits (no single source offers complete package)

• Get bigger loans– Requirement of business– Other needs

• Meet emergencies

• Try out new sources

Perceptions about Multiple Borrowing

• Some think doing so helpful– Meet needs– Work harder to pay off debts

• Others wary– Risk of default with increased debt burden– Forced to sell off assets to pay debt

Perceptions about emerging borrowers behavior

• Actively comparing services, terms and conditions, etc…

• “Walang kaalaman sa paghihiram”

• “Maraming pinaguutangan”

• Borrowing without considering ability to pay

Other Observations

• Changing behaviour and requirements among barangay officials– Charging fees for certifications (both above and under

the table)

• Increased incidences of fraud– Among borrowers/staff

• Ghost borrowers• Riders

– By Lenders – Scams

• Increased incidences of robbery/theft

Staff Perceptions (1)

• On presence of lenders– Too many lenders– Attempts by lenders to improve service

offerings– “credit pollution”

• On MFI performance– Higher drop out rates– Higher non-loan renewal rates– Slower expansion

Staff Perceptions (2)

• On client behaviour/preferences– Clients prefer fast processing– Easier for clients to leave because of more

choices– Easier to transfer to other MFIs– Borrow from other sources to pay off loans

• Estimate of multiple borrowing clients– 10%, 50%

Staff Perceptions (3)

• On Own Work– work has become harder– Need to change way in dealing with clients– Staff increased tendency to take shortcuts– Tolerate multiple borrowing– Group grabbing by MFI staff– Changes in collection strategies

• Time with center meetings of other MFIs

• Clients and staff borrow from informal sources to pay off loans