The Voices of COVID19 Microfinance Customers
Survey data from Africa, Eurasia and Latin America Reveal the Economic Impact of COVID on FINCA’s Borrowers
By Scott Graham, Anahit Tevosyan and Seth Spiro
Giving Clients a Voice
FINCA Impact Finance, a network of microfinance banks and institutions, is taking unprecedented actions to mitigate the economic damage of COVID-19 and its continued threat to financial inclusion. Loans are being restructured at a significant scale, new safety procedures are being implemented at branches, and there is greater urgency behind the digitization of our customer touchpoints—from mobile banking to social media and online services.
While the need for these actions is not in doubt, their success depends on effective communication and engagement with our customers. This means providing customers with carefully targeted information that helps them access real-time information and make transactions. But it is equally important to give customers a voice in the conversation, so that we can understand their circumstances and be more effective advocates on their behalf.
To that end, seven FINCA subsidiaries in Africa, Eurasia and Latin America have recently conducted more than 3,500 client interviews to assess the impact of COVID-19. We are using a survey instrument that FINCA developed together with the Social Performance Task Force and 60 Decibels. The data from these interviews covers Uganda, Guatemala, Kyrgyzstan, Armenia, Tajikistan, Azerbaijan and Kosovo. The baseline data paints a compelling picture of the different ways that COVID is affecting the lives and livelihoods of our customers. It also serves as a benchmark so we can see if the situation is improving.
Same Storm, Different Boats
In Uganda, where most of our clients are self-employed in trade and services, two-thirds of our survey respondents reported that their livelihoods were completely shut down. With no savings to fall back on, about half of these families had to limit themselves to one meal a day, while relying on neighbors and home gardens to fill in the gaps. Notably, women are more likely than men to report reduced food consumption, along with coping strategies such as sending children to the village to be fed, or just going hungry.
The incomes of our borrowers in Eurasia and Latin America are more diversified. Only twenty percent of our clients’ households depend primarily on a small business. A much larger share – about half – rely on income from either formal employment or commercial farming. These households are suffering from lost jobs and wages, but the immediate impact on family consumption is less severe than Uganda. Most households still have at least one family member working, and for now they can rely on savings to make-up for lost income.
The economic impact in Eurasia could prove to be longer-lasting, however. Only a third of workers who experienced job losses describe their situation as temporary. By contrast, the informal sector in Africa, which is made up of smaller, more adaptable businesses, is likely to rebound more quickly. Moreover, the prevalence of subsistence farming and strong social networks in Uganda provide an added measure of resilience.
These factors affect customer perceptions about their financial outlook. With some flexibility, fully 90 percent of borrowers in Uganda are optimistic that they will be able to repay their loans from FINCA. But this number drops to 65 percent in Eurasia, even though their household conditions are less precarious than in Uganda. In Guatemala, 70 percent of our female clients expect the situation will go back to normal within three months and about half are even planning to expand their production.
As we emerge from shutdown, it is critical to safeguard the loan portfolio that advances our primary objective: serving the un- and underbanked. The aim of restructuring is to reinforce financial discipline while easing the burden as much as possible for our clients, who bear enormous responsibilities for the wellbeing of their families and communities and employ, on average, 2.4 people per enterprise. So far, most restructured loans have a relatively short horizon, with extensions of three months or less. But up to 40 percent of them are longer, with 12 percent that even stretch beyond a year.
Our call centers and centralized underwriters have already rescheduled almost a quarter of FIF’s loan portfolio, with huge variances by region. Up to forty percent of loans (by value) have been rescheduled in Eurasia, compared to five percent in Africa. This pattern tracks well with clients’ perceived ability to repay, as reported in our survey data. As we handle current debts, we are taking care to avoid generating negative credit records, which could affect a client’s access to future loans.
Restarting the flow of credit is also critical, beginning with existing customers who had strong repayment performance prior to COVID-19. After a period of stifled productivity, clients will be eager to regain economic stability and to remain in good standing with their financial partners.
At the same time, we are all facing a very uncertain economic climate. According to a recent survey in Uganda, over the next year, up to 4.4 million informal workers in small- and medium-sized firms will see their income fall below the poverty line or be lost altogether. Under these circumstances, the risk of making bad loans, which harms everyone, is very high.
Clients themselves are very sensitive to this uncertainty. Only around 10 percent of borrowers mentioned the desire for new loans to recover from COVID-19. In Eurasia, most people are planning to seek further financing only later in the year, or after they have repaid their current loan. A full third of existing borrowers don’t know or don’t plan to take out another loan.
While the demand for credit takes time to recover, in the meantime, there may be a stronger interest in other services that enhance financial resilience, such as savings. In Uganda, fully 70 percent of customers wished that they had saved more before the crisis. If we can overcome the barriers of convenience, we may be able to harness this awareness and promote good savings habits so that customers are better prepared to face the challenges and opportunities that lie ahead.
By Scott Graham, Director of Customer Research and Field Data Services and Associate Director, Anahit Tevosyan, Associate Director of Research and Client Impact for FINCA International, and Seth Spiro, Chief Marketing Officer for FINCA Impact Finance.