The end of the month is always a hectic period at my micro-finance institution. It’s considered to be a critical time to collect the late loan repayments, in order to reduce the amount of risk in the portfolio when the new month rolls around.
There are a number of meetings that take place among the loan officers and the management where the problem clients and groups – those that have not submitted their repayments on time – are discussed in detail. The mood is solemn at these meetings, as the situation is worrisome. Due to the economy affected by the worldwide crisis, more and more clients are becoming delinquent and are having trouble paying back their obligations.
The Collections Process
Typically, when a client is late, the loan officer personally delivers several written warnings to him or her to let them know about the late fees, which are relatively steep, and the consequences that may follow if the payment is not submitted promptly, such as the possibility of a lawsuit. Most of the clients react to these warnings and settle their debt, but not everybody. Thus, at the end of the month, there is an extra emphasis placed on collecting the repayments from these remaining “problem” clients.
Over the last few days, the loan officers have been paying daily visits to the delinquent borrowers. In fact, they even bring in an additional loan officer for reinforcement and effect. Oftentimes clients simply get used to their credit officer “pestering” them about the missed payment and not take it seriously any longer, so the extra support is meant to show how serious the situation really is.
Although today is Saturday, most of the staff has been working and making their rounds. The office stayed open as well, as the clients have been given a deadline to come in and submit their repayments by the end of the business day. As the day rolls to an end, many of the “delinquencies” have been resolved, so the staff starts to breathe easier.
It’s not the easiest part of the job for the loan officers, as that’s when they have to be a “bad guy” to a large degree. Many of their clients – even long-time reliable ones – are struggling to pay back their debts. For some, business has slowed due to the worldwide economic crisis. Others have relied on remittances coming in from Russia which has dried up recently. Although the MFI staff may sympathize, everybody has their job to do and the money needs to be paid back.
When you first learn about micro-finance, you learn about the impact that the loans have on the borrowers. You learn about the social value that the micro-finance organizations provide to their clients. And it’s all true – impact and social value are certainly there.
But because this is still a business and not a charity, things don’t always go so smoothly. As a micro-finance institution, you are caught between a rock and a hard place. Many MFIs, including the one that I’m working for, has a social mission to help the poor population and conducts its operations accordingly.
However, when the clients are struggling to pay back their loans, what should the MFI do? Do they attempt to accommodate the client, since – after all – their mission is to help the struggling population and not take their last money at the time of need? Or do they need to do whatever needs to be done in order to collect – as otherwise they can significantly jeapordaize their operations and the ability to serve more customers in the future?
What do you think?
* This post has been written by Boris Mordkovich, a Kiva Fellow working for 10 weeks in Tajikistan for MLF Humo and Partners. Check out currently fundraising loans by Humo and join Kiva Lending Team – Supporters of Tajikistan */>