What Do Clients Care About? Results from Research in Pakistan

pakistan-reportWhat are microfinance clients’ thoughts on fair treatment from financial services providers? We explored this question in the context of Benin in a previous post, spotlighting results from the Smart Campaign’s Client Voices project. Now, let’s turn to another country investigated in the project: Pakistan.

The Client Voices project went directly to current and former microfinance clients and asked them about their experiences with their financial providers as well as their thoughts on what constitutes good and bad treatment. The project included qualitative and quantitative research in four diverse markets: Benin, Pakistan, Georgia, and Peru. Research partner Bankable Frontier Associates (BFA) began its investigation in March 2014. It conducted surveys, focus groups, in-depth discussions, and photo association exercises.

So, what did we find in Pakistan?

Clients report satisfaction with financial providers, but do not have long-term relationships with them. In Pakistan, a country with a relatively advanced client protection environment, 85 percent of clients reported that they are either very or somewhat satisfied in their borrowing and savings experiences. In fact, only 5 percent of clients reported experiencing a consumer protection problem. (This compares to roughly 13 percent of clients in Benin.) However, clients in Pakistan usually only stay with their provider for a short period. On average, the studied clients had been borrowing with their current provider for just one year. Our research suggests that MFIs are weak at fostering long-term relationships with their clients compared to the other institutions, like savings groups, NGOs, and private schools. When asked about the future, clients indicated they’d rather start fresh with a new provider or discontinue borrowing altogether. Reasons cited included rigid repayment structures, lack of respect/empathy from loan officers, and being publicly disparaged in front of their neighbors.

Problematic treatment is concentrated around late repayments. Though consumer protection problems were not reported frequently in Pakistan, the incidence of problems was much higher among clients who reported having paid late at least once. (This was the case in Benin, too.) “Shaming”, as mentioned above, was the most commonly reported problem affecting these clients. Thirty percent of late-payers experienced MFI staff coming to their home and making a scene. A large number of focus group participants indicated that MFIs did not differentiate between clients who pay late willfully and those who may be late due to extenuating circumstances, and this was often seen as inflexible and inhumane.

Clients report that recourse options are unclear and ineffective. The majority of clients surveyed indicated that they are uninformed about the complaints process. Only 34 percent of respondents were told they could lodge complaints in the event of a problem, and less than half of this informed group was notified of options other than speaking with the same staff and group leaders responsible for approving their loans. A number of clients did not complain because they believed it would be ineffective. In fact, clients who had attempted to complain reported getting the “run around” from the institution. Many clients reported that rather than complaining about poor treatment, they’d sooner leave the institution. When recourse options are clear and encouraged, clients report feeling valued.

Clients lack basic comprehension of the terms and conditions of their financial products. MFIs in Pakistan should improve communication on the terms of their loans, recognizing the low literacy and numeracy pervasive in the country. Among respondents, only 41 percent had a strong understanding of the terms and condition of their loans, and 11 percent reported they had no understanding on the matter at all. In this area, insurance is particularly problematic. Over one-third of respondents reported that they were required to buy insurance as part of their services offering, but only 7 percent of these individuals knew what type of insurance they purchased. Not surprisingly, only 4 percent of individuals who purchased insurance had made a claim.

Smaller financial providers in less saturated areas need to be more transparent. In Pakistan, there is a strong regulatory environment. However, in our research in the rural areas of Sheikhupura, where microfinance penetration is generally lower, we observed problems extending beyond those observed in more accessible parts of the country to date. It seems the treatment of clients in smaller MFIs more often “slips through the cracks”. Clients in rural areas where the market is less saturated more frequently experienced lack of transparency around interest rates and disclosure of late fees compared to urban/peri-urban areas. Clients in rural areas also pointed to issues that weren’t mentioned in urban/peri-urban contexts, including MFIs lying about interest rates and group leaders being corrupt and commanding too much power.

A client of a smaller MFI in rural Sheikhupura described his experience with lack of disclosure on late fees:

“[The staff at the MFP] said that I paid late, so I have to pay a fine of 200 rupees for last month.”
“When did you find out about the late fee?”

“After four to five months [of borrowing].”
“Did they tell you about the late fees during the first meeting?”

“No.”
“When did [the MFP] tell you about the late fee?”

 “When I went to their office the next month [to explain that my wife was very sick]. I told them that I needed the money [for her treatment], but I am paying it back now. They said that in any case you still have to pay 200 rupees.”
“How was their behavior?”

 “It was not good…I told them all that I am the only breadwinner.”
“How did you feel?”

 “I started crying.”
“You started crying there in front of them?”

 “Yes.”
 “What was their reaction?”

 “They had no reaction.”

We hope the Client Voices project will bring to light the experiences of microfinance clients like the individual above, and spur industry actors in the studied markets, and more broadly, to improve their client protection systems.