Professional Documents
Culture Documents
Transparency:: How Do Clients Understand Their Loan Contracts?
Transparency:: How Do Clients Understand Their Loan Contracts?
Justin Oliver
Centre for Micro Finance – IFMR Research
Sa-Dhan – FICCI Conference
17 March 2010
Introduction
• Loan Contract Information Study:
– Understand how MFI clients understand
their loan contract and
– What it means for an MFI client to be
informed.
• This study DOES NOT merely assess
whether or not an MFI client knows the
terms of his loan
– How does a poor person understand his
loan and what does that mean for policy
and the need for transparency?
Methodology
Conducted over two phases
Phase 1: Randomly survey 299 first-time borrowers in 2 different locations,
north and south India
Phase 2: Randomly surveyed 40 first time borrowers in 1 location, central
India
What Clients Know
If someone in your group/centre is not able to make the payment, do you
What is the amount of your loan? feel obligated to pay their weekly instalment?
(% of respondents) (% of respondents)
Yes, I feel obligated 38%
Right Answer 96%
Yes, as others will also do so in my difficult times 45%
Wrong Answer 4% Yes, I feel obligated to, but only if others in my
group/centre feel the same way 7%
What is the duration of your loan? Yes, I don’t want to, but I have to since it's part of my
loan agreement 3%
(% of respondents) Yes, I should according to the loan agreement. But I
won't since its not my loan 2%
Right Answer 92% No, it's not my loan and I don’t have to 3%
Wrong Answer 8% Does Not Know 2%
Loan Amount
What is the weekly instalment that you must pay on this loan? Duration of the Loan
(% of respondents)
Weekly Repayment
As written in the Adjusting for security Within 10% of Amount
loan contract fund in South weekly amount
Joint Liability
Right Answer 41% 57% 83%
Wrong Answer 53% 37% 11%
Does Not Know 3% 3% 3%
Blank 3% 3% 3%
What Clients Do Not Know
Annualised Interest Rate, as reported by respondents Annualised Interest per Rs. 1,000 of loan, as reported by
respondents
100 100
% in
80 80
Frequency
Interest
Frequency
North - Interest in
60 60 in North-
18% South- Rs.
40 % in South- 40 150 Rs. 180
20 15% 20
0 0
5
6
9
12
15
17.5
33
60
84
100
125
140
150
175
188
196
200
250
700
-999
-444
10
17
20
23
25
30
50
120
400
1500
1.2
1.5
10
12
14
-999
-444
1
1.25
1.75
2
2.3
2.5
3
5
6
15
21
46
Rate of Interest (%) Interest per Rs. 1,000 of loan