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Abstract
The paper seeks to promote greater understanding of the importance of loan officers in group-based microfinance by explaining their actual roles, dilemmas and tensions when working with poor clients. Few existing studies have used data outside Bangladesh and most focus upon relatively well-performing institutions. Using data from Zambia this study focuses on the recent crisis of Christian Enterprise Trust of Zambia (CETZAM) and the effects of its practices for accounting for and dealing with defaulters. The findings firstly show that loan officers faced powerful hierarchical accountability pressures and pursued inappropriate methods to compel further repayments to resolve this crisis. Its approach to borrower default was found to be stressful for loan officers and potentially detrimental for CETZAM’s own short and long-term survival by reducing client loyalty and trust.
Acknowledgement
The authors acknowledge and are grateful for the detailed and constructive feedback from anonymous reviewers in writing this paper.
Notes
1 The immediate success for the Year of Microcredit was in raising awareness of microfinance, its potential for alleviating poverty and increasing availability of data on its performance (Vanessa Ward, editor, Microfinance Matters, November, 2005).
2 These are frontline employees of microfinance institutions. They have several titles such as: field staff, credit officers or field workers. The paper adopts the term loan officers (as used by CETZAM), unless quoting from other sources.
3 CETZAM has 5 branches on the Copperbelt. The branch picked for detailed observational study had the highest number of loan officers, with a range of 2–4 years of service. All the loan officers at this branch were interviewed and shadowed. This also meant interviewing the branch manager and accountant in order to get their perceptions of loan officers and the overall performance of the branch. The branch’s reported ‘dismal’ performance on loan repayment was judged typical of the other 4 branches as well. This assertion was based on the chief executive officer’s overview of CETZAM in an interview held at their office on 5/11/03-Kitwe.
4 Most interviews with clients could not be tape recorded (5 out of 8) due to noises at their trading premises and were also not comfortable with the recording machine. Detailed notes were written up immediately after these interviews. 3 senior managers, 2 immediate supervisors (at branch level), 1 former loan officer, 3 clients and 6 loan officers made up the 15 recorded interviews.
5 Association of Microfinance Institutions of Zambia (AMIZ) was formed in 1998 as an umbrella organisation for microfinance institutions and other industry stakeholders operating in Zambia. Its mission was to develop a vibrant microfinance industry in Zambia through building the capacities of MFIs. It also serves as a collective voice in lobbying the Government on issues of law and creating an enabling environment for MFIs (CitationAMIZ, Microfinance News, Issue No. 01/2004). Most active MFIs are affiliated to AMIZ, including CETZAM.
6 Kitwe has been CETZAM’s headquarters since its inception in 1995. At the time of field study (mid 2004) it planned to move its headquarters to Lusaka. Kitwe has remained as one of its five branches on the Copperbelt.
7 Opportunity International Network defines ‘transformation’ as a ‘deeply rooted positive change in beliefs, values, attitudes, actions, relationships and structures manifested in a higher level of existence of an individual and/or community’ (CitationCheston et al., 2000, p. 3).
8 Membership in Trust Banks is between twenty and forty, comprising people with similar economic needs. Solidarity groups have five to seven members. Trust Bank members meet weekly, Solidarity fortnightly (CETZAM brochure). Loan officers go out to hold meetings with clients in their own home and market environment. The difference between a trust bank and solidarity group primarily lies in the size of the group and the scale of loans for solidarity are much bigger ($350–$1000). The data in this paper is mainly based on group loan contracts and not on individual lending loan product.
9 The researcher found that all training manuals were in English and the onus was on the loan officer to use local vernacular for those who did not understand English. For example, most elderly women clients were not literate and needed assistance in completing their loan pass books. The researcher observed that meetings were conducted in Bemba – popular local language on the Copperbelt.
10 Portfolio at risk (PAR) is a measure of loan quality that considers not just missed repayments of delinquent clients, but the remaining outstanding balance of loans, which are at risk of not being repaid. The determination of when a loan is at risk is based on the age of the arrears and can vary among MFIs. A ‘cut-off’ of 30 days is usually the norm.
11 The expectations of CETZAM being a national MFI and a registered bank by 2005 have not been realised. This forms part of the study at hand.
12 Researcher had difficulties obtaining hard data. Generally organisations in Zambia do not disclose performance information that easily – especially to ‘outsiders’. There is always some suspicion, and this could have been the case here.
13 The statement referring to decline in disbursement of loans is based on the interview with senior managers at the at head office-CETZAM, 26 November 2003.
14 CETZAM would include prepayments in the amount received, so if some groups paid in advance it masked the fact that other groups had not paid. In other cases, clients’ loan security fund (a form of savings) would be used to cover up arrears and present a high repayment rate. This way, severe delinquency problems got covered up.
15 This is based on the interviews with the Chief Executive Officer and the Operations Manager, who indicated that the organisation was starting “afresh” after a near collapse and that all staff would have to be retrained in the basics of the lending methodology.
16 Prior to each subsequent cycle clients must have a loan security fund equal to 10% of the principal amount for the re-loan. According to Trust Bank Loans brochure, The LSF cannot be used to cover regular payments, but unpaid late fees can be recovered through the LSF. CETZAM manages this fund.
17 New management indicated that the ‘early morning raids’ approach had been stopped and clients’ privacy respected. Loan officers were being encouraged to work through group leaders instead. Some clients confirmed the development with researcher.
18 For more detailed discussion of emotional labour and how it applies to many other frontline jobs, see CitationFineman, 2000 and CitationTaylor, 1998.