Why have our Diarists taken fewer MFI loans since Corona began?
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For background on the loans that our Diarists take - from all sources including MFIs - please go
to the 'MFI Loans' page for a full description and discussion.
For more on the Corona outbreak and how it affected our Diarists please read this UNU Working Paper
Our first chart shows the dramatic fall in the number and value of MFI loans taken by our 60 Diarists since COVID broke out in the spring of 2020. Loan values are in taka.
In this and all other charts our analysis uses our data from 60 Diarists from 2018 to 2023
Chart 1: MFI loans taken by the 60 Diarsists in the period 2018-2023 inclusive
The peak year was 2019, with 62 loans issues - more than one MFI loan per Diarist (remember that MFI loans are rarely issued for less than a term of one year, and that not every Diarist is an MFI user).
But in 2020 - the year that Corona arrived - the number and value of MFI loans issued collapsed to less than half of the 2018 and 2019 totals. Since then, despite a small uptick in 2021, MFI lending to our Diarists has not recovered: indeed, in 2023 fewer loans were issued than in 2020.
The explanation for the fall-off in MFI loans that comes most immediately to mind is the government-ordered closure of MFIs during the first lockdown (March-April 2020) and the subsequent request to MFIs by the government not to pressure clients harshly for repayments.
MFI repayments are made weekly (sometimes monthly) so the effect of the clsoure on the relationship between MFIs and their clients becomes clear when we look at the pattern of those repayments:
Chart 2: repayments made, monthly, by all 60 Diarists combined, 2018-2023
Note that charts 1 and 2 are similar in overall shape. Repayment reduced but kept pace with loan disbursements, suggesting that our Diarists didn't trigger a reluctance on the part of the MFIs to lend caused by fear of arrears. More on the economic condition of the Diarists later (chart 8)
But was the collapse in lending confined to MFIs? And if so, why has the collapse in MFI loan-taking still not been reversed?
The next group of charts show the situation for formal banks, for the local cooperatives, and for two types of private informal lending - loans on interest, and interest-free loans (known locally as howlats).
We begin with the most common type of loan taken - the interest-free loan, or 'howlat'. These can be of any value but many are small. The bigger ones are often from relatives and benefit the wider family, the small ones cover up cash shortfalls for everyday needs. Altogether the Diarists took 996 of them in the 6 years.
Chart 3: informal interest-free loans taken by the 60 Diarsists in the period 2018-2023 inclusive
These interest-free loans have declined in number but increased in total value over the years. The 100 loans taken in 2023 were worth more than the 247 loans taken in 2018.
Could it be that our Diarists are moving away from MFIs and back to old-fashioned local ways of raising capital and liquidity? If so, why?
Since 2020 the total value of these interest-free loans has been similar to that of MFI loans.
We look next at informal interest-bearing loans, of which there were 56 over the 6 years, or about one-third of the number of MFI loans and with a total value about one-sxith of MFI loans. Most are taken by our better-off Diarists and are used to buy land or business assets or send family members to work overseas.
Chart 4: informal interest-bearing loans taken by the 60 Diarsists in the period 2018-2023 inclusive
Their number and value have plunged to near-zero among our Diarists, and, unlike MFI loans, the decline did not start at Corona time.
So are Diarists turning away from interest-bearing loans whether from MFIs or from private sources, and independently of the arrival of Corona?
Or is the decline the result of changes in the personal situations of our Diarists? There has been severe inflation, and our Diarists are getting older...
There were 67 loans issued by Cooperatives (almost all by a single local entity) in the 6 year period. The cooperative competes head-on with the MFIs but offers more flexible service and kept its doors at least half-open during the Corona period.
Chart 5: Cooperative loans issued to the 60 Diarsists in the period 2018-2023 inclusive
These loans also fell in number, but not in the same way as the MFI loans.
2020, the Corona year, saw almost as many loans go out as in 2019, the peak year, and their combined value was a record. The fall in numbers started in 2021 and hasn't yet reversed, though their total annual values are greater than in 2018 and 2019.
It is possible that Diarists turned to this small local Coop during the time that MFIs were closed.
Bank loans to Diarists are the final type of loan we look at. Banks don't have many low-income clients so the number of loans is very few - only 24 in the 6 years among the 60 Diarists.
Chart 6: Formal Bank loans issued to the 60 Diarsists in the period 2018-2023 inclusive
The formal Banks, unlike the MFIs, were not asked by the government to close their doors during the lockdown periods in 2020 and then again in 2022.
Two of the many Banks involved have an 'MFIi-like' very-small-loan programme, and two of the three loans issued in 2022 were of this type - hence the very low total value. In the next year, 2023, more coventional bigger Bank loans were taken.
The sample here is very small and the data therefore likely to be volatile, and certainly unrepresentive of any other group of people.
This chart shows all loans of all sorts. There are 1,375 of them.
Chart 7: All loans of all types taken by the 60 Diarists in the period 2018-2023 inclusive
Here, we see a steady decline in the number of loans taken as the years go by but, aside from a dip in 2022, we don't see much of of a fall-off in loan total values.
2020 does not look so much like a 'special' year in this chart as it does in, say, the MFI chart.
So what's going on? Our next section discusses.
The economic background: incomes and expenditure
Chart 8: Net income and expenditure of all Diarist households in the period 2018-2023 inclusive
This chart shows the net income (all earned income less the costs of producing it) and the household expenditure, of our 60 Diarists over these years.
(Expenditure exceeds income, but Diarists have other inflows. such as gifts, so total inflows slightly exceeded total outflows in these years).
We see a small dip in 2020 and 2021 but there is a rebound in 2022.
It doesn't look as if Diarists took fewer loans because of changes in household inflows or outflows.
So far, we have treated all 60 Diarists as a single body. But there might have been important differences among the households involved. In the next sequence of four charts we examine net income and household expenditure totals for four 'quartiles' of income over the period 2018-2023. The 'top' quartile contains the 15 households with the biggest total income in that period, and the 'bottom' quartile the 15 with the smallest total income.
Chart 9: households with the biggest incomes
Chart 10: 2nd-income-quartile households
Chart 11: 3rd-income-quartile households
Chart 12: households with the smallest incomes
We see that all four quartiles saw some reduction in values between 2019 and 2020 - but the richest quartile suffered the biggest proportional drop. All but the richest quartile had recovered, by 2023 or earlier, to pre-Corona levels.
Perhaps this relatively poor experience of the 15 highest-income households led to their taking fewer loans from MFIs and private informal lenders, who charge interest on their loans.
But how many, out of the 60 Diarists, took loans?
(note that Diarists may take both MFI and other kinds of loans in a year)
(note that Diarists may take both MFI and other kinds of loans in a year)
Chart 13: the number of Diarists who took MFI loans, and the number that took other kinds of loans 2018-2023
Before Corona, half of our 60 Diarists took at least one MFI loan each year, but in 2020 that proportion fell to one-third, and in 2022 and 2023 declined even further.
Before Corona, each year, more Diarists took non-MFI loans than took MFI loans, and that proportion remained about two-thirds of all Diarists even in the 2020 Corona outbreak year. The proportion then fell off sharply, to recover gradually to more than half the Diarists by 2023.
Digging deeper
But to what extent is it the same Diarists taking both the MFI and the non-MFI loans? The next chart explores that question.
Chart 14: the number of Diarists (out of 60) who took various combinations of loan types, or none, each year, 2018-2023
After the first Corona year (2020) the number of Diarists taking no loan at all rose, and remains high, as earlier charts implied.
In the first Corona year (2020) the number who took non-MFI loans was at its highest. Many of these are the howlats (the non-interest loans, often quite small).
Unfortunately for MFIs, who have striven to be the 'one-stop shop' for their clients' loan needs, the number of Diarists who took only MFI loans shrank to almost none in 2023.
The number taking both kinds of loan, however, has ticked up since the sharp fall of 2020.
Chart 15: our 60 Diarists crossed-tabbed against their loan taking behaviour each year, roughly ranked by intensity
We offer this additional slide which 'cross-tabs' each of the 60 Diarists against their loan behaviour each year.
The list is roughly ranked by the intensity of loan taking, the higher ranks being those who took both kinds of loan every year (red), and the lower being those who took no loans at all in all 5 years (grey). Green indicates where only MFI loans were taken and orange where only non-MFI loans were taken.
This data may be used in later analysis to see what we can learn from individual behaviours.
Our interim conjecture
(1) During the two-month closure of MFIs ordered by the government in April and May 2020 MFI clients neither took loans nor made repayments on existing loans.
(2) After the closure order was lifted the government asked MFIs not to put heavy pressure on clients to make repayments. Clients may have enjoyed not having to make repayments, prioritising that over taking new loans. MFIs may have hesitated to offer loans to clients while being asked to go soft on repayment discipline.
Paragraph (1) offers a strong explanation of the sharp fall in loan taking in April and May 2020, and paragraph (2) offers a plausible explanation of why the fall continued for another year or so.
However,
By 2021 MFIs could return to their normal loan distribution and collection practices. But our Diarists did not return to taking loans in the way they had before the pandemic. They took less than half the number and value of MFI loans in 2023 than they had in 2019 (chart 1).
We saw other changes in our Diarists loan-taking behaviour. Interest-free loans taken from family and neighbours fell in number but increased in value in 2020, after which their number continued to decline gently while their value remained high (chart 3). Loans on interest from informal sources peaked in 2018 and fell steadily thereafter, almost disappearing in 2022 (chart 4). A busy Cooperative much used by our Diarists maintained the number and value of loans to Diarists during 2020 but saw a fall after that (chart 5). The number of loans of all types (including MFIs) taken by Diarists fell each year from 2019 through 2023 (with the sharpest fall in 2020), though their combined value was higher in 2023 than in 2019 (chart 7).
These data are puzzling.
We decided to look more carefully into individual cases to shed more light.
Chart 16: Diarist 20rof's MFI and other loan taking and repaying record, annually
We begin with Diarist 20rof whose record shows the steepest fall, in absolute value, in MFI loan-taking, with a sharp break occurring in 2020, the year of the Corona shut-down (see chart 16).
20rof is an unschooled but very shrewd woman who is among the most successful business-people in our sample. She built up a sari-retailing business, run from her home where she stores saris bought at wholesale markets. She also rears cows for milk and for sale, has bought land, and has got her son work overseas.
She joined the MFI Grameen Bank soon after it first came to the area more than two decades ago, and has been an intense user of its services. She has taken all of the loan types that Grameen offers, ignoring their intended purpose and applying them to her sari, livestock, land and migration ambitions. She has also persuaded many fellow-clients at Grameen to take loans in their names but to on-lend them to her. No other Diarist has had so many loans from a single MFI, of such high total value, outstanding at the same time. She has not used any other MFI. Chart 16 shows that she has been a regular repayer of her loans (the delays after 2020 are because of the MFI shut-down).
We asked her if Corona had stopped her taking MFI (and most other) loans
She said 'no'. Discussing her transaction record with her we saw that Corona was, at most, an indirect factor, or just one of several factors in her life story.
Chart 17: 20rof's sari sales (in taka) annually
She agreed that Corona had sharply slowed her sari business, as customers cut down on all but essential shopping, and she was unable to get to the markets to buy stock. But, as chart 17 shows, her sari sales had been declining in any case. The drop in sales from 2019 to 2020 was just the sharpest drop and was the start of 4 years of lowered sales.
Over the years, her non-sari income sources had grown.
She made her first investment in getting her son an overseas job in November 2015, by signing up an agent. The next year saw more such payments - one of 385,000 taka in December of 2016. Altogther she paid out 695,000, financed in part by Grameen loans, and in March 2017 the son reached Saudi Arabia. Two months later he began to send remittances and by March 2024 he had sent a total of 900,040 taka. 20rof spent some of this, in combination with MFI and private loans, on increasing her cattle-rearing business and has had milk and animal sales of 379,000 taka since the peak of Corona. She also invested in land, procuring a homestead plot for her daughter.
20rof is now in her mid-50s. She has developed several thriving businesses, has got her son a job overseas and secured her daughter's independence. It is not surprising, perhaps, that she is now taking things a little more gently. Corona, and the temporary closure of the MFIs, were relatively minor factors in her declining need to take MFI loans.
We can observe the opposite behaviour with 65mof, whose MFI lending increased substantially after the Corona lockdowns.
Chart 18: 65mof's MFI and other loan taking and repaying record, annually
Chart 19: 65mof's household's income by month
65mof is a woman in her early 40s who works as a casual cleaner at the local hospital. Her husband is a boatman on the river and recently a son started driving a motor rickshaw. She has taken loans from three MFIs - ASA, BRAC and Grameen Bank - mostly for managing life events. She also borrows often from friends and family. She saves, regularly, in her MFIs and in a Cooperative. As Chart 19 shows, their income fell in April 2020 during the Corona lockdown but compared with other Diarists it recovered quickly.
Her 2018 and 2029 MFI loans were taken to manage cashflow - they were used to pay off private debt taken for household needs, for example. Her 2020 MFI loan was taken to rebuild their home and the 2021 and 2022 ones were taken to refinance private loans taken for the marriage of her daughter. In 2023 she took MFI loans to buy the autorickshaw that her son drives.
Looking at these two cases, the Corona lockdowns and the closure of MFIs don't appear to have been decisive factors in either the decrease (20rof) or the increase (65mof) in taking loans from MFIs. Much more important were developments in the family life of the Diarists. Do other cases support this conclusion?
More such studies are in preparation