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MFI Loans

We begin with a sketch of the borrowers, the MFIs and the loans.

How do we know all this?

Each day, 7 days a week and 52 weeks a year, our Team of 4 Data Collectors, based in the centre of the research area, make personal conduct (almost always face-to-face, rarely by phone if necessary) with our 60 Diarists and take a note of all the money that has flowed into and out of their hands that day, transaction by transaction, and covering the whole household. Our Manager enters these data to a database which is sent daily to the Project Director (who lives in Japan) for interrogation and cleaning. The Team also keeps tabs on the events that occur in the households. More detail of our methodology is available on the Publications page.

How we assessed the use of each loan

We used two kinds of data to arrve at the uses depicted in the chart above.
First we have the numerical data about all the money transactions made by Diarists over many years, stretching both before and after the taking of the loan. We looked especially carefully at the transactions up to 3 months before and up to 6 months after the loan was taken, looking for likely matches between inflows (like the loans) and outflows (like spending that may have been made possible by the loan). Quite often there were very clear 'matches' of this sort. For example, among the 317 loans there were 102 cases where the single biggest expenditure in the months surrounding the taking of the loan was made on the same day that the loan was received, and in another 70 cases, within a week of receiving the loan.
Second we have our records of the conversations that our staff have with the Diarists. The staff are trained to keep up to date, through friendly chats, with the Diarists' evolving aspirations and plans. Whenever a loan is taken staff make sure they listen to what the Diarist says about the loan - why they took it and how they'll use it.
By combining these two sources of information we usually have a high level of confidence in our conclusions about how the loan was used. Examples that we will provide later on this page will illustrate the process.

A loyal client

Diarist 32fuf, whom we'll call 'Fuf', is the widow of an illiterate rickshaw-puller who died in 2008 and is herself unschooled. Since then she has worked as a day labourer and then took a job in a garments factory in late 2021. Her household falls into the lowest-income quartile of our Diarists. She has a married daughter, and two sons, one of whom, a barber, lives with her along with his wife and child. They are Hindus. She didn't use MFIs, fearing that she wouldn't be able to make the weekly repayments on time, but in 2014 her son persuaded her to open an account at ASA, Bangladesh's third-biggest MFI. We got to know her in November 2015 since when she has taken an ASA loan each year, as shown in the Table. She has never borrowed from any other MFI.

This record looks like the raw material for one of those heart-warming stories, loved by MFIs, about the power of microcredit.  "Fuf, taking a fresh ASA loan each year, was able to repair her home, bring safe drinking water into her house, set up one son as a barber and another as a rickshaw driver, and is now working on the marriage of her second son. Asked whether her life is better than before she started taking ASA loans, she smiles in agreement..." But such 'Juanita stories' (named after the pseudonymous heroine of many such tales) depend on isolating loan-taking from the rest of life.  You may have already wondered how was she able to buy a 50,000 taka rickshaw with a 25,000 taka loan. And what's this about an account at a Co-operative? Our diary data enable us to dig deeper. 

At the Savings Club members save a small amount each day and at the end of each year take back their savings, a practice which keeps the club honest, since if members didn't get their savings back they would abandon it.  Since we started tracking her in late 2015 she has saved 31,320 taka there, and withdrawn 42,930. She earns interest from members who borrow the money, an entitlement she has never herself used. The local Co-operative offers a daily saving facility and Fuf has saved most days since it opened twenty years ago, her total savings there since late 2015 amounting to 443,028 taka and her withdrawals to 312,400, leaving her, along with accumulated interest, a healthy balance. Again, she can borrow from the Co-operative but has never done so.

To see how her ASA loans relate to her savings, we will review our account of the spending associated with each loan as shown in the Table.

Sometimes, the link between the ASA loan and a large expenditure is strong. For example, the first two loans in the table (20,000 taka in July 2016 and 22,000 taka a year later) were taken with house repair firmly in mind (as Fuf told us) and were spent quickly on building materials. That doesn't mean that ASA loans financed all the household's house repair spending: there were other substantial outlays funded from income as it came in and from savings withdrawals from the Co-operative. Nor was house repair the only big project Fuf had on her hands at the time. In mid-2017 she was still juggling the costs of her first son's marriage, which had taken place back in 2015. Just after she took the 22,000 taka ASA loan in 2017 her son's father-in-law finally paid 21,000 taka of the dowry he had promised them, which allowed Fuf to retire a long-standing and worrying debt that she had at a local jewellers for gold ornaments given to her daughter-in-law. 

When MFIs emphasise, in their stories, how loans promote businesses, they may understate the role loans play in non-business but vital household and health management. For example, we noted that Fuf had paid a rent advance on a barber shop from the 22,000 taka ASA loan in 2018, and indeed she had justified her loan application to ASA by stressing this business use. But the rent advance was only 5,000 taka and on the same day she paid 7,000 taka for medical tests for her son and daughter-in-law. 

The part that the 25,000 taka ASA loan of December 2020 played in the buying of a rickshaw for the second son is a good example of how loans can be used to boost reserves held in savings accounts. The spending need that Fuf had on the day she took the loan was for another rent advance for the barber shop, this time of 10,000 taka. She paid that and a week later put almost all the balance of the loan into her Co-operative savings account. She then waited until the younger son got a final wage payment from his old job (as a window installer) before withdrawing 65,000 taka from the Co-operative and paying, in all, 68,000 taka for the rickshaw.  Fuf had successfully used her ASA loan to further her savings-led goal of buying the rickshaw.

In that time she took 54 loans. 20 of them were 'howlats' - interest-free loans taken from neighbours and relatives. Most howlats in our data set are small, but Rom took unusually large ones, averaging 34,000 taka and ranging up to 100,000. This is because she rarely took howlats to cover small expenses, focusing instead on household projects like sending her son overseas, arranging her three daughters' marriages, farming, buying land and building a home, buying livestock and, most often, buying saris that she resells around the village. Twice only she took informal loans on interest: 25,000 to help send her son overseas and 100,000 via a 'paddy loan' - a device through which rice farmers finance their sowing by selling the crop upfront.  Most often she took MFI loans, and like Fuf she favoured just one partner - in her case, Grameen Bank. She took 32 loans, worth a total of 1,402,725 taka, from Grameen, most of them in the years before the pandemic. On those loans (and on a couple she took before we started tracking her) she has repaid 1,670,270. Rom, like Fuf, is a good repayer of MFI loans.

Grameen, like ASA, normally issues one loan a year to each client. Rom took 32 Grameen loans in 5 years by being aware of some additional loan types that Grameen has introduced, and by exploiting loopholes in the Grameen system. As well as taking an annual loan, she 'topped-up' their balances as often as she could - restoring her outstanding loan to its original value once she had repaid half of it. She also took 'cow loans', shorter-term balloon-repayment loans meant for clients wanting to rear a cow to sell at the Eid festival. These two types of loan were designed for particular uses and those uses are supposed to be monitored, but Rom used them for her many projects, and her longstanding good repayment record meant that the Grameen loan officers were happy to turn a blind eye. Rom is also skilful at taking 'proxy loans': persuading other clients to hand their own loans over to her and in return making the repayments and, sometimes, the compulsory savings deposits into their own accounts. Finally, by sheer force of character, she persuaded the loan officers to overlook another rule and allow her own daughters into the 'Centre' where Rom is registered. The daughters handed their loans over to Rom to use and to repay. 

Rom has not been as keen a saver as Fuf, but doesn't neglect her savings. She has an accumulating savings plan at Grameen, started in 2015 and now worth just short of 50,000 taka. As the chart shows, her borrowing has slowed since the pandemic started. She says that she now finds making loan repayments more stressful than when she was younger, and may from now on rely more on savings than on loans to create the lump sums she needs. Like Fuf, Rom knows that she pays interest on her MFI loans but she doesn't know how much she pays.

Diarist 17atf, who we call Ani, is a conscientious woman who struggles to maintain life in a household where her much older husband, and her son, have both been work-shy. Since we met her in 2015, we have seen her try to juggle MFI loans to make ends meet. She joined many MFIs, then closed the accounts when things went wrong, and then re-opened them. Until recently she was using loans from four MFIs - Pidim, Shakti, Al Arafa, and BURO, and she was finding repayment very stressful. She missed many payments and was lectured at by the Loan officers.  She often had to rely on her own natal family, taking many cash gifts from her father and from her married daughter.

But enough things have changed to cause them to revise their use of MFIs. Ani's father has been sick and unable to work and since January 2021 has not gifted any cash at all to her. This removed a prop the family had been relying on. Motivated by this and by the need to arrange the marriage of his youngest daughter, her husband has worked harder. In particular, he put more effort into raising cows for sale, and in May of this year they sold one for 120,000 taka, a record for them.  And as with Rok, the COVID pandemic had an effect: the closure of the MFIs for several months showed not only that households like theirs could get by without MFIs, but has also cast doubt on their reliability. Her household has become more appreciative of Ani's skills as their money manager, and have supported her efforts to reduce their exposure to MFIs.  As a result, she has not borrowed from MFIs since November 2021 and has progressively reduced the number of MFI accounts to just one - BURO. Her repayments on this final BURO loan have been made on time and the loan is nearly paid off. 

She hasn't yet told us whether she plans to close the account once the loan is fully paid. So will Ani move to a new MFI-free life? Or will she, as she has done before, re-open another MFI account when some need strikes her family? We shall of course continue to monitor what she does.

Stop press: on 21st November 2022 they took a 20,000 taka loan from MFI Pidim to repay a very old Government-run MFI loan: you can read more about this on the 'Life Day-by-Day' page.