One of the things I enjoyed most about my Kiva Fellowship was reading other fellows’ experiences with microfinance in other countries and identifying the overlapping similarities. Nadia Anggraini had shared that there are practical reasons for why her MFI prefers to serve rural clients as opposed to urban clients. As it turned out, the staff at my host MFI in the Philippines had also told me about the challenges of working in urban areas and why they prefer working in rural areas. Similar reasons, similar stories.
Before my chat with HSPFI Executive Director, Sir Vicente “Vic” Geducos, I had always assumed that MFIs serve rural clients mainly for the social good – to offer people in rural areas access to capital that they may not have otherwise. However, Sir Vic explained that HSPFI chose to focus on their rural portfolio because rural borrowers are less likely to move around as much as their urban counterparts (who sometimes employ what HSPFI project officers refer to as “hide and seek” – not showing up to center meetings and not staying at home on days when repayments are due). Rural clients are easier to find, or in short, they are better payers. Needless to say, MFIs need to keep a steady stream of repayments coming in order to operate, and this consideration outweighs the additional risks that MFIs face in operating in remote rural areas – long, arduous travel for the staff being one, and threats to loan officers’ personal safety being another.
That’s not to say that HSPFI doesn’t serve any urban clients at all – I had visited quite a few clients working in or around cities. But the realities of dealing with urban clients mean that HSPFI employs different operational strategies in certain areas. For example, one of HSPFI’s project officers shared that he doesn’t practice the Grameen group lending and joint liability methodology (where group members are responsible for paying for a defaulting member), simply because it’s not as effective. Also, having lots of other MFI competitors in HSPFI’s operational area means that clients who don’t like being held responsible for each others’ debt can leave HSPFI and easily find another MFI that doesn’t have the same borrowing requirements. So even though HSPFI borrowers are grouped into centers, that project officer chose to focus on individual loans. He also added that he denies additional loans to any borrowers who had previously defaulted.
What amazed me most when I first learned about this was how well microfinance marries practical concerns with the social good. There has been a lot written about how microfinance benefits and empowers poor women by offering them access to capital, and those women in turn responsibly invest their business profits to improve their families’ welfare and children’s education. But at the end of the day, why do most MFIs cater primarily to women borrowers? Because they are more responsible payers than men. Similarly, MFIs benefits rural clients by offering valuable services – not just giving the poor access to capital, but also through offering a variety of services like insurance, savings, and business/leadership trainings to those clients.* But the main reason why MFIs choose to serve rural clients is because they also tend to be more responsible payers.
And this is why microfinance has been so successful. Because it serves a social purpose, while being driven by practical considerations.
* Check out Suzy Marinkovich’s moving post for another perspective on rural lending.