Learning the Client Perspective on Pricing: Insights from the Field
by Jessica Massie and Dasha Kuts
MFTransparency’s financial education team in Rwanda has been learning a lot about the client perspective as we complete the first phase of our financial education pilot program. Through interviews and focus groups, we are learning directly from clients about the experience of making borrowing decisions based on price, and learning about what approaches to education are effective and which may be less effective.
Financial education is a key component of the enabling Africa to Price Responsibly & Education on Interest Rates Program (enabling APR & EIR Program) that was launched in May 2010 and is currently being implemented by MFTransparency in eight countries in Africa. To inform the design of a financial education program to support the enabling APR & EIR Program, MFTransparency conducted an extensive needs assessment in Rwanda and Malawi. Focus Group Discussions (FGDs) were an important qualitative component of the needs assessment process. In both countries MFTransparency conducted total of 12 FGDs that captured responses from clients of the following financial institutions: Duterimbere (Huye and Kigali), Rwanda Microfinance Limited (Kigali and Muhanga) and Urwego Opportunity Bank (Kigali and Bugesera). The FGDs were led Marcienne Umubyeyi, with Rachael Kayitesi as assistant moderator.
Marcienne Umubyeyi, who is a consultant in education and educational research, mentioned that participating in this research sparked her interest in microfinance. She is now thinking of the field of microfinance as being of two parts: the “client part” and the “bank part”, with both ultimately pursuing their interests of obtaining a loan and making profit, respectively. Marcienne’s expertise in moderating FGDs was a great benefit to the project. She outlined some of her philosophy in running the focus groups at the end of the project:
“The important thing is to observe the audience, to know what they want, and who they are first. Sometimes they may be shy because they don’t understand. You have repeat what you are talking about and what you want exactly.
Sometimes they get shy because maybe they feel like you are a trainer, you are a teacher, so in that case you have to try to laugh and tell them to feel free. [I like to use friendly words and phrases] so they feel like we are together. And I’m the same as them – I’m not a teacher, I’m not a trainer, and I’m not a strange person coming from afar [to study them].”
Rachael Kayitesi, a fourth-year student at the School of Finance and Banking (SFB) in Rwanda, served as assistant moderator for the focus groups. She says that after this project, she will make her final required research project at SFB about microfinance institutions:
“[I will need to gather] information on what people need from the banks, and the problems that people have that they can’t really talk to their banks about, and the services that people are complaining about – that they want the banks maybe to change on some of them. And the other thing is how to help these clients understand the interest rates. Because they only know the amount [they need to pay], most of them don’t know the interest rates. Maybe some of the clients of the microfinance institutions don’t really understand the real terms of their loans. Most of them don’t understand the importance of some terms, like insurance.”
After the FGDs were conducted, Jessica Massie, MFTransparency’s consultant, asked Marcienne and Rachael about their impressions from the FGDs.
Both researchers were surprised at clients’ dependence on loans:
Both Marcienne and Rachael were surprised to find out the degree of dependence clients had developed on loans, and noted that clients appeared to be living from loan to loan without really growing their business or accumulating assets. Rachael described this as a “living a life of loans,” while Marcienne noted that some clients said that “when you have finished paying the loan, there is nothing left in your shop.”
The clients need for operational income was evident during a focus group activity where clients ranked the importance of different loan terms, and another in which they compared the services of various MFIs. Timing – the amount of time necessary to wait before receiving the loan – came up as most important in almost all groups. In at least one case, this was given by clients as a reason for accessing loans from the informal sector, or “banque lambert.” These moneylenders have been banned by the Rwandan government, and using them carries a significant amount of risk – both financial and legal – for the borrower.
Both recognized gaps in clients’ knowledge, skills, attitudes and behaviors around the loans:
Leading these FGDs caused Marcienne and Rachael to realize that research in the area of financial education is very important because, although many clients stated that they had a good understanding of how the loans were priced, there were not able to explain total costs of their loans. Marcienne remarked that FGD participants would give contradictory information about the cost of the loan, leading her to believe that they really do not understand. For example, when asked directly “Do you know what is involved in the loan and what are the costs?” all clients say that they are aware. However, when asked later to give the costs, they would say they did not know, and that “you just take the loan. You know everything [all of the costs] at the end when you have it.
The team also noted that clients expressed confusion about insurance and compulsory savings. In some cases, insurance is a relatively new addition to microfinance products. However, clients had expressed that they did not understand why they could not use insurance from one loan to apply to the next if they did not use it, highlighting a lack of understanding of how the insurance product works. They also noted that because the process of claiming the insurance benefits – for example, in the case of a group member who died – was too complicated, and they preferred to shoulder the costs themselves. There was definitely a perception among clients that the loan insurance was too complicated to use.
Clients had good perceptions of their banks and loan officers, but were reluctant to ask questions or make suggestions:
Marcienne noticed that many of the clients and MFI staff had an almost family-like relationship: “It was almost like they were hugging their MFI.” However, clients realized that in the end, their relationship with the MFI is a business relationship and limited to the loan. In addition both Marcienne and Rachael thought that bank workers should not be the ones to educate the clients because of the perception that the MFIs will tell clients anything in order to recruit them to borrow money.
Face-to-face and audio-visual methods are the best delivery channels for new information:
Both women stated that following the FGDs, the best channels to deliver financial education for these clients would be audio-visual and face-to-face communication rather than books and brochures, unless these were comics – a channel that clients liked when they saw examples.
An interesting example of how written communication can fail occurred with an advertisement for loans targeted at women from a bank in Rwanda. The bank announced via radio and through local channels that it was giving out loans for women. Many women from our FGDs went to the bank to get the loan, going as far as to open an account for 10,000 Rwandan Francs. However, the women failed to read an announcement with instructions at the bank, and did not realize that to get the loan they would have to make regular deposits over a period of time. Therefore, many opened the account and ended up being unable to access a loan in the end.
“Washback” from our research:
“Washback” is a term often used in testing to describe “the effect of testing on teaching and learning,” the idea being that simply by conducting the needs assessment the education process is begun. This concept also seems to have applicability to research, as no participatory needs assessment (at least in my experience) does not have an awareness raising effect on respondents. This exercise was no different. Marcienne and Rachael both remarked that at the end of the focus groups, participants said things among themselves like: “Ah, thank you! We are thinking about things we didn’t think about before. Like the total cost – I had never thought about it.”
The end goal is that the financial education program developed by MicroFinance Transparency will have a similar effect on both knowledge and behaviors of clients regarding their loans.
For more information:
The project is now entering the curriculum design phase, and more about our findings will be posted soon. In the meantime, if you would like more information on the needs assessment, please write to Jessica Massie, Financial Education Consultant ([email protected]).