Debt Collecting Can Be Fun!

10 August 2010 at 01:00 10 comments

As Kiva lenders, you have experienced the exciting feeling of seeing your loaned funds return to your account, ready to be re-lent – but what happens when your funds aren’t returned when you were expecting them (or at all)?

As a Kiva fellow working with LEAP (Local Enterprise Assistance Program) in Liberia, I was able to get first hand experience with how delinquent loans are dealt with. After just one week on the job, I joined a loan officer, branch manager, and branch supervisor on their trip to visit clients in arrears (e.g. clients that have missed payments).

LEAP mainly issues loans to groups of five, which means that if any one group member falls behind the other members are responsible to pay his or her portion, so the trip started with a visit to a village outside of Monrovia to find a group leader at his home. When collecting payments on loans that are in arrears, loan officers must be strict enough to demonstrate the severity of the situation but also friendly and approachable enough to not be seen as an enemy by their clients. This is quite a challenge, but the staff from LEAP is very good at it!

LEAP staff (left) laugh with their client (right) as they collect a late payment.

Our first group, we found out, had been late with a payment due to illness affecting one of the group members. The group leader, however, did not have enough money at his home to repay what was due – no problem, we just had him accompany us to the market where another of the group members worked. After much discussion with the other group member at the market (and after attracting a good bit of attention at her stall due to the large crowd), she too joined us in our vehicle to go back to the village where she had money to cover the balance of the repayment.

Dried fish being sold in the market by a LEAP client.

This was beginning to feel like a scavenger hunt, but with one successful repayment under our belt we set out to find more delinquent clients. The discussions between the loan officers and clients were sometimes uncomfortable – some escalated to loud arguments – but even after heated words, everyone was soon laughing and joking with each other, even having fun. I was impressed by how well the loan officers really know their clients as evidenced by their rapport as well as their knowledge of their businesses and homes.

Each client had a different reason for delinquency, and the loan officers were not able to collect all of the payments. So what happens when the payment isn’t recovered on time? As a way of showing how serious the matter is, the loan officers had the clients come to the police station where a formal report was written up. This will help LEAP in its efforts to collect collateral or repayment in the event that the loans default. I was surprised to see that these clients came along voluntarily, and waited with us as we visited other clients, knowing that they were going to the police station. To me, this demonstrated that clients understand the formality and legality of the loans they entered into and they are willing to be disciplined accordingly in order to preserve the relationship they have with LEAP. It also demonstrated how seriously LEAP takes delinquency issues and its commitment to recovering funds.

Seeing the importance that LEAP places on maintaining good loans has encouraged me to lend more, and I hope it does the same for you – if so, join Kiva’s LEAP lending group!

EB Moore is a Kiva Fellow working with LEAP (Local Enterprise Assistance Program) in Monrovia, Liberia. She is thrilled to be working on behalf of Kiva and eager to immerse herself in microfinance!

Entry filed under: KF12 (Kiva Fellows 12th Class), Liberia, Local Enterprise Assistance Program (LEAP). Tags: , , , .

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10 Comments

  • 1. frenky  |  7 May 2011 at 15:25

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  • 2. Teresa  |  12 August 2010 at 11:09

    Very interesting. I have a number of loans out to LEAP but I will not make any more until their delinquency rate is in the single digits. I believe it has come down recently, but not enough for my tasts–unless I decide to make my loans to LEAP “charitable donations” in my mind, as I do for some particularly unfortunate countries–e.g. Nigeria a couple of years ago. Teresa (Northern VA)

    • 3. EB Moore  |  18 August 2010 at 05:25

      Teresa,

      Delinquency rate is something LEAP is currently working on and making a big effort to reduce. Thanks for supporting LEAP with your loans so far, and I hope they will continue to earn your support in the future!

  • 4. Fehmeen  |  11 August 2010 at 03:27

    It certainly does. Thank you.

  • 5. Ghost of the Republic  |  10 August 2010 at 15:19

    Economic “Snapshots”?…

    I found your entry interesting so I’ve added a Trackback to it on my weblog :)…

  • 6. Vanick  |  10 August 2010 at 03:54

    EB, a great read-thanks!

    It sounds like you have hit the ground running in Liberia…good for you.

  • 7. Ann  |  10 August 2010 at 03:35

    EB,

    Great post! It speaks to the value of LEAP’s services that its clients are willing to submit to the consequences of delinquency in order to preserve the business relationship.

    Hope Liberia is treating you well!

    Ann

  • 8. Sam  |  10 August 2010 at 03:14

    EB,
    this is a great Blog entry. Thanks for it. I find it interesting since I am currently mostly in the main office.

  • 9. Fehmeen | Microfinance Hub  |  10 August 2010 at 01:50

    While I understand credit discipline is vital, it would have helped if you had shared the reason for non-repayment by clients who were taken to the police station for launching a formal complaint. Microfinance is charity without credit discipline, as Mr. Yunus puts it, but above all microfinance is a tool to help secure the poor, and if LEAP takes such drastic actions against defaulters because they fell ill, or because of something equally out of their control, then it seems a little ruthless. Therefore, I imagine LEAP deals with different defaulters in different ways – and it’ll help if you mentioned that particular cause too. Thanks

    • 10. EB Moore  |  11 August 2010 at 03:20

      Fehmeen,

      You’re right, LEAP does deal with different defaulters/delinquents in different ways, and I’m sorry that I didn’t use more space to describe more detail (I’m still getting used to blogging and am trying to limit my entries so they are readable). Those clients that were brought to the police station had very specific circumstances (i.e. altering payment receipts, committing fraud) that needed to be addressed. I certainly did not get the impression that LEAP’s practices were ‘ruthless’ at all. I hope this provided some clarification, and thanks for your comment.


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