Responsible approaches of institutions to the effects of Covid-19

By Grameen Crédit Agricole Foundation

Last April, the Africa's Pulse study, a journal of the World Bank Group, estimated that economic growth in sub-Saharan Africa would fall from +2.4% to a range of between -2.1% and -5.1%, which would constitute the first recession in the region in 25 years. This recession is expected to hit countries dependent on mining and oil exports, while countries without natural resources are expected to show slower but positive growth.

The Grameen Crédit Agricole Foundation, in constant contact with its network of 80 partner microfinance institutions (MFIs) and social enterprises in 40 countries, continues its work of collecting information, analyzing, and sharing its observations. The privileged testimonies of our partners allow us to continue monitoring the crisis and its consequences. In this latest questionnaire, we focused on two specific aspects: the operational adaptations of MFIs and the role of loan officers during this crisis.

In summary

The economic crisis has become a reality for the vast majority of microfinance institutions supported by the Grameen Crédit Agricole Foundation. Almost all of them have implemented massive loan deferral programs to facilitate their borrowers' economic recovery.

The loan officers at these institutions are the primary point of contact between clients and microfinance institutions. They spend nearly half of their working hours reviewing and implementing loan deferral requests.

Institutions quickly adopted programs to reduce their burdens, ensuring the social protection of their employees and safeguarding jobs. Only 12% of them carried out redundancies, which is relatively low compared to national averages. However, institutions are postponing their recruitment programs and a large portion of their investments. They also appear to be seeking to direct their funding toward sectors currently considered less risky. This is particularly the case with agriculture. This observation is recent. It remains to be confirmed and will be closely monitored in our upcoming news updates.

By proactively seeking ways to counter the crisis and ensuring responsible approaches, MFIs are on the right track: today's innovative solutions could also be their successes tomorrow.

Institutions are now focusing on risk treatment

While the health crisis appears to be stalling in countries that have adopted the most effective measures, lockdown exit plans suggest a very gradual recovery in economic activity. Our latest results confirm what we have been observing for several weeks: the remarkable adaptability of microfinance institutions in the face of an unprecedented crisis.

Nearly 90% institutions have established a crisis committee, chaired by the Director General and including the Executive Committee, to oversee various decisions and address the effects of the crisis. This committee generally meets weekly.

“We have created a ‘crisis management team’ composed of members of the executive committee and supported by the chairman of the board whenever necessary. We have a weekly meeting with the board of directors to take stock of the situation and validate key decisions.” – Partner in Myanmar

The effects of the crisis are now being felt by 81% of the partners surveyed, who report an increase in risks to their client portfolio. Responding to this risk is now focusing the bulk of microfinance institutions' efforts, to the detriment of other activities now considered less essential (nearly one in two of them provided this type of service at the beginning of April, compared to one in three today). This reduction in activity aimed at providing non-financial services (awareness campaigns, information campaigns, equipment supply, etc.) is allowing for strong growth in activities dedicated to credit restructuring.

“To support our customers over the coming months, we are proposing the suspension of principal and interest payments to all customers who were not in the at-risk portfolio as of March 1. To date, 75% of the customers contacted have accepted. The process will continue.” – Partner in Ivory Coast

Institutions are adapting financially and operationally

The table below shows the progression of the difficulties encountered and the mitigation measures implemented to address them.

On the financial level

Currency volatility in this context is weighing on institutions' treasuries: 64% of respondents outside the CFA Franc zone are facing a sharp devaluation of their local currency against the dollar. This devaluation directly impacts institutions that have borrowed in this currency, since they themselves receive the vast majority of microcredit interest in local currency.

“The situation is further aggravated by the significant devaluation of the KGS in recent months, which contributes to increasing the cost of currency hedging” – Partner in Kyrgyzstan

The information provided by our partners in this survey also confirms the quasi-mandatory measures taken by MFIs during the crisis: 67% of the MFIs surveyed reduced or stopped microcredit disbursements. A similar proportion of institutions began massively restructuring loans to small borrowers by granting payment deferrals of 3 months, on average. These moratorium periods constitute a truly essential element of crisis management, at all levels. Whether mandated by local regulators or spontaneously proposed by MFIs, they allow borrowers to benefit from a reduction in costs before resuming their activities. Similarly, the numerous processes for deferring investor repayments allow MFIs to conserve precious liquidity in a period of uncertainty. The Grameen Crédit Agricole Foundation, for example, granted numerous payment deferrals in April, in close consultation with other lenders.

The crisis, however, has not affected MFIs' proactivity and is encouraging them to adapt. To this end, some are seeking more resilient sectors in this context of economic crisis. Thus, we noted that 40% of institutions are considering moving into the agricultural sector, whereas this sector was rather neglected because it was considered riskier before the crisis. This point will be particularly monitored in future questionnaires, as this percentage seems to us to mark a notable change in attitude. This new direction is being considered by more than half of MFIs whose agricultural loans do not exceed a third of their portfolio, but also by very rural and agricultural MFIs. It is still too early to say, but the current crisis could encourage institutions to discover traditionally neglected sectors.

“We are moving forward with plans on rural and agricultural financing” – Partner in Sierra Leone

In terms of activity

Regarding activity, the difficulties of team travel are tending to ease somewhat: 55% experienced difficulties in May compared to nearly 80% in April. On the other hand, group meetings are still prohibited, and the ban is growing, which penalizes the institutions' relational processes, primarily with clients who have no alternative to solidarity loans.

“Group meetings were held weekly or bi-weekly for reimbursements and social gatherings. Without a group meeting, you can no longer demand reimbursement.” – Partner in Kenya

On the social front, only 12% of respondents have had to lay off employees since the start of the crisis, which is, however, quite low compared to national averages for growth in unemployment figures. Our partners seem to be following the first principle established by SPTF (1) "Keep staff employed" according to which "today's employees will be tomorrow's assets". For a large number of our partners, parting with employees during a critical period seems like a greater loss than a slight cyclical economic gain. On the other hand, expectations are already weighing on our partners' growth and development projects, since nearly one in two institutions has put these current recruitment projects on hold. This uncertainty is also weighing on organizational projects, with 41% of the MFIs surveyed having decided to postpone this type of internal project.

Staff protection remains a key focus, with 90% MFIs continuing to provide significant resources and remind them of barrier gestures. From the start of the crisis, our partners made rapid decisions to reduce their fixed costs and limit the risk of exposure to the health crisis: mandatory paid leave (52%), teleworking (62%), team rotation, reduced working hours (57%), and reduced branch opening hours (52%). The level of progress in internal digitalization at certain institutions has encouraged these organizational changes. This is particularly the case for our partners in Europe and Central Asia, who benefit from numerous electronic and online tools.

“Most of us at headquarters are working remotely, thanks to our own remote IT system that allows all departments to continue working seamlessly” – Partner in Georgia

The current crisis, which, as we have seen, is limiting MFIs' "business as usual" capabilities, has led us to study the adaptation of the loan officer profession, at the heart of the microfinance business. Some missions remain the same, particularly for MFIs in the least affected countries: loan disbursements (43%), repayment monitoring (38%), or client file analysis (43%).

The restructuring of ongoing loans is taking an increasingly important place in the daily lives of credit officers (43%), with the encouragement to use mobile payments (36%) and the drafting of amendments linked to deferred repayments (31%).

Just as in the retail banking sector, where the relationship manager has demonstrated their importance during times of crisis, loan officers in microfinance institutions are the primary contact for clients. 81% of respondents stated that the essential role of loan officers is to maintain contact with clients and/or credit group leaders.

We maintain contact with all individual clients, group leaders, and village bank presidents through digital and telephone channels. – Partner in Zambia

Strengthen interaction with clients via (smart) phone or other digital devices and carry out collections through the group leader if possible – International MFI Network

This essential and massive approach is all the more important since it is recognized by the Social Performance Task Force (SPTF) in its responsible crisis principles, as being essential in times of customer fragility. It should also be noted that 33% of the MFIs have initiated surveys with their clients to better understand their needs and offer suitable offers and services. For almost half of the MFIs (43%) the advisors also have the role of "health advisor" by reminding people of good hygiene measures, this is particularly the case in West Africa and Europe.

“One of the best investments you can make right now is to maintain close contact with your customers. Many can't make payments, but they're still valuable assets.” – SPTF

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(1) SPTF is a non-profit organization that engages with inclusive finance stakeholders to develop and promote social performance management standards and best practices.