NIGER BURKINA FASO Alibori Atacora BENIN Borgou Donga TOGO NIGERIA Collines Plateau Zou Couffo Atlantique Mono Ouémé Littoral GHANA Client Voices Benin Country Report Vulnerable Clients in a Lightly Regulated Market: Consumer Protection in Microfinance in Benin October 2015 LEAD AUTHOR Caitlin Sanford CONTRIBUTORS Keeping clients first in microfinance Sushmita Meka, Laura Cojocaru, Wajiha Ahmed Acknowledgments Elisabeth Rhyne, Managing Director of the microfinance providers and representatives Center for Financial Inclusion at Accion, from consumer empowerment organizations recognized the need for a client voice project in Benin, for their comments on the in 2012 as a critical but missing data point for research methodology and questionnaires, the Smart Campaign’s work. The project was and for suggesting the field sites for the commissioned and managed by Alexandra qualitative research. We would also like Rizzi, Deputy Director of the Smart Campaign, to recognize the International Advisory who provided intellectual guidance through all Council for their input and guidance on the phases of the project. Alex also convened the methodology and comments on the results. International and National Advisory Councils Please see Annex 1 for a list of the members and managed the process of iterative feedback. in both advisory groups. This project would not have been possible This work would not have been possible without her thoughtful guidance and course without the hard work of the staff at CEDA corrections. Nadia Van de Walle of the Smart Benin, the research firm that implemented Campaign also coordinated all interactions with both the quantitative and qualitative the National Advisory Council and provided research. BFA would like to thank Boniface valuable inputs to piloting the quantitative Fade and Philip Langley of CEDA in particular questionnaire on the ground in Benin. Isabelle for their work leading and managing all Barrès, Director of the Smart Campaign, also phases of the in-country research. provided inputs throughout the project. Most importantly, we are grateful to the BFA and the Smart Campaign are grateful many Beninois people who shared openly to the Benin National Advisory Council, made their experiences and challenges in working up of members of the ALAFIA network of with microfinance. Client Voices Benin Country Report Vulnerable Clients in a Lightly Regulated Market: Consumer Protection in Microfinance in Benin October 2015 LEAD AUTHOR Caitlin Sanford CONTRIBUTORS Sushmita Meka, Laura Cojocaru, Wajiha Ahmed Keeping clients first in microfinance Foreword 4 1. Introduction 6 About the Client Voices Project 6 Consumer Protection in Benin’s Microfinance Sector 8 2. Key Findings 9 Being Unable to Recoup Savings is the Most Common Consumer Protection Problem Among MFI Clients in Benin 9 Borrowers Who Pay Late are More Likely to Experience Problematic Treatment 11 Clients Lack Basic Information About the Terms and Conditions of Their Financial Products 15 Clients Report that Complaints Processes are Not Working Well 19 Clients Report that Engaging with MFIs is Bureaucratic and Slow, Involving What Clients Call Tracasseries 22 3. Fostering a More Protective Client Protection Ecosystem in Benin 24 ANNEX 1. Members of the IAC and NAC 29 ANNEX 2. Description of the Research Methodology 30 2 THE SMART CAMPAIGN Figures and Tables FIGURE 1. Percent of Current and Former Clients Reporting Consumer Protection Problems 9 FIGURE 2. Percent of Clients Reporting They Will Be Able to Withdraw Savings 10 FIGURE 3. Photo Taken by a Client to Show an Example of an MFI that Disappeared and Defrauded Community Members 11 FIGURE 4. Differences in Percentage of Clients Who Experienced Problems, by Whether or Not They Have Ever Paid Late 12 FIGURE 5. Consequences of Late Payments 12 FIGURE 6. Photo Taken by Client to Show Shame Being Used in Collection Practices 13 FIGURE 7. Consequences of Having to Cover Another Group Member’s Payment or Payment as Guarantor 14 FIGURE 8. Photo Taken by Client to Reflect Lack of Flexibility in Repayment in the Case of Emergencies 15 FIGURE 9. Reasons Clients Were Surprised About Costs of a Loan 16 FIGURE 10. French Literacy Levels in Quantitative Sample 18 FIGURE 11. The Majority of Clients are Not Informed About Where to Complain 18 FIGURE 12. Clients’ Reports of Where They Can Complain 19 FIGURE 13. Reasons Why Clients Did Not Complain to an MFI 20 FIGURE 14. Diverse Reasons Why Clients Complained 20 FIGURE 15. Among those Who Did Complain, Was the Complaint Resolved? 21 FIGURE 16. Among those Reporting it is Difficult to Get a Loan, Why is it Difficult? 23 FIGURE 17. Photo Taken by Client Showing a Failed Fishing Project After Delays in Loan Disbursement 23 FIGURE 18. The Smart Campaign’s and Partners’ Pillars for Client Protection 27 FIGURE 19. Women in Parakou Act Out a Negative Experience with Microfinance 31 FIGURE 20. Four Areas Included in Qualitative Research, by Percent of Population with a Loan 31 TABLE 1. Fees Microfinance Borrowers Pay 17 TABLE 2. First Languages Spoken by Quantitative Survey Respondents 17 TABLE 3. Probit Results, Client Ever Wanted to Complain About an MFI 22 TABLE 4. Problems and Recommendations 24 TABLE 5. Research Tools in Qualitative Research 30 TABLE 6. Sample Distribution by Department 32 TABLE 7. Respondent Quotas in the Quantitative Survey 32 CLIENT VOICES BENIN COUNTRY REPORT 3 Foreword At the Smart Campaign, a global campaign • What percentage of clients would it to embed a set of client protection principles take to highlight an issue as problematic? into the financial inclusion industry, we 2%? 5% 10%? realized several years ago that there was an important voice missing from the The Smart Campaign selected Benin as the discussions — the clients! In creating the African market for the Client Voices project seven Client Protection Principles (CPPs) for several reasons. First was the need for we had made a series of assumptions of more demand-side research in Francophone the risks, worries and problems clients West Africa, as relative to Anglophone experience with financial institutions. It East Africa. The Campaign also believed was therefore crucial to address this issue. that the relevance of the Benin findings We designed a Client Voices project to hear would likely extend beyond the country directly from clients in four markets — Benin, itself to the other seven members of the Georgia, Pakistan and Peru. The research West African Economic and Monetary was designed to have an initial open-ended Union (WAEMU) given their operating qualitative component so as not to prime under a common regulatory regime. clients with the CPPs but rather hear what Finally, Benin was selected because of issues and concerns they would bring up the engagement of local stakeholders such spontaneously. Then, with potential issues as the Consortium Alafia — a 34-member and problems sufficiently identified, the local microfinance association. Such research team would return with a more engagement is crucial in order for the targeted quantitative survey to measure research findings to act as catalysts for the incidence in a larger sample. Going local action and response for improvements into the study we wondered: of the client protection ecosystem. This report presents key client protection • If asked in an open-ended way, would clients issues as relayed to us by current and former identify issues that aligned with the CPPs? microfinance clients in Benin. Compared to Georgia, Pakistan and Peru, the issues • Would the main issues identified across uncovered in Benin struck us as the most the four markets be similar? extreme — with both higher percentages of clients reporting harms and more troubling • How candid would clients be about harms. Problems such as fraudulent or their good and bad experiences with ‘disappearing’ financial institutions, collections financial institutions? that involved the police and inadequate 4 THE SMART CAMPAIGN understanding of compulsory savings simply did not appear in the other markets. Transparency, fair and respectful Yet before we rush to judge the microfinance treatment of clients, and mechanisms market in Benin, it is important to put the for complaint resolution emerge as the findings in context. Through this research as well as an earlier project What Happens to Client Protection Principles that resonate Microfinance Clients Who Default?, the Smart most as priorities for client protection Campaign has come to recognize the clear in Benin. Addressing these concerns influence of the local environment on the requires a market-level approach that quality of treatment that clients receive from takes into consideration the unique role financial institutions. When one compares the level of financial market infrastructure (i.e., that regulators, the MFI industry, and credit bureaus, regulation and market conduct clients themselves each must play. supervision) with the other research sites, Benin has the weakest foundation. When such a foundation is absent or impaired it creates a vacuum wherein financial institutions face greater challenges and have fewer incentives to treat clients well. Additionally, many non-financial organizations serving the microfinance demographic are rife with consumer protection issues — lowering client expectations of the level of quality they should receive. This report lays out the findings from Benin and makes suggestions on what industry, regulation and even clients themselves can do to create the incentives for a more