For nearly five years, Beth has been a microfinance borrower to support her passion and expand her career as a tailor. Her goal as a borrower is to pay her loans as quickly as possible in order to prove that she is responsible to borrow bigger amounts.
It was not until her third loan that her tailoring business was earning enough profit to allow her to finish paying one month early.
When Beth tried to settle the remaining balance of her loan early, she found that she had to pay a penalty. She did not understand why the lender would not take her payment without the additional fee. Beth still feels that she was punished by her lender for being a good borrower.
What can the microfinance industry learn from this story?
Similarly to the story of Daniel (in the last post), the lack of preparedness of borrowers and the lack of transparency of lenders often puts both parties at a disadvantage.
Beth was not able to pay her loan without additional financial hardship, and her confidence as a borrower weakened. The lender lost the trust and confidence of a long term client.
How did this story contribute to the manual?
Beth was not able to pay her loan early as she had hoped. The ability to pay early is something that this borrower should have known before signing her loan agreement. If Beth had the proper information about the lender fees, she might have planned differently.
To prevent such a situation in the future, the manual will contain a list of information that every borrower should obtain, including ALL lender fees and charges, when searching for a lender and before signing a loan agreement.
This portion of the manual will help to increase transparency of microfinance practices by helping borrowers to analyze what information to obtain about their loan.
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