Ibrahim thought that he understood his loan terms when he signed his loan agreement, but months after receiving his loan he regretted borrowing to support his transport (matatu) business.
Ibrahim thought that his grace period was one month, so he did not plan to start paying his loan until one month after he received it.
Three weeks after receiving his loan, a loan officer called Ibrahim asking why he did was not paying his loan on time. The loan officer accused Ibrahim of being a reckless borrower for not understanding his loan terms.
Ibrahim advises all borrowers to seek the assistance of an advocate to review their loan agreements.
What can the microfinance industry learn from this story?
Many borrowers struggle with understanding their loan terms and requirements. Dozens of borrowers, whom I interviewed, accused their lenders of cheating them as the result of the borrower misunderstanding information or the lender misrepresenting information about a loan.
It is extremely important that lenders take the time to verbally explain and issue copies of loan agreements to every borrower. During my research, I found that microfinance programs usually give loan agreements for individual loans, but not for group based loans.
This change might preserve relationships between lender and borrower by ensuring that the borrower understands the risk and investment of borrowing.
How did this story contribute to the manual?
Ibrahim is not the only borrower who has experienced challenges as a microfinance borrower.
In order to help borrowers address their many challenges, the manual will contain a list of resources, including consumer advocacy organizations, legal assistance providers (advocates), and the Kenyan regulation authorities.
Each organization offers different services, such as financial training, legal representation, and advice on consumer rights.
This portion of the manual will help microfinance borrowers to learn about the different Kenyan organizations that they can turn to when help is needed.
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