During the COVID-19 pandemic, many of WPF’s microfinance partners have faced increasing demands from clients for both loans and savings withdrawals. At the same time, many clients have faced difficulties in making repayments on their existing loans due to slowed business activity and/or travel restrictions and lockdowns. In response to these constraints, Whole Planet Foundation’s microfinance partners have been working to provide as much flexibility for microcredit clients as they can. This effort has included responses such as grace periods and restructured loans for client repayments, and special top-up loans and emergency loan products for clients who needed to access more cash.
In some cases – central banks have passed official measures to ensure that borrowers receive relief, such as mandated moratoriums on loan repayments. In many cases, these efforts complemented the work that socially focused MFIs were already carrying out to bring relief to borrowers. However, sometimes MFIs faced challenges to fully understand the eligibility and timeline of government relief measures or even just to align their computer systems with the new measures.
The bottom line: as many MFIs faced less cash coming in and more requests for cash going out, they worried about their liquidity in these uncertain times. (Please see this blog and this blog which explain in greater detail about WPF’s COVID-19 response.)
One case to examine is The Kingdom of Bhutan. Bhutan is a landlocked country bordered by India and Tibet. Most of the country’s approximate 800,000 residents live in rural areas. Bhutan is perhaps best well known for their prioritization of Gross National Happiness, over Gross Domestic Product (GDP). In practice, this means spiritual development should and can occur alongside material development.
A center meeting of RENEW MFI.
In Bhutan, WPF partners with RENEW Microfinance Private Limited. From their website, “RENEW [MFI] stands for Respect, Educate, Nurture and Empower Women.” As of June 2020, RENEW MFI has over 22,000 members, about 3,500 of which are borrowers with a total loan portfolio outstanding of almost $2.6 million. RENEW MFI operates across 10 branch offices, which cover roughly half of the 20 districts in the country, called dzongkhags. WPF has partnered with RENEW MFI since 2015, providing $300,000 in grant funds which helped establish the loan capital for four new branches.
Starting in April, the Royal Monetary Authority of Bhutan, in coordination with the King, started to issue detailed instructions to all Financial Service Providers (FSPs) regarding waivers of interest and deferment of principal repayments. Over successive 3-month periods, interest relief was brought to clients through a combination of relief from the King’s National Resilience Fund and some expense was borne by the FSPs themselves. Clients were also given the option to defer repayments for one year (until April 2021). These were some of the most flexible terms in the region.
Walking to a center meeting of RENEW MFI in Bhutan.
Given the length of time of the deferment of payments and uncertainty about how many borrowers would take this option, RENEW MFI requested cashflow support from funding partners, including Whole Planet Foundation. In response, WPF was able to provide a $50,000, local currency, interest free loan to RENEW MFI. This loan was provided based on a remote due diligence process that the WPF field team has been using with existing MFI partners. RENEW MFI can use this extra liquidity for financing microloans across all branches. This additional cash flow has allowed RENEW MFI to move forward with the launch of their new power tiller loan product across their branch network without disruption.
Even while RENEW MFI’s expected loan collections have been greatly decreased due to the waivers and deferments, RENEW MFI is determined to continue monthly center meetings. In many instances, this requires applying for special permits so staff can travel within dzongkhags during COVID-19 transit restrictions. The center meetings are crucial so clients can continue to have uninterrupted access to their savings. In fact, RENEW MFI’s microfinance project was started in collaboration with the German Savings Bank Foundation for International Cooperation (SBFIC). Therefore, RENEW’s financial services have always been “savings-led.” This means that all clients must save regularly over the course of 3 months before they are eligible to access a microcredit loan. The monthly opportunity for savings transactions is immensely helpful for clients as ATMs are not readily available in the remote villages where RENEW MFI works. At each monthly meeting, RENEW MFI uses technology to track loan and savings transactions on their tablets, easily printing receipts in the moment so clients can see their balances.
RENEW MFI staff often walk to reach center meetings when roads are poor.
RENEW MFI staff provide a savings withdrawal to a client they meet along the road.
RENEW also places emphasis on their financial literacy program, which includes savings promotion. The financial literacy curriculum is delivered in new communities and on an ongoing basis at center meetings. RENEW MFI was recently recognized as a semi-finalist in the European Microfinance Award 2020 – “Encouraging Effective & Inclusive Savings.”
At Whole Planet Foundation, we continue to see savings as a crucial service that our microfinance partners are able to provide to the entrepreneurs we serve. Despite COVID challenges, RENEW MFI continues to provide savings, financial literacy and loan services to their clients. Loan capital provided by WPF with this second project will help RENEW MFI to provide additional microloans to their clients.
Pre-COVID-19, RENEW MFI staff conduct financial literacy training at a center meeting.
According to RENEW’s Deputy CEO, Tshering Dema, “2020 was a challenging year for RENEW Microfinance with lockdowns, government imposed mandatory interest waivers and loan deferments. We almost ran into liquidity shortage due to lack of cash inflow for months. Emergency fund provided by WPF was very crucial in preventing us from running into that risk. The saving culture instilled in our clients by the MFI came as such a relief for them during this uncertain and unprecedented time. They had something to fall back on during the lockdowns and loans disbursements were continuously made for their survival and businesses to keep running. Our investment on young, motivated and well-trained staff along with good management and robust software was the reason we were able to end the year successfully with valuable lessons learned towards resilience and betterment.”