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Sierra Leone Microfinance Lenders Charged with Interest Rates on ‘Payday Loans’ | Microfinance

Sierra Leone Microfinance Lenders Charged with Interest Rates on ‘Payday Loans’ |  Microfinance

In the world largest NGO was forced to conduct an internal review of a money-lending program he runs for the poor in Sierra Leone after some borrowers racked up large debts and were reported to the police when they could not not repay their loans.

A Guardian investigation into a Brac-run microfinance program found NGO staff did not fully explain loan terms to borrowers, or make sure they could afford the interest rates high associated with such loans.

Brac, an NGO that provides financial services to people living in poverty, has 5.6 million borrowers worldwide, nearly 90% of whom are women.

In May 2019, Brac Sierra Leone had a portfolio of $ 5million (£ 3.9million) and 46,500 borrowers.

Brac declares on his website that its interest rates in Sierra Leone are competitive. However, at 30%, they are higher than the 22% average charged by other microfinance institutions in the country, according to the Sierra Leonean Association of Microfinance Institutions. The organization requires repayment to begin one week after the granting of a small loan. Small loans represent 85% of Brac’s portfolio.

Brac Sierra Leone’s pre-tax profits for 2017, most recent year for which figures are available, were nearly $ 700,000.

The Guardian spoke to 30 women who had taken out microfinance loans, nearly a dozen borrowed from Brac Sierra Leone. Women borrowing from Brac said they did not fully understand the repayment schedule and quickly began to miss payments, which meant their debts skyrocketed. Some say they were either visited by the police or detained at a police station after missing payments.

Several said they had to pay police a bribe of around $ 5 to stop the harassment.

Bridget Dougherty, Brac International’s microfinance program manager, said the organization has completed an internal investigation into the allegations and “adequately addressed this issue with staff in Sierra Leone.”

Dougherty said, “We do not disclose internal investigation reports for external research purposes. We have put in place mechanisms for training, auditing and monitoring staff throughout our operations to minimize the risk of such incidents. We have no further comments to add on this subject.

Sia Mansaray * borrowed about $ 75 from Brac. For years, she fought to feed her five children with the $ 2 a day she makes for breaking rocks in the quarry on the outskirts of Koidu, a town in eastern Sierra Leone. Her husband went to the capital, Freetown, to find work and never returned.

A Brac loan officer visited Mansaray at work and assessed his financial situation. She was told she was eligible for a small loan. With an interest rate of 30%, she was facing weekly repayments of $ 4 for six months.

With a weekly income of just $ 14 and with tuition, food, and rent to pay, Mansaray quickly began to run out of payments.

She took another loan from Lapo, a Nigeria-based microfinance organization that receives money from the African Development Bank, in an unsuccessful attempt to repay her debts to Brac, then another loan from an organization. local to try to consolidate the first two. She ended up defaulting on all three loans and ended up with debts totaling $ 273.

When she was unable to repay her loans, Brac and Lapo reported her to the police, she said.

“These organizations know we are poor,” Mansaray said. “So how are we supposed to pay him back so quickly?” The loan is too small, the interest is too high.

Her children are now skipping school when she cannot afford transportation or lunch costs. When they are not at school, they help their mother break stones at the quarry.

Microfinance, seen by some as a miracle solution to ending poverty, has become a increased surveillance. No longer being the panacea it promised to be, it left behind a trail of debt among the world’s poorest people, while creating huge profits for organizations.

“The product they are offered does not significantly help their lives,” said Bruce Martinez, who works with Kiva, a microfinance funder who has partnered with Brac in Sierra Leone. “It sounds like a payday loan, I don’t think it works.”

Brac Sierra Leone has championed high interest rates and short repayment windows. Saidul Haque, microfinance program manager, said these conditions were necessary because of the “risky” nature of lending to poor women.

Archibald Shodeke, the head of the Sierra Leonean Association of Microfinance The institutions, said that interest rates across Sierra Leone are high due to the country’s difficult financial situation and the rising annual inflation rate. He said that without a strong credit reference system in Sierra Leone, it is difficult to assess borrowers’ risk or their ability to repay on time.

Haque denied that the organization contacted the police. “Our goal is to create a platform for financial inclusion,” he said.

But several Brac loan officers, who requested to remain anonymous, said it was common for them to surrender to the police after a month of non-repayment. “The police are intervening to realize the loan,” said one of them. “They are going to arrest the individual for now, take him to the police station, and a relative will come and sign saying they will pay back.”

A spokesperson for Lapo said his loans were based on market conditions, loan type and exchange rates, as well as other business considerations. He added, “Our interest rates are pro-poor and one of the most competitive in the market, among other players.

“Our loans to women are not ‘payday loans‘, rather we have offered them business and small business loans to help them improve their lives for the better. [be] reimbursed within a time limit.

The spokesperson said the organization is making “a concerted effort” to profile women before these loans are granted.

Sorie Bangura, a Lapo official in Makeni, a town in northern Sierra Leone, confirmed that the organization “was working with the police”. Bangura added that the police can only “harass” women, not lock them up.

Police spokesperson Brima Kamara said the police would only intervene in microfinance disputes to “help people arbitrate.”

Kiva has suspended its relationship with Brac Sierra Leone due to concerns raised during a separate internal audit process. “We will not reactivate funding until all concerns raised have been reviewed and resolved,” said Kathy Guis, senior director of partner investments at Kiva.

In response to the allegations raised by the Guardian, Kiva sent a staff member to investigate. Guis said Brac had organized training on collection practices, which she said “will help them ensure their policies are implemented consistently across their network of agencies.”

None of the women interviewed for this article had taken out any Kiva-backed Brac loans.

Kiva too ended his relationship with Lapo in 2012, after a New York Times expose on the big profits she was making.

Abibatu Kamara *, one of Mansaray’s closest friends, with whom she took out a group loan, said police came to her home six months after she defaulted on a loan. She said Brac had treated her aggressively. “Brac is the worst. They will not compromise. They will put you in a cell, ”she said.

“There are no advantages with microcredit. But I need to eat. My children need to eat. So what am I supposed to do? I have to take it.

*Names have been changed to protect identities

Reporting in this article was supported by the UC Berkeley Center for Human Rights Fellowship