ImpactAlpha, April 30 – A health crisis shattered families, quarantined communities, closed borders and shut down businesses. Lenders pulled in their horns, figuring shellshocked borrowers would default on their loans and they would be unable to make new ones.
They were wrong.
When BRAC Microfinance returned to Liberia and Sierra Leone after the months-long shutdowns caused by the Ebola epidemic five years ago, they found communities eager to repay their loans, restart their businesses and rebuild their livelihoods.
“We got it completely the wrong way around,” says Shameran Abed, who heads the microfinance operations of BRAC International, the world’s largest non-governmental organization. “What we should have done is just get money flowing again to get people back on their feet.”
BRAC’s experience in West Africa during and after the Ebola crisis challenges assumptions about the resilience of poor, vulnerable communities and offers lessons for how investors and financial institutions can revive and even expand economic activity in a post-epidemic recovery.
“Now is not the time to be risk-averse,” warns Abed, who directed BRAC’s Ebola response. “The best thing we can do is go back into communities and lend. The faster we do that, the faster we all recover from this crisis.”
Abed spoke to ImpactAlpha from his home in Dhaka, Bangladesh where BRAC is headquartered and where the vast majority of its microfinance activity is based. The global COVID crisis reminds him of 2015, when BRAC was forced to shutter operations in Sierra Leone and Liberia and recall its international staff and leave more than 30,000 borrowers and their businesses in a state of suspension for months.
At the time, BRAC’s microfinance operations had been up and running in Sierra Leone and Liberia for only five years. But BRAC had already grown to be the largest microfinance operations in each market, with a combined loan book of about $5.2 million. Back in Bangladesh, BRAC’s senior management developed worst-case scenarios of how steep the loan losses in Liberia and Sierra Leone would be.
“We figured people wouldn’t be able to pay, and that we wouldn’t have the liquidity to make new disbursements,” Abed said.
BRAC’s remarkably candid case study on the episode confirms, “BRAC leadership expected that the long pause in operations, coupled with the severe economic downturn, would cause clients to default on their loans.” BRAC was prepared to write off at least half of its portfolio in both countries.
That didn’t happen. When BRAC’s local microfinance operations started back up in March 2015, the majority of borrowers immediately resumed loan repayments, having continued to set aside money each month throughout the peak of the epidemic. Repayment rates bounced back to 90% in Liberia and 70% in Sierra Leone within a few weeks.
Access to finance
BRAC runs a vast network of services, from healthcare to education to humanitarian aid, in 11 countries in South Asia and Africa. Its microfinance operations serve millions of customers and manage a loan book of approximately $3 billion in micro-business loans in seven of those countries. (Of that volume, its microfinance work outside of Bangladesh serves about 650,000 customers and manages $140 million.)
The organization caters to women in the most financially underserved communities, where even amid Africa and South Asia’s fintech booms, BRAC is often the only financial services provider around.
BRAC Microfinance’s typical borrowers are small farmers, market stall operators, local traders and small shop owners for whom the organization offers microcredit loans starting at a couple hundred dollars to small enterprise loans of several thousand dollars.
Given the remote, rural nature of most of its borrowing communities, the organization often works with local women’s lending groups to reach female customers, assess creditworthiness and organize loan repayment.
The organization’s commitment to financial access made its decision to suspend activity—both collections and new lending—in Liberia and Sierra Leone all the more difficult.
“Clients had mixed feelings towards BRAC’s decision to suspend operations,” the case study acknowledges. “Some clients, who had just paid off their loans, were disappointed—they were expecting to take out new loans to help them cope through the crisis.”
The decision also exposed vulnerabilities in BRAC’s local ground-game. With upper management gone, local staff and field officers felt both abandoned and saddled with the responsibility of preparing plans to resume business once the health crisis was over.
They did their best to keep in touch with borrowers and their families and to compile logs of which businesses had ceased and which borrowers had emigrated or perished from the disease.
When they returned, they were stunned by the diligence of BRAC’s borrowers. Some were able to meet their loan repayment obligations by continuing to run their businesses, if on a pared-down scale. Others found new ways of earning an income throughout the crisis, and others yet were able to rely entirely on pre-crisis savings.
The data speaks to microfinance’s “ability to increase financial resilience” in vulnerable populations, BRAC International’s Bridget Dougherty tells ImpactAlpha. An impact survey from BRAC International found that among its microfinance borrowers generally, 91% report being able to build their savings and 83% say they have been able to use savings to cover emergency expenses, compared to only 44% of borrowers before they took out BRAC micro-loans.
As the Ebola crisis eased, many of BRAC’s existing customers were eager to take on new loans to buy goods to restart their businesses, like textiles from neighboring Guinea, which closed its borders as the epidemic worsened.
“Clients who had not worked in months, clients who lost their initial capital, and clients who had lost their businesses and were in debt all demanded new capital to start generating income again,” the case study continues. “The high demand for new loans was a key driver of repayments because clients were aware that they were generally expected to have active and in-good-standing accounts in order to access fresh loans.”
BRAC was hesitant to issue new loans before collecting on existing debt in order to build up liquidity for new lending. The organization expected to take months before restarting new lending. Instead, it took only weeks because repayment rates were so high.
Within a year, the organization had added another 10,000 customers in the two markets and topped the levels its loan book had reached before Ebola. Today, the organization’s combined Sierra Leone and Liberia operations has $15 million in loans out to 97,000 customers.
Most of BRAC’s customers are still highly vulnerable to economic shocks. Local populations in Sierra Leone and Liberia are among the hardest hit by the COVID-19 pandemic, according to BRAC’s bi-weekly food and income security surveys across its programs. A majority of people in Sierra Leone and Liberia, as well as in Uganda and the Philippines, have seen their sources of income significantly disrupted or completely stopped.
Casual workers and agricultural workers are being hit the hardest. In Sierra Leone and Liberia, as well as in the Philippines, more than three-quarters of people can meet their food needs for only two weeks, as food prices spike amid pandemic-related disruptions.
BRAC has adopted a new crisis-response roadmap that integrates the lessons from the Ebola epidemic, and hopes other financial institutions and investors will heed as well. Most importantly, the organization intends to immediately start making new loans so people can get their businesses and lives up and running again.
BRAC is reaching out to its own lenders to ask for flexibility on its upcoming payments, to increase its liquidity for new originations. “We have some big installments due in June,” says Abed. “If we can get deferrals, we’ll be able to get back out to support our clients.”
BRAC’s lenders have “a general understanding that this is what needs to happen,” to accelerate economic recovery, Abed says.
That understanding from BRAC’s lenders stems largely from the organization’s track record of performance in times of crisis, and not only during Ebola or in West Africa.
“We’ve weathered so many: Ebola, floods, cyclones,” says Abed. “We can speak with some level of authority on this topic.”
“We’re trying to make the point that when this eases up, people will need money again, and that we should bank on the resilience of our clients, especially women. They prove it over and over and over again.”