Paper short abstract:

Against a global trend, a Paraguayan microfinance institution saw low default rates during the pandemic. This study explores the reasons behind the high repayment rates and how these affect clients’ lives, and discusses the central role of relationships between loan officers and clients.

Paper long abstract:

The pandemic has left many microfinance institutions struggling: as the livelihoods of microfinance clients were shattered, credit defaults increased. However, Fundación Paraguaya, a Paraguayan microfinance institution providing holistic anti-poverty programming, has not seen such grave effects on its portfolio. This raises the question what factors have contributed to the institution’s good performance, how the high repayment rates have affected clients’ lives, and what other microfinance organizations can learn from this experience.

To answer these questions, a study was carried out based on the analysis of administrative data and qualitative interviews with loan officers and microfinance clients. Results suggest that the high repayment rates are due a range of factors, including a strong commitment to the institution; continued contact between loan officers and clients which generated a feeling of support in times of uncertainty; a focus of the program on problem-solving capacities; and the institution’s flexibility and adaptability in offering financial solutions, among others. However, the study also suggests that the high repayment rates came at some cost to clients, who reported feeling high levels of stress and forgoing meals in order to be able to repay. Still, clients also expressed (and, in fact, demonstrated) their commitment to keeping in good standing with their loan committees and officers, indicating the value that the organization has to them.

Overall, the study results contribute to the literature by exploring the complex relationship between loan officers and clients, underscoring the value that such relationship building has for both sides.