loan officers and loan ‘delinquency’ in microfinance: a zambian case

Accounting Forum 31 (2007) 47–71

Loan officers and loan ‘delinquency’ in Microfinance:A Zambian case

Rob Dixon ∗, John Ritchie, Juliana SiwaleDurham Business School, Durham University, Mill Hill Lane, Durham City, DH1 3LB, United Kingdom

Received 12 April 2006; received in revised form 11 October 2006; accepted 18 November 2006

Abstract

The paper seeks to promote greater understanding of the importance of loan officers in group-basedmicrofinance by explaining their actual roles, dilemmas and tensions when working with poor clients.Few existing studies have used data outside Bangladesh and most focus upon relatively well-performinginstitutions. Using data from Zambia this study focuses on the recent crisis of Christian Enterprise Trustof Zambia (CETZAM) and the effects of its practices for accounting for and dealing with defaulters. Thefindings firstly show that loan officers faced powerful hierarchical accountability pressures and pursuedinappropriate methods to compel further repayments to resolve this crisis. Its approach to borrower defaultwas found to be stressful for loan officers and potentially detrimental for CETZAM’s own short and long-termsurvival by reducing client loyalty and trust.© 2007 Elsevier Ltd. All rights reserved.

Keywords: Finance; Loan delinquency; Loan officers; Microfinance Institutions; Poverty; Zambia

1. Introduction

“Microfinance is a powerful tool for reducing poverty. It enables people to increase theirincomes, to save and to manage risk. It reduces vulnerability and it allows poor householdsto move from everyday survival to planning for the future”

(Paul Wolfowitz, World Bank President, November, 2005).

2005 was a critical year for microfinance. The declaration of 2005 as the ‘International Yearof Microcredit’ by the United Nations, the endorsements by the G8 at the Gleneagles’ Summit

∗ Corresponding author. Tel.: +44 191 3345382; fax: +44 191 3345249.E-mail addresses: [email protected] (R. Dixon), [email protected] (J. Ritchie),

[email protected] (J. Siwale).

0155-9982/$ – see front matter © 2007 Elsevier Ltd. All rights reserved.doi:10.1016/j.accfor.2006.11.005

mailto:[email protected]



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48 R. Dixon et al. / Accounting Forum 31 (2007) 47–71

and the Commission for Africa Report (2005), all demonstrated its official support as a meansof increasing access to financial services.1 The World Bank and the International Monetary Fundlikewise have both embraced it as part of their strategy for alleviating poverty (MicrofinanceMatters, November, 2005, p. 3). Microfinance is based upon providing small loans, often under$100, to the poor and very poor to enable them to earn additional income by investing in thefounding or growth of “micro-businesses”. More broadly, it aims at supplying micro loans, savings,and other financial services to the poor. It operates on the premise that the poor will invest loansin micro enterprises, repaying those loans out of profits, and their businesses will grow, therebypotentially lifting large numbers out of poverty. These expectations are based on the premisethat the poor will be ‘empowered’, encouraged to participate and equipped to self-manage theiractivities.

However, microfinance is not yet widespread because a vast majority, in particular in Africa,cannot access financial services (Beck, Demirguc-Kunt, & Martinez Soledad, 2005; Honohan,2004; Spencer & Wood, 2005) even though poverty is officially widespread and acute (Paxton &Fruman, 1999; World Bank, 2005). There are also great disparities in the level of developmentand performance of microfinance. While the developed microfinance institutions (MFIs) of SouthAsia and Latin America now face the challenge of becoming more commercially viable, emergingMFIs in sub-Saharan Africa face other challenges to their very survival and core methodology(Barr & Fafchamps, 2006; Nissanke, 2002).

Institutional sustainability has lately become a priority. This is arguably a response, inpart, to the growing donor ‘fatigue’ with continually subsidizing developmental work. It mayalso reflect an apparent shift to ‘commercialisation’ from earlier ‘charity’ (Charitonenko &Rahman, 2002; Fernando, 2003; Prahalad, 2005; Rhyne, 2005). Microfinance institutions areresponding by prioritizing repayment rates, creating good loan books, and managing client num-bers rather than social intermediation. Repayment performance is a particularly key variablefor the donors and international funding agencies on which many MFIs (especially in sub-Saharan Africa) still depend for their funding (Godquin, 2004, p. 1909). These indicators maynevertheless conceal the intervening process by which these much sought after results wereachieved.

Disappointing performance characterises MFIs in Southern Africa (Lafourcade, Isern,Mwangi, & Brown, 2005 p. 9). Formal evaluations of microfinance projects throughout Africasuggest that they have often been less successful here than they have in Asia and Latin America(Basu, Blavy, & Yulek, 2004; Pal, 1999; Porter, 2003). However, these evaluations have hith-erto been preoccupied with impact assessment, program replication, client outreach and financialsustainability (Cloke, 2002; Copestake, 2002). As Mosley and Rock (2004) also note, most eval-uations to date derive from the same South Asian context while other regions such as the SSAare relatively underresearched. In addition, there are few case studies of failures (Fisher, 2002).In Zambia, microfinance performance is problematic and MFIs are particularly confronted withthe problem of default (Likulunga & Simonda, 2001, p. 4; Musona, 2004), which threatens theirown sustainability and further provision of financial services to the poor.

While still relevant to understanding microfinance, and also sought by and/or attractive todonors, evaluation research may also place more emphasis upon its original strategy and lateroutcomes than its intervening implementation. Research itself particularly neglects the role of field

1 The immediate success for the Year of Microcredit was in raising awareness of microfinance, its potential for alleviatingpoverty and increasing availability of data on its performance (Vanessa Ward, editor, Microfinance Matters, November,2005).

R. Dixon et al. / Accounting Forum 31 (2007) 47–71 49

workers or loan officers2 (Ahmad, 2000; Goetz, 2001, 1997; O’Reilly, 2006, 2004) at the interfacewith the poor (Holcombe, 1995; Jackson, 1997), and for attaining institutional sustainability. Loanofficers are the key link between microfinance institutions (MFIs) and their poor clients and areat the centre of service delivery (Goetz, 2001; Isaia, 2005). A number of issues and problemsconcerned with the work loan officers actually do at this critical interface have arguably not beensufficiently addressed before, but are potentially critical for other frontier territory as Zambia,where microfinance still needs to progress from simply promising beginnings. The focus of thisstudy therefore is on loan officers and how they adapt to different demands of MFIs and theirclients, as illustrated by how one key emerging microfinance institution – CETZAM managed itsown repayment crisis (or ‘loan delinquency’). The experience of its loan officers is used to drawattention to certain aspects of their roles, tensions and dilemmas in their interactions with clients. Itdeals with questions such as: What was their role and experience? What strategies did they employand what were their consequences for clients and MFIs’ sustainability? It will use a case studyapproach to illuminate what this means for the conduct of key actors – loan officers and their clients– whose work at this interface requires that they specifically account for and otherwise manageit. It aims to provide a distinct, ‘sharp end’, grassroots sensitive perspective upon this particular –and often ill-anticipated – problem within microfinance practice. The case therefore has importantimplications for the development of microfinance as a viable form of financial intermediation andfor other MFIs, particularly those in other emerging areas, which use group lending methodologies.

This paper is organised as follows: the immediate Section 2 briefly reviews the literature aboutloan officers’ work within microfinance. Section 3 presents the case study methodology, andSection 4 details the local context where the case was situated. Section 5 contains the case itself,and covers its first 6 years of operation, and further findings are given in Section 6. It ends with adiscussion and conclusions in Section 7.

2. Fieldworkers in the literature

Field workers are front-line staff in microcredit institutions or non-governmental organisations(NGOs) engaged in direct contact with the clients in service delivery (Ahmad, 2000; Isaia, 2005).Field workers continually interact with clients (Lipsky, 1980), as the implementers of institutionalpolicies of NGOs. In principle, clients should have a relationship with MFIs, but not necessarilywith their management because that relationship is mediated through field workers/loan officersthemselves. Microfinance programmes usually rely on practices such as ‘regular’ visits by loanofficers and require frequent contact with borrowers and group/centre meetings. The client-loanofficer interface is critical to realizing the developmental goals of microfinance. To the extent thatthey provide this link, loan officers can have considerable impact on an institution’s repaymentperformance, client outreach, and other group and organisational dynamics.

However, loan officers themselves face challenges because of the differing expectations ofclients and MFI management, especially where the former are unable to repay loans obtainedthrough group-based lending methodologies (Jain, 1996; MkNelly & Kevane, 2002; Matin, 2000;Vogelgesang, 2003). The tensions between fulfilling their client ‘nurturing’ roles rather thanthe other tasks assigned by their institution’s managers are not necessarily easily resolved. Therelatively small literature on loan officers mostly concerns the geographic area of Asia, while other

2 These are frontline employees of microfinance institutions. They have several titles such as: field staff, credit officersor field workers. The paper adopts the term loan officers (as used by CETZAM), unless quoting from other sources.


world regions, especially Africa, are relatively underrepresented. Among the few in-depth studiesof loan officers/field workers are those of Ahmad (2002) and Goetz (2001), both based on MFIs inBangladesh moving from a pioneering start-up to a developing growth stage where high repaymentrates are considered important achievements. Goetz (2001) found field workers were critical tocommunicating policy to borrowers and particularly responsible for effecting the ‘fit’ betweentop-level policy ‘initiatives’ and local ‘realities’. Fieldworkers also operated under continualmanagement pressure to secure high rates of repayment as their institutions sought greater financialsustainability, and were themselves assessed on the basis of their credit-delivery performance.

Ahmad (2000, 2002) argued that the microfinance literature has often evaluated the activitiesof non-governmental organisations (NGOs) without making sufficient reference to those whoactually work with clients. Field workers experienced considerable frustration but were criticalto NGOs effectiveness. Many were, in effect, implementers of policies yet their actual work wasunderresearched. Findings from other studies in the same geographic area, while not directlydealing with loan officers have been similar (Ito, 2003; Matin, 2000; Rahman, 1999b; Schreiner,1999). Ito (2003) for instance observed that field workers faced diverse roles and competingdemands between increasing loan disbursement and obtaining repayment as compared with whatborrowers expected of them.

In sub-Saharan Africa, a number of studies have dealt with the performance and growth ofmicrofinance institutions (Baumann, 2004; Churhill, 1999; Congo, 2002; Mk Nelly & Kevane,2002; Mukama, Fish, & Volschenk, 2005; Nissanke, 2002; Volschenk & Biekpe, 2003). Othershave been concerned with lending methodologies, client ‘drop outs’ (Diagne, Zeller, & Mataya,1996; Hulme & Mosley, 1996; Musona & Coetzee, 2001; Wilson, 2001), and ultimate impact ofmicrofinance programs (Copestake, 2002; Hietalahti & Linden, 2006; Johnson, Mule, Hickson,& Mwangi, 2003; Mayoux, 2001; Pal, 1999; Wilson, 2001). However, studies that primarilyfocus on the key role of loan officers are limited. Mukama et al. (2005) here classified the factorsaffecting the potential growth of MFIs in Tanzania into three categories: client related, systemrelated and staff related. Baumann (2004) explored the factors affecting the performance of MFIsin South Africa. Both studies did not, however, focus on loan officers who actually interact withclients and thereby implement MFI policies.

3. Research methodology

The study is based on a period of intensive qualitative research conducted in late 2003 whichdrew upon the researcher’s own ‘indigenous knowledge’. It was not originally designed as astudy of CETZAM and its ‘delinquency’ crisis. It was originally intended to explore the emergingrole of loan officers in MFIs providing credit to the poor (especially women). CETZAM wasoriginally selected as a successful model (Copestake, Gosnell, Musona, Musumbu, & Mtlotshwa,2001b),3 that presented what Stake (2000) referred to as the opportunity to learn. The specificproblem of ‘delinquency’ at CETZAM was therefore not known before the study but later emergedin an iterative way while field work continued. A combination of observations, semi-structured

3 CETZAM has 5 branches on the Copperbelt. The branch picked for detailed observational study had the highestnumber of loan officers, with a range of 2–4 years of service. All the loan officers at this branch were interviewed andshadowed. This also meant interviewing the branch manager and accountant in order to get their perceptions of loanofficers and the overall performance of the branch. The branch’s reported ‘dismal’ performance on loan repayment wasjudged typical of the other 4 branches as well. This assertion was based on the chief executive officer’s overview ofCETZAM in an interview held at their office on 5/11/03-Kitwe.


interviews, focus group discussions and informal discussions with loan officers, clients, immediatesupervisors and senior management were used. Clients and supervisors were interviewed forpurposes of triangulating the views of loan officers and the chief executive officer (CEO) providedan overview of CETZAM’s mission and immediate management challenges.

In all, 20 formal interviews were conducted, each lasting between forty-five minutes to oneand half hours.4 A semi-structured interview approach was taken using broad open ended ques-tions in order to encourage the interviewees’ own interpretations of everyday actions (Maykut &Morehouse, 1994). This approach is intended to empower interviewees, enabling them to speakin their own “voices” (LIewellyn, 2001) and provide more freedom to explain their own thoughtsas well as highlighting other points of particular interest.

While the interview guide imposed some structure on each interview, it was necessary to gainthe interviewees’ own perspectives, and therefore the guide was not used in an overly constrainingmanner (Patton, 1990). One-to-one interviews with loan officers were thus supplemented witha semi-structured questionnaire which successively addressed the personal background of loanofficers, any reasons for seeking employment with the organisation, knowledge of the organisa-tion’s client target, and nature of the services it provided. Limited access to weekly reports for thebranch and individual loan officers’ status as regards portfolio at risk and in arrears, gave furtherinsight into the rising problem of loan default.

Access to internal meetings was granted by the branch manager on the condition that noteswere not made during meetings. The researcher attended twelve morning ‘delinquency’ reviewmeetings of loan officers and their immediate supervisor. Attendance at these meetings provided anappreciation of how the problem of ‘delinquency’ faced in that branch was shared with every otherbranch. These meetings had their own agenda and were therefore not focused on the researcher’sagenda.

As such matters of importance to the branch (loan defaulting) surfaced more readily and oftendominated any discussions. This method allowed the interactions between loan officers and theirsupervisors to be observed in situ and was later recorded (Collier, 2005). It provided the contextfor the other data which could not be accessed through interviews alone.

In addition to observing these review meetings, the researcher also accompanied loan officersin the field to capture the ‘oral’ character of microfinance, and thus observe the actual process asand when it occurred. Observation methods were selected for their ability to provide data aboutboth interactions (Handley, Clark, Fincham, & Sturdy, 2005) and the role actually played byloan officers. The researcher also attended six Trust Bank group meetings to observe the actualinteractions between loan officers and clients. Certain observed contradictions were also followedup and additional clarifications obtained by means of informal interviews and conversations. Fieldnotes were written up soon after meetings and also at the end of each day. Focus group discussionswith clients and loan officers were held (separately) regarding actual microfinance practice(Bryman, 2001; Krueger, 1994) while other data was collected by observably ‘being around’(Rahman & Goddard, 1998, p. 187). The link between documents, interviews, questionnaires andobservations is therefore referred to as the degree of correspondence (or lack thereof) betweenwhat people [loan officers] stated – their ‘espoused theory’ – and what they could be observeddoing – ‘theory in action’ (Argyris & Schon, 1978 in Collier, 2001 p. 471).

4 Most interviews with clients could not be tape recorded (5 out of 8) due to noises at their trading premises and werealso not comfortable with the recording machine. Detailed notes were written up immediately after these interviews. 3senior managers, 2 immediate supervisors (at branch level), 1 former loan officer, 3 clients and 6 loan officers made upthe 15 recorded interviews.


Data analysis followed grounded theory principles (Strauss & Corbin, 1990; Charmaz, 1997).Grounded theory methods allow the character of the themes to emerge from the data ratherthan from a priori expectations (Strauss & Corbin, 1990). The analysis of data was an iterativeand reflexive process (O’Dwyer, 2004). Data were organised, coded and themes identified asbeing important to the description of the phenomenon (Daly, Kellehear, & Gliksman, 1997).This process involved a “careful reading and re-reading of the data”, while allowing for themesto emerge direct from the data using inductive coding (Fereday & Muir-Cochrane, 2006). Thechoice of the case study approach, however, limits the generalizability of its findings (Scapens,1990; Denscombe, 2003) to other microfinance institutions and their loan officers. Nevertheless,the strength of the case study methodology is its ability to foreground the processes as embeddedin a particular place or institution (Blake, 2006). In the next section, we briefly present anoverview of Zambia in order to appreciate why microfinance is important to it. This is followedby a detailed account of the case study findings.

4. The Zambian context

Zambia, which until two decades ago was one of the most prosperous countries in sub-SaharanAfrica, now ranks as one of the least developed countries in the world. Its per capita GDP hasbeen in decline for 30 years and is significantly lower than other sub-Saharan African levels(Mc Culloch, Baulch, & Robson, 2000; Saasa, 2005). It has a population of 10.5 million (WorldBank, 2005). The formal sector employment has reduced following two decades of poor nationaleconomic performance. Retrenchments both in the public and private sector have increased thenumbers who depend upon the informal sector (Hansen, 1999; Saasa, 2005). The performance ofthe Zambian economy in this time has had the most telling effect on poverty. Mining, a driving forcein the economy, declined along with those sectors which depended on it. Consequently, povertyin Zambia is officially widespread (ZHDR, 2003). The HIV/AIDS pandemic and other diseases(amongst other factors) have compounded this problem (Zambia’s Poverty Reduction StrategyPaper, 2002). Approximately 70 percent of the population are officially below the national povertyline (World Bank, 2005). In addition, many of the poor simply subsist as micro entrepreneurs – asfarmers, street vendors, market traders and home workers, – including many women. Microfinanceis therefore critical in the quest to address poverty and could play a significant role, particularlyin enabling the poor to access financial resources.

Microfinance in Zambia is relatively new. The sector only emerged in the 1990s (Maimbo& Mavrotas, 2003; Musona, 2004) and has been largely donor driven, with an unusually urbanconcentration. By December 2005, twenty-five organisations were engaged in MFI activities andregistered with AMIZ5 with a combined client outreach of 41 402 (AMIZ annual statistics report,2005). However, there are others involved in microfinance (often either inactive or quite localised),but are small compared to other MFIs in East and West Africa and South Asia as well.

Outreach remains low in relation to the potential ‘market’ and the Association of MicrofinanceInstitutions of Zambia (AMIZ) has estimated that the industry’s outreach is approximately 80,000against potential demand by over two million people. Additionally, the scope of services is also

5 Association of Microfinance Institutions of Zambia (AMIZ) was formed in 1998 as an umbrella organisation formicrofinance institutions and other industry stakeholders operating in Zambia. Its mission was to develop a vibrantmicrofinance industry in Zambia through building the capacities of MFIs. It also serves as a collective voice in lobbyingthe Government on issues of law and creating an enabling environment for MFIs (AMIZ, Microfinance News, Issue No.01/2004). Most active MFIs are affiliated to AMIZ, including CETZAM.


limited, often to microcredit, with little savings mobilization (Dixon, Ritchie, & Siwale, 2006).Like MFIs in Kenya (Johnson et al., 2003), Zambian MFIs together face relatively high levelsof delinquency and default, high operating costs, slow intake and high client exits, all of whichconstrain their efforts to achieve the financial and organisational sustainability many donorsnow require. Indeed, most are challenged by ‘good governance’ and still struggle to maintainhigh repayment rates. The law however is changing with the Bank of Zambia completing theBanking and Financial Services (microfinance) Regulations Act so that MFIs can better mobilizepublic deposits and savings. More importantly, the Act will establish governance rules and formalaccountability channels with the central bank, so that CETZAM and other MFIs might evolve intolimited companies with identifiable share holders (Microfinance News, June 2004, p. 2), althoughAMIZ and its members are still concerned about what regulation might cost.

5. The CETZAM case

CETZAM Opportunity Microfinance Limited, originally under the name Christian EnterpriseTrust of Zambia (CETZAM), was funded by the British Department for International Develop-ment (DFID), and has been one of Zambia’s best known microfinance institutions. Headquarteredin Lusaka,6 CETZAM has branches located in three provinces namely, Copperbelt, Lusaka andSouthern. When it was founded in 1995 it had an expressly ‘strong vision’ to fulfil a socialagenda driven by Christian principles to ‘transform the lives of the poor’ by ‘providing oppor-tunities to create employment and generate income through credit and training services’. Thisreflected the specific concerns of its founder members, which did not regard service provision asan end in itself, but as an expression of their values. It therefore began by taking a ‘missionaryperspective’ and sought to use the Christian biblical framework to shape a threefold (economic,social and spiritual) transformational development (Dixon et al., 2006). Its first loans were dis-bursed in July 1998, and DFID agreed to provide £2.29 million in financial support for a 5-yearperiod from February 1998 (Copestake, 2002). CETZAM expected that its clients would becomeagents of transformation7 within their local communities (CETZAM CEO, Nov. 2003). CET-ZAM had therefore originally anticipated that its loan officers would have a transformationalrole with the poor, but this study will question just how transformational their relationship hassince been.

5.1. Group lending at CETZAM

CETZAM offers its clients three types of loan products, two of which are delivered through agroup lending methodology, namely the Trust Bank and the solidarity group.8 The third type is anindividual based loan product. Its group-based lending methodology was especially intended to

6 Kitwe has been CETZAM’s headquarters since its inception in 1995. At the time of field study (mid 2004) it plannedto move its headquarters to Lusaka. Kitwe has remained as one of its five branches on the Copperbelt.

7 Opportunity International Network defines ‘transformation’ as a ‘deeply rooted positive change in beliefs, values,attitudes, actions, relationships and structures manifested in a higher level of existence of an individual and/or community’(Cheston et al., 2000, p. 3).

8 Membership in Trust Banks is between twenty and forty, comprising people with similar economic needs. Solidaritygroups have five to seven members. Trust Bank members meet weekly, Solidarity fortnightly (CETZAM brochure). Loanofficers go out to hold meetings with clients in their own home and market environment. The difference between a trustbank and solidarity group primarily lies in the size of the group and the scale of loans for solidarity are much bigger($350–$1000). The data in this paper is mainly based on group loan contracts and not on individual lending loan product.


target the poorest of the economically active population-especially women (CETZAM Brochure,2001). Borrowers form groups which jointly share liability for loan delinquencies or default(Jurik, 2005). No family members can join since close relatives may not be willing or ableto impose social sanctions. The Trust Bank group members together guarantee one another’sloans ranging from $80 to $200. Clients’ businesses include: food vending, retail in general,tailoring, chicken rearing, fruit and vegetable selling, fish and used cloth (salaula) selling andothers.

The loan officer’s intended role is to assess the eligibility of potential clients, visit their busi-nesses, and train them in CETZAM’s lending methodology – including some basic book keepingskills9 – for 10 weeks before disbursing loans to them. CETZAM expects Trust Banks to ‘elect’group leaders who then take responsibility for managing its activities including loan repayments.Additionally, Trust Banks are supposed to become tightly knit self-support groups with the abilityto transform lives and communities. The self-selection of group members is a critical element of themethodology along with joint mutual guarantees (Bastelaer, 1999; Matin, 2000). In addition, grouplending programs operate in a way whereby the work of screening, monitoring, and enforcement ofrepayment are all to a large extent progressively transferred from the MFI’s agent (loan officer) tothe group’s own members themselves (Hermes, Lensink, & Mehrteab, 2005; Marr, 2002; Rhyne,2001; Sharma & Zeller, 1997). Several studies have addressed the advantages of such collectiveaction in the actual screening of loan applicants and monitoring of borrowers (Bhatt & Tang, 2001;Besley & Coate, 1995; MkNelly & Kevane, 2002; Morduch, 1999; Navajas, Conning, & Gonzalez-Vega, 2003; Reinke, 1998; Rhyne, 2001; Stiglitz, 1990; Varian, 1990). One resulting argument isthat group members can obtain, at low cost, an understanding of the reputation and indebtednessof the loan applicant to underscore their efforts to ensure repayment (Bastelaer, 1999) and thereby‘socially obligate’, rather than formally compel, due repayment. Should this fail, group stabilitymay be threatened and the lender can incur increased costs through screening, monitoring andenforcement.

The principle behind these groups is that they will be readily mobilized, cost effective, and boostrepayment rates through an enforcement mechanism where group members can use social sanc-tions against their defaulting members, offer a screening function (to avoid forming groups withrisky borrowers), and thus co-guarantee any loans. This joint-liability mechanism, it is argued, hasbeen a major methodological breakthrough for lending to the poor (Bhatt & Tang, 2001; Goetz,2001; Hulme & Mosley, 1996; Ito, 2003; Rahman, 1999a). However, there is mixed evidenceabout whether the mechanism operates as intended (Kritikos & Vigenina, 2005; Ito, 1999, 2003;Jain, 1996; Jain & Moore, 2003; MkNelly & Kevane, 2002; Pal, 1999; Rahman, 1999a; Schreiner,1999; Vogelgesang, 2003). Jain and Moore (2003) for example assert that certain factors notconsidered in the models, such as the enforcement of loan officers, are also important for the MFI’ssuccess.

5.2. The founding phase

A synopsis of CETZAM’s first 6 years of operation – July 1998 to December 2003 revealsits impressive start especially considering its near collapse 5 years later. In its initial phase it

9 The researcher found that all training manuals were in English and the onus was on the loan officer to use localvernacular for those who did not understand English. For example, most elderly women clients were not literate andneeded assistance in completing their loan pass books. The researcher observed that meetings were conducted in Bemba– popular local language on the Copperbelt.


Fig. 1. CETZAM’s clients: July 1998–December 2004.Source: Compiled from CETZAM’s documents and AMIZ microfinance annual statistics, 2004.

faced pressures to expand, but later had to deal with the problems of ‘delinquency’ in order tosurvive, and this issue dominated the entire period of this study. CETZAM was the first of the‘new wave’ minimalist microcredit organisations which were originally claimed to be successes(in terms of client outreach), at first recording repayment rates of 98 per cent and over (Copestake,2002; Copestake, Bhalotra, & Johnson, 2001a), with low percentages of both portfolio at risk10

(PAR), and portfolio in arrears. This ‘success story’ duly led to a massive client outreach drive(see Fig. 1) which was partly driven by outside donors as well as the institution itself, as togetherthey envisaged conversion into a registered bank with a network of at least 20 branches serving50,000 clients by 2005 (Cheston, Reed, Salib, Voorhies, & Copestake, 2000). CETZAM expandedits outreach towards 9 390 clients and five branches by year 2000,11 and according to Copestakeet al. (2001b), it had exceeded all its original grant targets. As Fig. 1 shows, at first the number ofborrowers was small, but soon rose quickly, approaching 16,135 by 2002, but then fell dramaticallyto 5382 by the end of 2003.

By the end of 2001, CETZAM had opened twelve branches (most of which were not eventuallysustainable), and employed eighty-five loan officers working under the ‘pressures of expansion’,(Cheston et al., 2000), and had gathered many more clients. According to its loan officers, thereceived message from head office had been to “disburse, disburse” in order to reach those clienttargets previously agreed with donors. The average number of clients per loan officer then stood at375 against the expected standard load of 350. Meanwhile CETZAM had a significantly high-riskportfolio which consisted of overdue clients and bad debts, together reflecting significant sums ofcapital at risk (Fig. 2). This failure to maintain a good quality of loan books increased the paymentdefault risk.12

Notwithstanding the success that CETZAM had achieved over 6 years it bore such symptomsof crisis that its new chief executive officer (the third in 7 years) first said:

10 Portfolio at risk (PAR) is a measure of loan quality that considers not just missed repayments of delinquent clients,but the remaining outstanding balance of loans, which are at risk of not being repaid. The determination of when a loanis at risk is based on the age of the arrears and can vary among MFIs. A ‘cut-off’ of 30 days is usually the norm.11 The expectations of CETZAM being a national MFI and a registered bank by 2005 have not been realised. This forms

part of the study at hand.12 Researcher had difficulties obtaining hard data. Generally organisations in Zambia do not disclose performance

information that easily – especially to ‘outsiders’. There is always some suspicion, and this could have been the case here.


Fig. 2. CETZAM’s quarterly portfolio at risk and in arrears.[Note: Portfolio in arrears figures for 2004 not made available.]Source: Compiled from CETZAM’s branch performance ratings report, prepared by the credit department.

“It is a pity you have come at such a time when the organisation is going through a veryrough patch. CETZAM is being restructured and things are not good and work is hecticas we try to put the organisation back on its feet. CETZAM has experienced decliningclient membership, low repayment rates and rising percentages of PAR” (Interview withCEO-5/11/03).

By the end of 2003, PAR 30 days and over stood at 30 per cent (the target being 5 per cent),while the percentage of portfolio in arrears at 30 days and more reached 22 per cent (see Fig. 2).The calculated cost per dollar lent had also increased to $3.14 by December 2003 from $0.91 in theprevious year and later dropped to $2.22 by April 2004. In part the high arrears rate was associatedwith the rapid growth of the institution, its mismanagement, and also loan officers’ inability toproperly screen, evaluate, and monitor loans. Additionally, problems may have occurred due torelatively abundant availability of funds, and their weak supervision. Loan officers furthermoreclaimed that, certain clients were of “no fixed abode” and could easily just disappear well beforecompleting the loan. Overall, a perception of CETZAM as a faith-based NGO that used ‘free’external funds, and belonged to some ‘invisible’ donors may itself have created an incentive todefault. Other factors were considered beyond CETZAM’s own control. For instance, CETZAMhad no legal provisions to get defaulters prosecuted and secondly, the Copperbelt economy wasin sharp decline (Ferguson, 1999, 2006). Consequently, loan disbursement in the year 2003 fellto minimal levels.

Quarterly loan disbursements (see Fig. 3) together with client numbers (Fig. 1) maintainedan upward trend up to 2002 and thereafter declined as the organisation verged upon its poten-tial collapse,13 amid widespread default and other stories and rumours of unethical individualbehaviour. Interestingly, the performance indicators (Fig. 2) did not tie up with the increase in

13 The statement referring to decline in disbursement of loans is based on the interview with senior managers at the athead office-CETZAM, 26 November 2003.


Fig. 3. Quarterly amounts in loans disbursed over 6 years.Source: CETZAM internal documents.

Table 1CETZAM’s trend data (2000–2004)

December2000

December2001

December2002

December2003

April2004

December2004

No. of branches 07 12 12 07 07 07No. of loan officers – 60 85 28 26 35No. of clients 9,390 13,327 16,135 5,402 4,901 6214Average client load

per loan officer– 222 233 192 188 180

Source: compiled from CETZAM’s internal documents and branch performance rating reports.

borrowing clients and loan disbursements. If portfolio in arrears itself mirrors loan repayment,CETZAM could have been experiencing poor repayment rates for even longer because the oppo-site of an increase in portfolio in arrears is a low repayment rate. But how did CETZAM thenmanage to ‘conceal’ this crucial problem?

Loan officers claimed that the high repayment rates then reported could partly be attributedto the use of clients’ loan security fund to cover group members’ missed payments, while otherssimply thought that the institution had not measured repayments correctly.14

With branches in twelve towns located in three provinces, CETZAM was already widelyspread, and also risked losing control. A distinct shortage of information also made the programmore vulnerable to potential staff fraud. In 2003, the funding partner Opportunity Internationalappointed a new CEO, to restructure the organisation resulting in a reduction of its branches fromtwelve to seven and loan officers from 85 to 28 (Table 1). According to the new CEO, CETZAMwas now starting “afresh” to rebuild its dented reputation and public image.

14 CETZAM would include prepayments in the amount received, so if some groups paid in advance it masked the factthat other groups had not paid. In other cases, clients’ loan security fund (a form of savings) would be used to cover uparrears and present a high repayment rate. This way, severe delinquency problems got covered up.


By mid 2003, CETZAM was forced to write off many clients as ‘bad debts’ and loan offi-cers concentrated on the ‘pressures of delinquency’. This supports Jain and Moore’s (2003)view that organisations so focussed upon collecting overdue payments are already facing seriousproblems.

6. Findings on ‘delinquency’

This further evidence-based discussion on ‘delinquency’ and the role played by loan officersis based on close observations of one of CETZAM’s five branches on the Copperbelt. The ‘Wesu’(fictitious name) branch for instance had 2,024 clients in January 2003, and an average of 350clients per loan officer. By December 2003, this fell to 825 clients (others being ‘written off’), andloan officers were reduced to five from seven. Interviews with loan officers and branch managerand other close observations revealed there were different perspectives about its ‘delinquency’problem (see Box 1):

Box 1.Loan officers’ views: The problem is not just with us loan officers. Manage-ment is to blame as well as they had put us under pressure to form groups.We were just fighting to have groups so that we reach targets within a shortperiod of time. So, we started compromising. People, oh, I mean loan offi-cers just started getting anyone and not the economically active. So whenmoney was given to them it was hallelujah!! They [clients] didn’t bother topay. But the end result was disastrous and we paid dearly as most loans werejust written off in the end. That is why even our donors wanted to withdraw(LO1).The cornerstone of microcredit in CETZAM is the methodology and we haveto follow it. But there are certain times when you want to drift by applyingshortcuts to the methodology [laughs] – for example, instead of having twentyto forty clients in a TB, we would have fifteen because clients wanted fewernumbers. But then we have seen that it has created problems. I would say thatthe methodology and what is really out there don’t match (LO3).Former loan officer: I think the rate of expansion was too fast as manage-ment wanted to ‘please’ donors’ expectations. But there have been internalproblems as well – such as: lack of commitment from staff and negligencein customer service resulted into defaults and bad debts. Lastly, fraud waswidespread – right from the top to the lower ranks in the organisation.Branch manager: Ah! Right now things are tough, I will not lie to you. Paymentsare late constantly and repayments rates have gone down, we have not beenserious and orientation of clients is not done properly. So, you can imaginethat the attitude of clients have been distorted by the fact that we have nothandled the client well. But then this attitude of clients has been built by theorganisation itself. We have not been consistent in what we said we would do.Let us mean what we say – if we don’t, they [clients] will take advantage of that.I think CETZAM has created its own problems – we are to blame ourselves forthe mess and not just the clients.


In addition, the branch performance is not good, arrears are high, portfolio atrisk is huge and the amount of loans being disbursed has gone down. And thesituation is getting worse as clients are defaulting, running away, dying andcoupled with management problems.Woman client: I borrowed money 2 years ago and used the money to send myson to school. I had no proper business at the time I got the loan.Question: What has been your experience like?Client: I have struggled to pay back this loan because I did not invest itin business and in most cases I would deceive the loan officer by showinghim somebody else’s business stand. Clients normally do not tell the truth toMFIs.

6.1. Loan officers in action

The operation’s manual for loan officers listed their key formal responsibilities as: to marketCETZAM products and services to clients, explain CETZAM lending policies and procedures,facilitate group formation, train clients on CETZAM methodology, facilitate timely loandisbursements, monitor usage of loan funds and make follow ups with clients to ensure timelyrepayment, engage in delinquency management with clients who fail to make repayments ontime and also implement transformational activities aimed at empowering clients. Formallyloan officers reported directly to the branch manager and indirectly to the operations manager.In view of their diverse responsibilities, one head office manager here described loan officersas having a ‘transformational role’ where the organisation had expected them to be ‘changeagents’ with its clients. This manager claimed that loan officers were critical to its successand had:

“A very difficult job to do in that they carry with them the financial services CETZAMprovides to the client, the vision of the organisation and their personality. All these factorsare quite difficult to handle. In addition, there are expectations from the organisation andclients that we need to balance with” (Interview-Operations Manager, 26/11/03, Kitwe).

In further group discussions, loan officers alternatively themselves claimed that:

“We are mediators, agents, front-liners and key players. Loan officers are seen as providersfrom the clients’ perspective and as deliverers of services on behalf of organisation. So aloan officer is expected to meet the demands of the clients who expect their loan officers tobe understanding and also quick with loan disbursement while the organisation expects itsown targets to be met” (FGD-21/11/03).

The point loan officers were making here and elsewhere was that they link clients with theMFIs through their daily interactions (Isaia, 2005; Jackson, 1997; Reinke, 1998). As Schreiner(1999) observed, ‘microfinance rests on personal relationships, in particular, that between theloan officer and the borrower.’ However these ‘affective ties’ are constructed amid divergentexpectations and also can be emotion laden. Evidence here suggested that loan officer-clientinteractions and relationships were particularly complicated by conflicting expectations as well


as specific targets set (for example, zero arrears) which consequently impacted on all relationsconcerned with ‘delinquency’. One loan officer asserted that:

“Management and donors do not understand the realities on the ground. Most of them upthere [management] have not been in the field, never formed and managed a trust bank tohave a feel of what it takes to mobilize people and ensure loans are repaid, while keepingclients loyal and motivated”.

Another indicated that:

“Our job is about meeting targets and management does not want to hear any other story.But the problem is that these expectations keep pulling us in different directions”.

Clients’ understanding of loan officers’ role varied from the formal position and was influencedby what loan officers actually said and did.

“Loan officers encourage and protect us, train us to keep money and use it in business, teachus financial discipline and give spiritual guidance as well. However, they can be scaring,especially with their Motorbikes coming to chase up defaulters. But one has to work hardto avoid being embarrassed in the community due to default” (Two Trust Bank women).

“Loan officers do not seem to have much role in Solidarity groups because our businesses aregenerally stable and in most cases repayments are good. But they have a lot to do with TrustBanks where the problem of defaulting is common. So their loan officers attend weeklymeetings, offer training, process loans and chase up defaulters” (Solidarity member).

Such disparate expectations and tensions at the client-loan officer interface, loan officer andmanagement within a pro poor group-based MFI here clearly demonstrate the dilemmas faced byloan officers when microfinance actually engages the poor. At CETZAM, tensions arose betweenloan officers and clients as the necessary peer pressure within groups failed to induce goodrepayment, forcing loan officers themselves to intervene. Under management pressure loan officershad begun to absorb tasks that, in the original model, groups themselves should have performed,especially with regard to loan accounting work and recoveries.

6.2. Responses to ‘delinquency’

Loan officers did not necessarily follow officially stated lending procedures. For instance, theTrust Bank size was reduced to 15 from over 20, and the formal client orientation period of 10weeks was also not strictly adhered to. Clients’ businesses were not visited before disbursingloans. Additionally, loan officers reprioritized their work in order to recover money in arrearsand consequently sidelined other activities such as marketing the loan product, facilitating theformation of groups (outreach) and making timely loan disbursements, especially where theirperformance was evaluated on the basis of their portfolio at risk and that of their branch. Loanofficers pointed to a lack of shared understanding of the ‘realities on the ground’ regardingpoor clients. This created reciprocal frustration for the loan officers who managers asked to bemore assertive in loan collection, when Trust Bank members themselves expected them to bemore patient and understanding. Enforcing loan repayment at ‘Wesu’ branch was problematic,especially since CETZAM did not have a clear legal framework to prosecute defaulters. Johnsonet al. (2003) reported similar difficulties in handling defaulters, but here the difference was that,CETZAM, not the defaulting client, bore the costs. The original intention was that the borrower


progressively takes over the lender’s responsibilities for monitoring group repayment behaviour,taking action, if necessary, to enforce repayment (Ito, 2003). These arrangements were supposedto free the loan officer for other constructive activities, but loan officers were diverted into chasingup defaulters as if ‘debt’ collection was the real priority.

While CETZAM managers claimed to be aware of such problems, they had few clear strategiesto solve it. Many held loan officers most responsible and also expected them to ‘coerce’ defaultersinto repayments. As a result loan officers actively pursued defaulters (a task meant for groupsthemselves) instead of building the networks that would sustain mutual trust (Copestake et al.,2001a; Ito, 2003; Woolcock, 1999). Clients claimed that they did not want to pursue defaultersbecause this could result in acrimonious local neighbourhood relations. This is in line with Paxton(1996) who found that borrower groups applied little ex post pressure for similar reasons (quotedin MKNelly & Kevane, 2002, 2027). As a result, loan officers, together with the branch managerat ‘Wesu’, considered they were under real pressure to retrieve any money borrowed and thusreduce the portfolio at risk. Sharma and Zeller (1997) also reported the similar concerns by fieldworkers in Bangladesh. At ‘Wesu’, repayment issues (more than anything else) dominated reviewsand discussions. However, loan officers did not find such meetings very useful as the followingextracts illustrate:

“Morning meetings are a waste of time especially that we have to do daily reporting. Besides,discussing delinquency all the time and every morning is a bother. Loan officers know wheneach group is paying and so why should we be talking about the same issue throughout theweek”?

Another added:

“These meetings are a grilling place and can be embarrassing to a loan officer whose groupsare not performing well as it shows that you’re not doing anything. Why not just single outbad groups and discuss ways of doing it. They tend to personalise instead of addressingthem as a team or branch”.

Interestingly, just like loan officers, clients did not appreciate meetings where the subject ofdelinquency dominated, as one loan officer asserted:

“Clients shun meetings because they don’t want you to talk about them. They tend to loseinterest if all you talk about is money and defaulters. To them, it’s a sheer waste of time tosit in these meetings. But again if the default thing is still there, we will be forced to talkabout it”.

The outcome of this preoccupation with chasing up defaulters was seen at ‘Wesu’ branch (prob-ably a reflection of the whole organisation15) in terms of a ‘gasp for cash’ and the ‘suffocation’ ofgrowth. There was little expansion as loan officers did not facilitate the formation of new groupsand thereby failed to advance the outreach frontiers. Loan officers complained that, managementdid not realize how difficult and time consuming the ‘delinquency’ exercise actually was. Theclients’ perspectives can be well illustrated by members from the solidarity group and Trust Bank(see Box 2).

15 This is based on the interviews with the Chief Executive Officer and the Operations Manager, who indicated that theorganisation was starting “afresh” after a near collapse and that all staff would have to be retrained in the basics of thelending methodology.


Box 2.“I think that these loan officers have too many Trust Banks and solidaritygroups that are not doing well and so they are spending their time debt col-lecting. So those of us doing well are suffering. We are neglected and all theconcentration is on those in arrears and defaulting. For instance our loan offi-cer is now just concentrating on groups that are giving him problems. He hasjust become a debt collector and sometimes he doesn’t even come to ourmeetings-he is just busy chasing debtors. Do we always have to be pushingthem?” (solidarity group member-2).“I have seen a problem with CETZAM. Initially, when we started learning abouttheir methodology, they would tell us that the time of waiting for the next loanwould be short once the previous one was paid for. They told us 2 weeks. Butlook at them now! They take their time and keep on promising until maybe amonth goes- even for those paying well. So, what is the incentive in payingback on time? Is this good? Admittedly, there are times when we clients causethese delays, but here we are talking about those who have actually paid ontime. We don’t like this as it is destroying our businesses and discouraging”(Trust Bank member-5).

The issue here is the change of loan officers from being facilitators to ‘debt’ collectors and theresulting service they give clients. All these combined make client retention more difficult. Musona(2004) found that Zambian MFIs were generally slow in loan processing and disbursement,which itself increased client dissatisfaction and encouraged clients to borrow elsewhere instead.Consequently, outreach had declined, but costs per client member increased due to the resourceintensive nature of ‘chasing up’ defaulters. Loan officers further revealed that, on average, eachloan officer had only managed to form two new groups in 2003.

6.3. ‘Delinquency’ management practices

Loan officers had first threatened to use the group’s loan security fund (LSF) to clear arrears.Each member was expected to have deposited at least 10 percent of the loan they were request-ing into their savings fund. Clients would pay this in small amounts over the orientationperiod.16

In several meetings, loan officers used the LSF as a ‘stick’ to force group members to pursuedefaulters. However, this practice of seizing clients’ LSF may have been effective in the short-term, but could also have undermined group members’ long-term commitment. Members withgood repayment records disliked losing the LSF. One client indeed said:

“Why is the branch talking so much about arrears when our LSF is used to offset loanamounts not paid by the group”?

16 Prior to each subsequent cycle clients must have a loan security fund equal to 10% of the principal amount for there-loan. According to Trust Bank Loans brochure, The LSF cannot be used to cover regular payments, but unpaid latefees can be recovered through the LSF. CETZAM manages this fund.


MkNelly and Kevane (2002) reported similar negative sentiments among group clients inBurkina Faso, where the practice destabilized groups, and consequently re-loans were furtherdelayed.

Another practice (though not supported officially) was to use external agents – for examplepolice officers – to make defaulters pay or else confiscate household items for sale to recover themoney. In Bangladesh (Grameen Bank, BRAC etc), where field workers would not use police torecover loans, they asked influential locals to exert pressure (Ahmad, 2002; Jain & Moore, 2003),but at CETZAM loan officers used the police:

“I have had two situations where I have used the police and in one case I had to take oneperson to the police and she was locked up and later paid something but our relations weredestroyed. I feel very bad about it. It’s just that my job demands that I bring back the money.It is not right because in most cases items grabbed may not necessarily have come fromCETZAM’s loan” (L/O 2).

Such ‘harassment’ however, served both an immediate purpose of trying to recover the moneyand the more important, broader purpose of signalling publicly that the consequences of becominga defaulter can be made to be socially embarrassing, especially in a society where credit and debtare considered intensely private issues (Aryeetey, 1996 quoted in Bastelaer, 1999: 13; Christensen,1993). When asked why police were used, another visibly disturbed loan officer said:

“If I don’t do this, what will the office think of me? They will not believe my story- at leastif I tell them that the police went with me to clients’ businesses, they will then take meseriously and believe that I am working. Those people [at the office] don’t listen. At timesclients have to see one of their friends dragged to the police for them to get serious withpayments” (L/O 4).

From the loan officer’s perspective, this use of police (especially on ‘difficult’ clients) met twopurposes: authenticating their ‘audit’ reports to the manager, and also shaming defaulters intorepayment. Other studies have also reported defaulters losing household items and humiliatedby police call-outs (Ito, 2003; MKNelly & Kevane, 2002; Montgomery, 1996; Rahman, 1999b).Wesu branch office had seen that several household items (such as wall clocks, hand sewingmachines, music system, fridges, sofas, beds etc.) were seized from defaulters and offered forsale. However, clients were divided about this. Some supported such action:

“Loan officers are generally very sympathetic, forgiving and don’t rush into grabbing prop-erty. They try to understand our difficult circumstances. But you see, some clients are justcrooks! Loan officers are just doing their job.”

Other clients revealed that seizing household items in daylight could be socially embarrassing,especially if it leads to more domestic tensions and possible violence. This was illustrated in afocus group discussion of five women and three men:

“It’s important that women inform husbands because there are times when CETZAM grabsitems from defaulters and so if [I] the husband has bought [my] TV, fridge etc and thendiscover that these have been taken for sale to recover the money owed, my wife would bein big trouble [with a frowning face]. This creates tensions in homes.” (Man-client 5)

“Women who take loans in secret and then fail to pay usually find themselves into troubleand some even get divorced” (elderly woman -client 2).


However, although loan officers participated in seizing defaulters’ household items, they stillconsidered it morally wrong and ‘unchristian’. CETZAM’s chief executive officer also consideredthat seizing assets and using the police did not its social agenda and thus acknowledged that itwas a sensitive issue.

A third option was that of policing ‘time’ by paying frequent visits and ‘pouncing’ on defaultersat dawn and dusk. A former loan officer recalled that:

“You know there was a time when we started making very big client follow-ups. And we hadclients who, if you followed them up during the day, would hide because of the sound of themotorbikes. They would tell the children; ‘ba loan officer ngabaisa, mubebe ati nshilipo’but they would actually be in the bedroom hiding. So we stopped making follow ups duringthe day and started going to their homes around 04:00 am in the morning and at 7 pm inthe evening so that they had no chance of running away. The approach was so radical andloan officers would be commended for doing that”.

To justify their involvement loan officers would claim that they had their jobs to protect.Such visits at awkward hours were themselves considered shameful and also intruded uponloan officers’ ‘private’ time. In some cases the ‘harassment’ of clients increased delinquencywhen more clients stopped servicing their loans.17 However, loan officers were concerned abouttheir personal safety in these ‘raids,’ that they were vulnerable to attacks by angry and violentclients. The gravity of this matter was shared by one of the senior managers at head officewho cited an incident where a dog was set upon a loan officer as he visited a defaulter’shome.

In view of these delinquency strategies, loan officers’ role in CETZAM lending methodologythus became more one of ‘debt’ collecting than group facilitator. Consequently, loan officersbecame frustrated where repayment problems increasingly dominated their interactions withclients. This was well captured by two loan officers in separate incidents, the first after a hecticday out together, claiming that:

“A loan officer you see is supposed to be on the side of management as well as on the sideof clients. So you have no time for own personal things because of too much pressure, notime to relax and sometimes all you dream about is delinquency. I actually dread reportingfor work, as I have to figure out what I will have to say to convince the manager”.

The second, through an email 2 months later, wrote:

“I have just had a lousy day at work, and thank God for your email, it brought me back tothe real world. My loan officer job is as usual, and we continue to write the daily reports-itis such hell! I think we just might end up resigning” (communication received 26 February2004).

These two quotations reveal signs of emotional stress as CETZAM management continued tomake loan officers further justify their detailed daily activities and increased surveillance overthem (Hillhorst, 2003). The branch manager however, asserted that microfinance was a ‘sensitivebusiness’ and ‘the moment loan officers are frustrated you have a problem’.

17 New management indicated that the ‘early morning raids’ approach had been stopped and clients’ privacy respected.Loan officers were being encouraged to work through group leaders instead. Some clients confirmed the developmentwith researcher.


7. Discussion and conclusions

The present study has examined the role, tensions and dilemmas of loan officers in the context ofwidespread loan delinquency. Contrary to that literature which regards loan officers as facilitators,and client groups as potentially self-managing, this study found that loan officers were preoccupiedwith managing nonrepayment, even if that meant taking control over groups as well. This wasnot the intention of a group lending methodology which would foster the self-management ofclient groups. Loan officers often used inappropriate methods to compel repayments. CETZAM’spractices in dealing with widespread ‘delinquency’ (a term actually used when referring to thosedefaulting on mutually assured loans) were found to be of a ‘management by crisis’ nature andpotentially detrimental to achieving both outreach and sustainability. ‘Delinquency’ turns notonly on the lending policies and costs of the program but also on the nature and extent of socialrelations (a) among clients in groups, (b) between clients and loan officers and (c) between loanofficers and management.

In addition, the use of police, confiscation of assets and possible morning and evening ‘raids’also created tensions between the ‘debt’ collecting role and the facilitative role that loan officerswere expected to perform. For example, the MFI formally expected ‘professionalism’ since theyhad to fulfil their organisation’s expectations, while clients expected other skills of the loanofficer, in short-working ‘from the heart and not the mind’. Most importantly, the findings indicatethat loan officers necessarily engaged in what Hochschild (1983) calls ‘emotional labour’ toachieve the managers sought repayments. Emotional labour has been defined as “the inductionor suppression of feeling in order to sustain an outward appearance that produces a sense ofbeing cared for” (Hochschild, 1983: 137) or not cared for (italics mine). It requires the workerto produce an emotional state in another, e.g. of gratitude or fear.18 Here the practices used todeal with defaulters required that loan officers suppress their feelings of sympathy for defaultersin order to collect money or seize household items for sale. This became problematic when such‘acting’ was discordant with loan officers’ other feelings and values:

“Going through peoples’ homes during delinquency made me see things differently-beingable to see the other side of our clients in their homes surrounded with genuine problemsthat were emotionally moving. These clients make you feel as if you are just troubling them”(former loan officer).

Clients were more likely to cooperate if loan officers showed respect and worked to producemore self-confidence and hope in them. An attitude of ‘disrespect’ could reduce goodwill andmake further client mobilization difficult. This emotional labour was demanding and many loanofficers were not prepared for it. These performed emotions and tensions had the potential toshape the course and outcomes of microfinance programs but have sometimes been overlookedby those evaluating them. Demanding as they were, loan officers were quick to mention that suchemotional displays were rewarding to the extent that they produced desired results out of socialrather than just contractual obligation. Consistent with other studies (Ahmad, 2002; Goetz, 2001;Paxton, 1999; Rahman, 1999a), the findings of this study show that making the problems of lateloan repayment more visibly public may embarrass or shame the client at the cost of negativeeffects for developing the MFI itself.

18 For more detailed discussion of emotional labour and how it applies to many other frontline jobs, see Fineman, 2000and Taylor, 1998.


Although CETZAM is less developed than many Bangladesh MFIs, it is nevertheless arguablyincreasingly representative of other emerging MFIs. The CETZAM case also parallels the expe-riences of other MFIs elsewhere. For example, the Credit with Education program in BurkinaFaso also experienced repayment difficulties and suffered a dramatic decline in client numberswithin 6 years of lending (Nelly & Kevane, 2002). Churhill (1999) documented similar eventsat Get Ahead Foundation-South Africa. The foundation just like CETZAM, expanded beyondits institutional capacity, and experienced high levels of portfolio at risk of 60 percent until itsdonor threatened to terminate further funding. The Get Ahead Foundation was made to reform inorder to survive. A comparative study of seven sub-Saharan African MFIs also found the arrear-age problem to be so widespread that it restricted outreach (Breth, 1999). The CETZAM caselikewise shows that, while the original Bangladesh model has been officially confirmed and/oracademically studied and evaluated, albeit in distinctive economic terms, its use and value forother emerging MFIs is limited. Moreover, Bangladesh is at a different stage of development toother frontier territories such as Zambia, which have their unique ‘greenfield’ issues to resolve.Emerging ‘second generation’ microfinance institutions may draw upon this other model yet stillencounter different problems later.

These findings, albeit related to one specific case study, make it important to give more attentionto loan officers as the implementers of lending policies and mobilizers of clients who can mostenhance our knowledge of microfinance and its further challenges. While other studies (Baumann,2004; Mukama et al., 2005) have found that the legislative and regulatory framework, ambiguousownership structure, operational costs, inadequate capital to lend, level of economic developmentand lending policies all to be important contributors to MFI’s performance, especially in sub-Saharan Africa, this study adds that the success or failure of microfinance in ‘empowering’ itsclients ultimately depends on the role played by loan officers as the key ‘link pins’ (Likert, 1967).Should loan officers fail, microfinance (especially group based) could fail with them, unless it ischanged into something quite different.

The case is also significant given the ‘benchmarks’ now used regarding microfinance perfor-mance, and also the bias towards reporting ‘excellent’ loan repayment rates of 98 per cent andabove among ‘successful’ mature MFIs elsewhere. Such benchmarks may conceal the particularproblems of other MFIs at early stages of development unless those problems are now betterrecognised and resolved. For MFI practitioners and managers, this study has shown that otheraccounts of the actual everyday practices and dilemmas faced by loan officers may correct errorsin understanding how microfinance actually works and estimates of its further development poten-tial. MFIs need more insights into the ‘real’ world of a loan officer who is faced with divergentexpectations and powerful hierarchical levels of accountability if they are to advance their lend-ing work and meet their targets. Outside of Bangladesh there is much to be learnt about howmicrofinance works, what loan officers do, and how they and others manage. From an accountingperspective, this case raises questions into the nature and type of accounting organisations suchas CETZAM itself needed and also require of others as well.

The contribution this study makes is twofold: it has focused on a country that is under-researched and presented insights which could advance knowledge of how group-basedmicrofinance actually works in other emerging areas. While other studies have noted the intensiveinvolvement of loan officers in dealing with non-performing groups, this study has specificallyhighlighted the tensions, dilemmas and challenges loan officers’ face when they prioritise debtcollecting over other roles. This raises the question: can microfinance institutions in SSA achievelong term sustainability, given such restricted client interaction, and where loan officers mayincreasingly become ‘loan collection’ agents above all? Debt collection is not synonymous with


‘development from below’ and cannot be as ‘empowering’ as microfinance was originally intendedto be. If not addressed, it could undermine the base of client loyalty, trust and also slow downnew client solicitation as well.

Secondly, the study has linked the concept of emotional labour to the actual work that loanofficers perform. In particular, dealing with delinquency here called for daily exposure to the lifeworld of the poor and their poverty (which their managers may not often directly see), whichat times created acute moral dilemmas. Loan officers who directly interact with the poor facedemotional dilemmas that need to be understood better if their performance is to be enhanced. Theimportance of this exploratory study therefore needs to be seen in light of the growing globalrecognition that microfinance has the potential to be an effective strategy in poverty alleviation,especially in the sub-Saharan Africa.

Acknowledgement

The authors acknowledge and are grateful for the detailed and constructive feedback fromanonymous reviewers in writing this paper.

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