50% of micro-borrowers broke savings to cope with Covid fallout: Study

Fifty percent of the borrowers directly affected by the pandemic withdrew or used savings as one of their coping mechanisms during and at the recovery stage of the Covid pandemic, according to a recent study.

Researchers presented the findings of the study, “Effects and Impact of Covid-19 Pandemic on MFIs and Their Clients”, at a seminar on Saturday.

Some 442 microfinance (MF) and microenterprise (ME) clients (borrowers) from nine districts were the respondents in the study conducted by INAFI (International Network of Alternative Financial Institutions) Bangladesh.

The study used data collected about the time before pandemic (before March 2020), during pandemic (March 2020 to June 2021), and the pandemic recovery time (July 2021 to January 2022).

Programme Manager of INAFI Bangladesh Tasnova Farheem while presenting the report said that MF borrowers are those who take loan up to Tk 100,000 while ME borrowers are those who take loans more than Tk 100,000.  

The research has found that the surplus of the household income of the MF borrowers has gone down to 23.6% from 79.3% while ME borrowers’ income declined from 93.2% to 45.2%.

On the other hand, the always deficit rate of MF borrowers has increased from 0.7% to 20.7% and for ME borrowers from 0% to 18.5%.

Tasnova Farheem said as part of coping with the pandemic, 50% of these borrowers have used their savings.

Hundred per cent of the borrowers who took loans over Tk50,000 have partially or fully withdrawn or used their savings.

Researchers have divided the respondents into five income groups: Tk 5000-Tk 10,000, Tk 10,000-Tk 15,000, Tk 15,000-Tk 30,000, Tk 30,000-Tk 50,000 and over Tk 50,000.

Among the MF respondents, the majority in the two lowest income groups mentioned taking loan (from any source) as the main source of coping while in the two highest income groups, ‘withdrawal or use of savings’ was mentioned by the most.

Among the respondents, 21.77% have mentioned selling or mortgaging assets as the main source of coping.

However, the percentage of respondents ‘selling/mortgaging asset’ as a coping mechanism shows a negative correlation with household income. Some 60.87% borrowers from small, 28.44% borrowers from medium and 18.3% borrowers from large MFIs have taken loans from multiple sources. Participants, who have multiple loans, mentioned that they usually do not face much difficulty in repaying more than one loan at the same time.

Among the multiple loan borrowers, more than one-fourth from small MFIs, 38.7% from medium MFIs and 16.7% from large MFIs mentioned ‘not getting the required amount of loan from one source’ as the reason behind borrowing from multiple sources.

Speaking as the special guest, Palli Karma-Sahayak Foundation Deputy Managing Director Dr Tapash Kumar Biswas said the research findings are similar to those they have conducted during and at the recovery stage of Covid pandemic.

Chief guest of the programme, Finance Institute Division Secretary Sheikh Mohammad Salim Ullah said that more recommendations for the benefit of the mass people should have been made in the research.