ILO Logo

Making the right tweaks to provide effective emergency loans

Emerging Insight #:

  183
 

Date of Release:

  June 2, 2021
 

Subtopics:

  Product development
 

Source:

  The Facility
 
 

Dvara KGFS in India implemented lessons from an initial pilot to improve its emergency loan product

Group-based loans for (small) businesses have been the core offering of many microfinance institutions (MFIs) across the world. However this loan product is not designed to help a client cope with financial emergencies such as an illness or a household fire. An emergency loan may offer a solution for MFIs to help borrowers during times of need. Dvara KGFS, a non-banking financial company in India, started offering such a product for the first time in 2012.

When Dvara KGFS first piloted its emergency loan, it did have some success. However, when it expanded from its initial pilot in Odisha to other states in India, challenges started to emerge. Misuse of the product by borrowers was common, as well as unwarranted disbursement of the emergency loan by Dvara KGFS’s loan officers. Ultimately this led to Dvara KGFS taking the product off the market.

After the withdrawal, Dvara KGFS focused on improving internal control mechanisms to improve the customer experience of existing products. It also wanted to ensure products would not be misused by borrowers or staff. Hence, it introduced two important changes. First, it introduced a control system that required proof of use of the loan to be entered into the system. This would reduce misuse of the loan by customers. Secondly, an internal audit tool was launched to flag loan disbursements as doubtful (based on a number of non-disclosed criteria) and require further investigation by staff.

Dvara KGFS expects that the improved control systems will address some of the previous challenges. To find out about more about the design of the emergency loan product and the changes that Dvara KGFS experimented with, read our latest Case Brief.