Banking in the Andes: a day in the life of a credit analyst
Names of employees of FONDESURCO are used with permission in this article. Names of clients are anonymous due to privacy reasons.
High up in the Andes at 3,632m above sea level lies the city of Chivay. The inhabitants, descendants of the Collaguas and Cabanas people, foster their traditions. Women with colourful hats and dresses sell food and household tools at the market close to the central square, the proud of the city. The local speciality dishes are the spicy Alpaca Beef provided by stock farmers from the highlands and ‘Trucha’, fish from the mountain lakes.
It is from the agency in Chivay that credit analysts from FONDESURCO, a microfinance institution (MFI), are providing financial services to the people living in the valley and high up on the Altiplano. Their job is to evaluate loan applications and collect money due. This is far from an easy task, given the long distances, the low grade of formalisation and the state of the infrastructure. FONDESURCO and INFINTECH started a project to find out how the impact FONDESURCO makes in the region can be improved. This post gives an insight into the challenges the employees of FONDESURCO face daily in serving communities high up in the Andes to provide a better life quality.
6.00AM: Start of the working day
Work starts early for credit analyst Donato. This usually is the case: Clients work during the day, thus visits must be planned either early in the morning or in the evening. Prospective client Miguel has applied for a loan to complete the buy-out of his partner. He runs a beer distribution service. Every day he starts riding his truck at 7.00AM to provide restaurants in the region with Arequipeña beer. To fund the buy-out Miguel wants to take out a loan of 70.000 Soles (€17.500), using his house as collateral. Donato will evaluate whether Miguel is applicable to take out a loan of this size and to determine the terms of the loan. This depends among others on the level and diversification of income, his working experience, and the value of the house. Since Miguel will be gone all day for work, the analyst must do the credit evaluation early in the morning.
The size of the constructed part of the lot is measured, and the type of material is noted down. Using a conversion table with referential prices this will determine the value of the house. The higher the value of the house, the lower the risk for FONDESURCO and the higher the amount Miguel can get.
Donato interrogates Miguel on his income. “How many boxes of beer are sold per day? What is the cost of goods? What is the selling price? Do you have any other source of income?”. Next, to the beer business, Miguel and his wife own a general shop which generates additional income. His daughter runs the place selling delicacies such as chocolate bars, roasted corn and Inca Kola. In this area, people rarely have one source of income. All information is noted down on paper. After the interrogation pictures are made from Miguel at his domicile, as well as from the business. These pictures will serve as proof of income. It is 7.00AM and Miguel needs to start his round.
8.30: At the office
After breakfast, Donato returns to the office to spend the rest of the morning entering the collected data in the system and filing the request. It is part of the job, but Donato would rather be in the field to visit clients instead of processing data he already has scribbled down in his notebook. One of the aims of the Arequipa project is to reduce the time Donato spends at the office, increasing the time he can offer true value to the client.
The evaluation will be sent to the director of the office. Normally he will check the evaluation and approve the loan, but since the size of the loan is unusually large the decision will be made on another level. Instead, he gives his opinion on the riskiness of the loan and passes the loan application up the ladder. The next day, the credit will be approved.
During the process of entering the data clients regularly hop in for questions or requests. Donato knows them by name and greets them warmly. Analysts have extensive contact with the clients in his portfolio and the level of knowledge they have about them is remarkable. In case the client comes from the same village chances are they have a personal relationship as well.
From 13.00 to 15.00 the office closes its doors: It is time for lunch. In Peru, it is common to have lunch at home. Those living further away lunch with colleagues at a cantina or “Chifa”, serving a mix of Chinese/Peruvian plates. The menu costs between 6 and 10 soles (=€1,50-€2,50) and consists of two courses. The menu varies, but rice and potatoes are standard components. Back in the office, the afternoon starts with a game of table football in the office competition.
16.30: Collection of debts
It is time to visit clients with overdue payments. Obviously, this is not the part that analysts enjoy most. The goal is to find a solution with the client so he can pay his debt and avoid default. Sometimes the payment is delayed because there was no transport to Chivay: payments are made at the office. In other cases, family circumstances or a temporary lack of income are to blame. Chicha, the village we’re heading to, lies 1.5 hours driving from Chivay at an altitude of 4,200m above sea level. Alex, the manager who joins to do the visits, puts on his playlist: a mixture of 80’s dance music, Cumbia and Reggaeton. On the way the son of one of the clients is picked up: it saves him an hour walking home from the field.
Three knocks on the door, but no luck today: the client isn’t home. The neighbour will pass the message and the client calls to the office the next day to explain why his payment is delayed. Even in this remote area, many people own a smartphone; lower segment brands such as Huawei have made them affordable for the lower income class. The signal is provided through cell towers. The quality of the signal depends on weather conditions.
Humans are not the only inhabitants of these villages, many dogs living in the sandy roads call it their home too. The second client to visit has a small path to access the front door. Donato throws a pebble to make sure no dog will cause a work accident. “Grab a stone, just in case,” he says, laughing. Three seconds later a big black dog storms out barking as if possessed by the devil. While we run for our lives, the owner comes out and grabs the monster by his scruff. She will come to the office the next day to pay her debts.
On the way back 4 more clients will be visited. The visits including travel time took 5 hours. The high operational costs combined with the high risk of banking the unbanked cause interest rates to be extremely high from a European point of view. Commonly, interest rates are between 30-40% annually. One of the objectives of the Arequipa project is to bring down operational costs by increasing efficiency.
21.00: End of the day
We’re back in Chivay and the work is done. It is Friday night, which means the clubs are opening their doors. Cumbia music and Pisco Sour, that’s all that is needed for a perfect Friday night. Not too long and not too much though; the office is open 6 days a week which means that Saturday is a workday like any other. The first evaluation will be in a remote Alpaca ranch located at 1.5-hour driving and another 30 minutes walking. The alarm clock is set at 3.45AM. Tomorrow is still far away though. For now, it is Cumbia what counts.