An Appetite for Credit: A Study of Project Innovation by Pro Mujer Peru
This investigation concerned the use of the Premium loan, Pro Mujer Peru’s (PMP) largest credit ever offered. The most common motivation for seeking the Premium loan was that clients simply wanted more capital for their businesses. In nearly every case, clients realized their plans for the loan, which is to say, nearly all the funds went directly into business investment. But the Premium loan was just part of broad credit and cash-management strategies among these clients. In total over the past year, they had taken out 5-6 separate loans averaging over $5,000 between them, with the Premium loans comprising just 30 percent of the total. The dominant pattern of business investment was loan patching. The Premium loan was taken up simultaneously or in sequence with other credits, both at PMP and at other institutions, and applied toward the same purpose of business investment. Many people reported increased profits, compared with years past, as a result of the capital boost from the Premium loan. The Premium loan also enabled some clients to respond to opportunities to upgrade their businesses and to strengthen vertical and horizontal relationships in the value chain. All clients were engaged in obligatory savings connected to the Premium loan, which was noted as a pleasing feature. These clients like to be forced to save, but also wanted reasonable access to those savings when they needed them, which PMP’s policies provided. Few had or wanted conventional voluntary savings accounts. These initial observations on savings inspired a follow-up investigation in June 2009, which combined MIS analysis with additional interviews to challenge some of the conventional wisdom on the limited value of obligatory savings. Key takeaways from the study included this rethinking of mandatory savings and complication of the notion of “graduation”– i.e. many clients “graduated” from PMP in the conventional sense (i.e. sought bigger loans with competitors), but retained their smaller group loans for intangible reasons such as loyalty and friendship.