In this conversation, Rigol and Roth discuss their work as examples of “action research,” through which faculty members deeply engage with organizations and their leaders over an extended period of time to test and implement new ideas and approaches to problem solving.

Ben Roth: We’re in constant conversation with them about the problems they face. One stream of work is thinking about how they manage their internal organization—understanding how changing the ways that they reward their loan officers can motivate them to better serve their borrowers. We helped Fondo Esperanza develop a new set of incentive systems for the loan officers and measured how much more helpful they were to borrowers. We found some substantial increases.

Natalia Rigol: Once you change the institutional incentives to align them more with the mission of the organization—to give borrowers the product that best fits their needs—everybody benefits.

Ben Roth: Another stream of work is thinking about new kinds of credit products Fondo could offer and evaluating both the new products and some existing ones to understand their impact on borrowers. For example, in many businesses that deal with credit, people worry about being able to repay their loans on the schedule required by the lender. Microfinance has evolved as this very standardized one-size-fits-all loan product you repay on a weekly, biweekly, or monthly basis. There may be some kinds of investments for which that’s a bad match.

Natalia Rigol: It’s great that Fondo Esperanza is interested in experimenting to learn which product could work, not just for their bottom line but for its impact on borrowers. For the organization, repayment of the loan is not a sufficient signal that the product worked; they want to make sure that it is actually helping entrepreneurs develop their businesses. Of course, while the objective is to find a credit product that is very flexible, you also want to find the sweet spot where the organization is recouping a large portion of the money it is lending to help businesses.

Ben Roth: Natalia and I explored a flexible loan product through which people could personalize the timing of their repayments to fit their business needs. Fondo Esperanza was interested in seeing if that would be useful for their borrowers, so we started a pilot with about 60 small business owners, but it coincided with a period of civil unrest in Chile, and then the pandemic hit, so we had to pause.

Natalia Rigol: On March 16, Fondo declared that they were going to freeze all lending and repayments. Their lending is very seasonal, so they were just starting the high season of lending and thought that they would not be giving out new loans. We said, “We’ll do surveys for you and figure out how people are coping, what their credit needs are, and what’s happening in their businesses to give you some insight.” We wanted to give them the information they needed to still serve their customers and figure out a way that they could be helpful at this time

Fondo Esperanza decided to give out small emergency loans and developed a set of criteria for determining a business’s risk level. They said that if your business is a type that could do well during a pandemic, such as food delivery, groceries, or restaurants, those types of businesses could become eligible for the loans. There were also some people who, when the pandemic hit, had actually finished repaying their loans and were supposed to get a new standard loan, but they couldn't because the lending was frozen. Those people were eligible to receive emergency loans.

Ben and I realized that there was a way for us to study these loans and look at the question: If you are in the middle of a crisis and you are a lending institution, what do you do? Is it best to freeze everything, and when the lockdown ends, businesses will reopen and you’ll provide credit, and the businesses that were meant to survive, will survive? Or do you intervene in the moment of the pandemic because it might be harder to reopen a good business if you shut it down?

Ben Roth: Our research in Chile will also explore another angle on that question, which is, six months from now, of the people who were lucky enough to get emergency credit during the pandemic and could stay open, is there a persistent difference between them and those businesses that weren't helped?

Ben Roth: Every faculty member is doing research that they believe has real-world value. Some kinds of research are more directly applied than others, and Natalia and I tend to specialize in fairly applied work. It’s very motivating for us to interact with people who are benefiting from our research. We have enjoyed a very special and productive relationship with Fondo Esperanza.

Natalia Rigol: Generally, research collaborations tend to be one-offs, at least that’s my experience in the past. I would say this is by far the most involved that we have been in our research in terms of the time spent and number of projects we’re working on. For us, this is a really different way of engaging. The reason we do this kind of work is because we are deeply invested in making people's lives better, and Fondo has enabled us to do that. We know we have an impact immediately because the organization implements an idea we have. It makes us want to continue the relationship as it seems like we can be helpful to Fondo and the people who borrow from them. For us, that’s a very important aspect of how we choose the types of projects that we do.