The current narrative is that the poor are forced by their lack of choices to suffer the irksome costs imposed by microfinanciers in the name of business necessity. Naturally there is much truth here, but also a few questionable presumptions about what the poor really want or don’t.
Take the requirement of regular, frequent (as often as weekly) repayments of principal and interest. A rigid schedule of frequent payments, especially if they must start a week or two after receiving the loan, makes it very difficult to invest the whole loan in a business that requires months to yield revenue.
On the other hand, the discipline imposed by the regular payment schedule is regarded as good for the client as well as the microfinancier. Roodman’s Due Diligence (pp. 30-33) cites this discipline (due to “reminding and binding”) as an important benefit. The research of behavioral economists, like Dean Karlan, shows considerable client demand for externally imposed discipline, particularly in savings plans. Portfolios of the Poor asserts that saving and borrowing are similar in effect when both require regular payments. The poor seem to welcome the discipline imposed. So, we have to be careful about assuming how the poor perceive the common features of microfinance.
Let’s take particular care to examine the widespread assumption that the poor prefer not to join a group.
The group nature of microfinance in its pioneering days and currently for the majority of microfinance clients (thanks to continued predominance of group-based microfinance in South Asia) is assumed by many observers to be an unmitigated transaction cost (read: burden) to the borrower. The group mechanism is seen as serving the interests of cost-efficiency for the microfinance provider, not as a benefit to the client.
Is this assumption really true? We hear “yes” from so many in the microfinance world that it must be true for clients in at least some cases. On the other hand, I cannot ignore the equally emphatic “no” from the Freedom from Hunger partners and affiliates of other organizations like Pro Mujer and Opportunity International, as well as many independent organizations like Fonkoze in Haiti. What is different about these microfinanciers who work with groups of clients? What are distinctive features that mitigate the transaction costs of time and travel for group meetings and the joint liability within the group?
Unlike the topic of moneylenders, this is an area of deep expertise at Freedom from Hunger. We know many providers who believe their clients value rather than resent coming together in groups. These providers have some features in common. They focus on women, but that is not in itself distinctive. What seems distinctive is they engage the groups in more than financial services; they train the women in the groups. Not just induction training to help the groups function and understand their obligations to the microfinancier. They engage the women in a broader learning agenda–regarding business, financial literacy, health and nutrition, and other topics. The agenda varies from one provider to another, but common to all is training of the staff who serve the groups to be non-formal adult educators.
What is the supporting evidence that women value the group membership for more than just access to financial services or even access to education? Do they value the group and the meetings–the group dynamics—for their own sake? In their valuation of the group, how important are the attitude and performance of the financial service agent who works with the group?
You might think Freedom from Hunger (the self-described “expert”) would have copious data to draw from to seek answers. We’ll see in the next post. Meanwhile, what have you got to share?