The last three posts explored how some costs of microfinance participation could turn out to be benefits to the poor. Specifically, discipline and groups may be structured to become features the poor actually welcome.
Earlier this month of May, there were two online discussions that offer further support for this notion.
Regarding discipline, MicroLinks’ After Hours Seminar #61, “Matching Products with Preferences: Innovations in Commitment Savings for the Poor” featured recent research on “commitment savings” both formal through banks and informal through ROSCAs and the equivalent of “piggy banks” with locks on them. The saver is disciplined to save and leave the savings to accumulate for a specific purpose or perhaps just to accumulate out of daily reach of self and family. Here is an excerpt of a blog post (by Aishwarya Ratan, Bobbi Gray (one of my research colleagues at Freedom from Hunger) and Alex Kobishyn) that summarizes the online presentations and discussion.
The innovations at the heart of the studies were fairly simple – a savings lockbox where users do or do not have the key, a passbook account label, such as “daughter’s wedding” or “school fees,” or a withdrawal-restricted account until a pre-specified date or an amount was reached. These features are examples of commitment devices, or ways to help overcome competition from short-term demands on an individual’s long-term preferences (e.g. retirement savings). Competing demands could come in the form of expectant social networks or even an individual’s own impatience and lack of self-control.
[The research presented] revealed a positive, but complex impact story behind commitment savings products. In the case of the Malawi study, which focused on tobacco farmers, a commitment savings account along with an ordinary savings account led not just to higher savings balances but also to increased investment in agricultural production and higher profits for farmers. In the case of the Kenya study on healthcare savings, a “less rigid” commitment device, in the form of a safe box where the key resides with the ROSCA, achieves better impact in terms of savings accumulated to fund health expenses compared to a “more rigid” lock box, where the key was inaccessible to the group. This study highlighted a variety of commitment devices including the use of one’s peer group as a commitment-inducing and enforcing support structure.
There is even good evidence that the poor are quite willing to pay for the privilege of disciplining themselves, so strong are the pressures of temptation and social obligation.
The challenge now is to identify in which context, for whom, when, and what type of commitment savings and/or payment product might work best.
Regarding the value of groups, the Microcredit Summit Campaign hosted a three-day virtual conference called “Extending the Conversation on Reaching the Poorest: Another look at the 2011 Global Microcredit Summit.” Another of my research colleagues at Freedom from Hunger, Megan Gash, and Bill Maddocks have posted a summary review of the discussion, which I excerpt here.
The 10 pilots in the CGAP-Ford Foundation Graduation Program use social capital as a key element in the process of building a foundation of self-confidence and social bonds needed to move women from extreme poverty to small wins and beginning to enjoy meager levels of financial security. They are learning how powerful a force social interdependence can be in this restoration process. As Janet Heisey of Trickle Up commented during the Virtual Conference on May 4th (Session 3: Beyond the Product: Creating Social Capital to Make the Most of Microfinance), “…we are seeing that after 12-16 months, in many cases, the dynamic in the group really shifts, and group members take ownership, troubleshoot household and community issues on their own, operate independently of the partner agency, and advocate with local government institutions.” While social capital may be viewed as a by-product of the graduation process, its presence is an accurate indicator of the level of transformation and determination to which members individually and collectively are willing to commit.
Savings groups is another methodology that uses social capital as a key element to build strength in its success. As self-selecting groups of 20-25 women come together to save, loan, and manage their money together, they build strong bonds of trust and mutual support. They democratically elect a management committee, which they can change over time, and make decisions together. They often feel group decision-making is a fair and peaceful process which creates an environment where they can trust and rely on one another. They learn from each other by exchanging ideas, such as sharing tips for improving businesses. In times of need, they feel that they can go to their group for both financial support (through emergency loans) and emotional support. They feel it is a place where they can go and talk about their problems openly; they can relax, have fun and enjoy themselves. It is a place of their own.
The poor seem willing to pay the price of forming and cooperating in a group when the group adds value to their lives, just as they seem willing to suffer the discipline of restricting access to their own money when it is protected for a time from family and self.
We have to check our assumptions about costs and benefits of microfinance against the clients’ point of view.
I promised a summary of Theme Two “A Better Deal from Microfinance Providers?” Look for that next week.