What Does the Evidence Mean for Freedom from Hunger?

Over the past month, I have been asking whether the poor can build social capital and their own self-confidence and broader sense of empowerment because of their use of microfinance services. Lynne Davidson Jarrell has provided us her summary of the main points of the seven posts.

What does all this mean for Freedom from Hunger?

For 25 years, Freedom from Hunger has designed, tested and taught independent partner organizations worldwide (mostly in West Africa, the Andes, Mexico, India and the Philippines) a couple of forms of microfinance that deliver credit and savings services to and through groups of 10–30 women living in very poor, rural areas.

Some of these groups are trained and offered credit and savings opportunities by microfinance institutions of various types (MFIs, rural banks, NGOs and credit unions)—what we most often call Credit with Education. Others are trained by NGOs to become independent savings groups that provide credit from their own savings only—Saving for Change (developed jointly with Oxfam America and the Strømme Foundation of Norway).

Clearly, Freedom from Hunger has gone out on a strategic limb with this major bet on the value of groups. Over the last decade or more, this strategic position has been threatened by an oft-repeated assertion within microfinance circles that groups are solely a burden imposed on the poor so that serving them can be financially sustainable by microfinance providers (see post # 12). In a 2009 article I wrote for Enterprise Development and Microfinance, I may have seemed to concede this point in a summary of our experience in supporting village banking offered by credit unions and rural banks: “The advantage of village banking (as an efficient form of group-based microfinance) may be simply that it keeps costs low enough to facilitate delivery of credit and other services to rural areas that are too costly for other methodologies to reach.”

However, this “advantage” is for the microfinance provider; I did not address the question of value for the group members as I have been doing in this Theme Five.

The evidence offered against the value of groups has two biases. First, most research on the value of microfinance groups has focused on South Asia, particularly Bangladesh, where social capital beyond the household is relatively low to begin with and so groups don’t function well without relatively high investment and pressure by microfinance providers. Second, the interpretation of the South Asian evidence seems to reflect personal, Western, urban, individualist distaste for the mutual dependence and obligation required to make microfinance groups operate successfully: “I know I wouldn’t want to have to attend these meetings and be responsible for repayment of the loans of others.” Certainly, there is a basic human impulse to avoid such obligations, if possible. The combined effect of these two biases is that the value of microfinance groups is underestimated across the board, but without real substantiating evidence.

In this Theme Five, I set out to explore the evidence without knowing where it would lead. I was surprised that it paints such a positive picture of value derived from microfinance groups (though Lynne offers an appropriately cautious assessment of just how strong is the evidence). Group membership may be a necessary cost of access to financial services, especially in rural areas, but the evidence indicates this cost is offset by positive effects on social capital and personal empowerment—with certain pre-conditions:

  • The women formed into microfinance groups, whether by microfinance providers or NGO service organizations, have to bring a modicum of social capital with them—pre-existing relationships that provide the foundation for group solidarity.
  • The products/services that the women access through group membership have to satisfy their needs and desires to a sufficient extent that they feel group membership offers some financial benefit, even if only a safe place to save or a loan in an emergency.
  • The field agents representing the external organization sponsoring the groups have to be willing and able to foster and support positive group dynamics—helping the members to work together for successful group management and problem resolution and creating an enjoyable experience at group meetings.

These pre-conditions mean that Freedom from Hunger, its implementing partner practitioners, and all organizations with similar goals and strategies must assess the level of social capital that already exists in the populations to be served. The less the pre-existing social capital, the more training and supervision by field agents that will be required to help the groups succeed. Moreover, the products and services must be designed and implemented specifically for meeting the needs and desires of the local populations served, which requires a client-centered design and quality-assurance system. And the field agents have to be trained to train the groups adequately and facilitate positive group dynamics as well as financial service delivery—field agents will have these training and facilitation skills only if they are recruited, trained, supervised and incentivized to have and use these capabilities.

It is no coincidence that Freedom from Hunger, with its strategic commitment to group microfinance, has developed unusual strength in the preparation and support of field agents and in client-centered product/service design. This strategic commitment to both groups and operational capacity-building seems to be vindicated by the evidence of how social capital- building and personal empowerment can be the result of group membership.

Now I can expand Freedom from Hunger’s Theory of Change diagram to include what we’ve learned in Theme Five. I refer you to post # 18 for details of how to read this diagram [next page].

Notice the evidence of impact on social capital (in all four dimensions) and self-confidence (the primary manifestation of personal empowerment) is strong, but not as strong as it is for Theme Four (asset accumulation and consumption-smoothing). While some of the evidence is derived from randomized controlled trials, the concepts of social capital and empowerment are complex and hard to define, and therefore hard to measure reliably. The research results are correspondingly “messy” or confusing, as Lynne indicates in her summary post. So the oval is dark green (= good but not great, much less “greatest,” evidence).


Likelihood of impact on social capital and empowerment of the average member household seems high, but not as high as for asset accumulation and consumption-smoothing. Some level of these latter impacts is likely to be found almost regardless of the type and quality of the microfinance services delivered—microfinance is quite robust in having these effects. In contrast, impacts on social capital and empowerment seem quite contingent on the three pre-conditions being met together. Microfinance providers have to work intentionally and diligently to achieve social capital and empowerment impact objectives. My rule of thumb is that the harder and more skillfully practitioners have to work to achieve their objectives, the more uneven or uncertain will be the performance of different providers. Weak performance may not produce much, if any, impact on social capital or empowerment.

Thus, and seeing no reason to expect that either Credit with Education or Saving for Change groups will outperform the other, I have made the arrows from both credit groups and savings groups the fourth level (strong but not the “strongest”) of width on the five-point spectrum (= medium likelihood of impact).

As always, these broad-brush conclusions are subject to revision as new, good-quality evidence is reported.

Onward to Theme Six: Better Health and Nutrition Practices & Greater Use of Vital Health Products and Services?


  • Bobbi Gray

    Chris, I appreciate both of these posts that you and Lynne have put together. I think you’ve made an interesting post about the need for some social capital to already be there in order
    for groups to work well. One of the questions I’m left with in this post is the often criticized “break down” of social capital when there are repayment problems. In the impact story research with clients and the credit officer inteviews in our Voices from the Frontlines research, we also found that the following matters when we think about social capital, in particular:

    1. Growth policies and pressures to build groups often work against social capital. So for example, some policies require groups to be of a certain size, which forces group members to invite people into their group simply so that they can receive a group loan. There may not actually be pre-existing strong social capital and I’ve seen group members often lament that they’ve had to leave a group, or that they’ve had repayment problems because they don’t really trust or know the people in their group. So, I think something has to be referenced about smartly-crafted policies about group formation and size in addition to social
    capital needing to be there and the willingness of credit officers to help support the development social capital. Because the group formation policies might be counterproductive in building social capital and actually cause social capital to break down in the long run (and then the group pressure that we rely on for repayment actually falls to the credit officer to recuperate and becomes a greater burden and more costly for the MFI versus the goal of saving on costs of serving a group versus an individual).

    2. Credit officers in the Voices from the Frontlines research seemed to feel that they really needed more support in group formation and group management, which to me suggests that microfinance organizations that focus on village banking are are not going far enough to help credit officers navigate this complex relationship with group members. Credit officers also mentioned that their ability offer education or other nonfinancial services, such as health services, helped them build this social capital: while they might have to adhere to strict financial policies, they could have a “softer” relationship with their clients. This suggests that credit officers need more than a prescription on forming groups, but they need tools that help them develop these relationships outside of the financial service being provided.

    It struck me during the Voices from the Frontlines research that while we at Freedom from Hunger often look at the delivery of education from the value it provides to clients (both because it builds new knowledge and better behaviors, but also build social capital of group members as they engage in problem-solving together), we rarely looked at it as an actual tool that credit officers use to build their relationship or social capital with group members.

    -Bobbi Gray
    Freedom from Hunger

  • http://www.facebook.com/laura.f.proano Laura Fleischer Proaño

    Thanks, Chris. It’s great to see the evolving theory of change.

    While I tend to agree that either MFI groups or Savings Groups are able to produce similar results in this area, I think that NGO staff may more easily and more often meet the pre-conditions you outlined, particularly number three about supporting positive group dynamics. Supporting groups to manage their activities autonomously, transparently and democratically is most often the primary purpose of NGO field staff. On the other hand, MFI field staff have to support groups in addition to selling products that will ensure the financial sustainability of their organization. They must carefully balance the needs of their employer and the groups with whom they work which can be tricky. While the mission and culture of any organization will influence their ability to meet the pre-conditions you outlined, its seems that NGOs (that do not face the double bottom line that MFIs do) will more easily and more often meet the preconditions and therefore more often result in increased social capital and empowerment.

    Laura Fleischer Proano
    Director, Savings Group Methodologies
    Freedom from Hunger

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