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?