> Posted by Beth Rhyne
[Pt. I of a two-part series. Pt. II, by Steven Werlin of Fonkoze, will appear tomorrow.]
Fifteen practitioners and experts gathered in Valladolid, Spain on Sunday, before the Microcredit Summit, to consider this question, and I sat in. Group methodologies are coming under criticism by those who think they lead to over-indebtedness and provide rigid, inflexible products. The practitioners in the room, from Haiti, Bolivia, South Africa, Tanzania, Uganda, Georgia and India, convinced me that there is a lot more going on in group microfinance than those stereotypes suggest.
Some providers see groups as delivery mechanisms for a range of financial services. ESAF in India, for example, offers or facilitates microloans, housing loans, savings, insurance and pension products. Other providers, like ProMujer, take an even broader view. They see groups as a channel for addressing the multiple access gaps that define poverty and as providing an experience of empowerment.
“You have to get the finance right,” said Lauren Hendricks of CARE, explaining that financial services anchor groups that can then expand to additional services. However, Lisa Kuhn of Freedom from Hunger said, “If groups are only about financial services, they will go away.”
“It all comes back to what you are trying to achieve,” offered Anne Hastings of Fonkoze. Some organizations set financial service delivery as their purpose, while others aim for client transformation, and organizations with different purposes will use groups in different ways. “If delivery of financial service is all they’re in it for, then offer technology.” Technology, presumably, could solve transaction cost problems that were the part of the original reason for group loans.
This led to a discussion of the uneasy relationship between group microfinance and technology. Clients still spend many tedious hours in group meetings counting money and recording repayments. But it is possible to integrate technology into the group methodology. Felistas Cotinho of Tujijenge describe how SMEP, a Kenyan MFI, asks clients to make repayments via mobile phone (M-PESA) before the group meets, freeing up meeting time to focus on those with repayment problems and to carry out other meaningful work. As Veronica Namagembe of Pride Uganda noted, a relationship requires giving as well as taking, and group meetings otherwise focused on repayments need a positive, motivating focus. Carmen Velasco of ProMujer described the value her clients see in supporting each other and talked about bringing third-party service providers to group meetings.
The meeting attendees agreed that group methodologies are now a focal point for client-friendly innovation. The team that organized the meeting, led by Anton Simanowitz and Lisa Kuhn and sponsored by Asad Mahmood of Deutsche Bank, will have much more to say about groups.
Tomorrow, guest blogger Steven Werlin of Fonkoze will pick up from Anne Hastings, explaining what Fonkoze is trying to achieve through groups.
Image credit: Tango Desktop Project
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November 17, 2011 at 2:56 pm
Jon Blackwell
I believe the group model is one that is necessary within the context of microfinance. We at InVenture provide growth capital to micro businesses while implementing a flexible revenue sharing repayment system. Through trial and error, we found that while the loan is specifically for one business, our clients enjoyed meeting others in a group setting on a weekly basis. The sense of community and collaboration was very important.
We also have a SMS platform that we use for clients to report daily revenue and expenses. This type of mobile accounting tool provides our clients with weekly reports of how their business is performing and has become a central part of the weekly meetings.
November 18, 2011 at 12:38 am
davewallack
Was there any talk in the meeting about in-group dynamics and how to manage them more effectively?
It is the pressure from group members on each other that seems to be the real challenge.
There is much work by people like ray zimbardo at Stanford (Stanford prison experiment) and by people at NTL about in-group dynamics.
I was hopeful this group will put some attention on what happens inside the group.
November 18, 2011 at 5:19 pm
Larry Reed
Tanks, Beth, for highlighting this session at the Summit.
Figuring out how to best combine technology with groups takes patience and experimentation. Opportunity Kenya tried to switch to payments by MPESA accounts on the phone, but found that repayments went down dramatically. There was something about bring cash to the meeting and having other group members see you put your money in that created more discipline that sending text messages to each other. So they switched back to cash payments in the meetings, and then the group treasurer can send the payment end by phone.
I agree with many of the presenters at the session that the survival of the groups long term depends on whether clients get value from the groups. As long as all the value goes to the MFI (in the from of reduced costs), clients will find individual loans preferable to group loans. But if clients find value in the meetings, in the from of training and individual empowerment, then they often stay in the groups even when they have individual borrowing options available to them.
November 21, 2011 at 12:27 pm
Ben
One of the pitfalls of using mobile technology in the microfinance setting is that distance from the lender is inversely related to the probability for default. There are multiple studies to corroborate this finding, but when I did my own analysis on a particular micro-lenders portfolio, the regressions confirmed the results seen before.
Using mobile technology, while seemingly convenient and progressive, should increase the “distance”, whether actual or perceived, and will likely increase default rates as Mr. Reed points out above. The question from here is where technology should be implemented, and how should group time be used most effectively.
December 3, 2011 at 6:14 am
Getaneh Gobezie
Thank you again,
At the Spain Microcredit Summit, this issue has also been discussed at the ‘Associated Session’ (Effectiveness of Group Lending….) facilitated by Anton Simanowitz…..
I think the key problem is that programmes are simply copied from elsewhere and applied on the ground with out due customization to local circumstances. ….. Poor people are then simply rushed into forming groups, of say 5-7, if they want to access loans. …. with no adequate awareness or trainings and preparation on the group dynamics, on the assumption that people in same village know, trust (and therefore can easily monitor) each other. ….. To share Rutherford’s words ‘trust’ is NOT something that can be imported from pre-existing relationships (such as ‘the people in this group trust each other as they are all from the same village’). But ….. trust is more of a VERB than a NOUN. Trust is constructed out of the repeated keeping of reciprocal promises. So to construct trust and then keep it going, both partners (say a bank and its clients) have to repeatedly keep promises – promises to pay, to be on time, to conduct things fairly, and so on….. Although people may live in same village, the vast majority of participants are unfamiliar with ‘financial issues’ when they first join the programme. Anna Marr earlier (2002??) reported from her Peru work that only 4% of all participants in groups have prior relationships based on issues of borrowing and lending, i.e., they were members of common Rotating Saving and Credit Associations. … When these group members are then confronted with an alien way of relating to one another – in this particular case, monitoring colleagues’ loans, investments, returns, risks, and so on — they tend to react very strongly and may turn out to acts of intimidation, threats and even physical abuse in order to repress information about their financial affairs…. This is what is actually happening in many circumstances!! ….
But unfortunately, while service providers are increasingly being questioned as to ‘how much’ they are charging borrowers (e.g cases of Compartamos /Mexico/, SKS /India, etc), they are often not asked how much of the generated income goes back and re-invested to support clients (e.g on financial education, linking to business, etc) compared to what has gone to shareholders pocket.
On the other hand even when the MFI does not have any thing to traing clients at group meetings, the mere fact that clients come into group meetings provides a great opportunity for many (particularly the poorest) to learn (not just about finance, but many more issues) from other group members, and thus they have the real incentive to join groups and retain it. …. Under such circumstances, the key for maintaining the group strength can be how to retain those members from whom others can learn….
I hope this helps
Kind Regards,
Getaneh Gobezie
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