hendricks & associates microfinance & culture a square peg in a round hole?

Hendricks & Associates

MICROFINANCE & CULTURE

A Square Peg in a Round Hole?



Presentation based on:

• A case study in rural Ghana in 1999

• Example from China in 2000


TABLE OF CONTENTS

Microfinance

Culture

Study Results

Application


MICROFINANCE SITUATION

MFIs Bring– Strong management– ‘Northern’ banking systems– Initial capital– Rapid start-up– Rapid expansion– Low transaction costs


MICROFINANCE SITUATION

MFIs Need– Community base– Local ownership– Local governance– To move into rural areas– Deal with more traditional rural culture vs.

cosmopolitan urban culture


CULTURE

• The way people solve problems and reconcile dilemmas

• Provides social context to people and gives meaning to their environment


CULTURE

Outer Layer

Middle Layer

Core

Explicit Artifacts & Products

Norms & Values

Implicit Basic Assumptions


CULTURE

Semi-Awareness Level

• NormsSocieties’ agreed sense of what is ‘right’ and ‘wrong’ (How one should behave)

• ValuesRelated to shared ideals and determine what is ‘good and bad’ (How one wants to behave)


CULTURE

• Assumptions– Obvious ways of solving daily life problems so

that the solutions disappear from our consciousness.

– If you question assumptions, you are asking questions that have never been asked before.


GHANA RESULTS

Risk Management

Sustainability

New Product Development

Impact


RISK MANAGEMENT

• ‘Knowing’– No contract law– ‘Knowing’

• Guarantees that the person will do what they say• Puts guarantor’s credibility at risk• Role of the guarantor is to get person to fulfil

obligation• Highly valued and easily lost• Will go to extraordinary lengths to retain


RISK MANAGEMENT

Up to $150

Solidarity Group


RISK MANAGEMENT

• Solidarity Group– Size varies, if self-determined it outlines the

optimum size of local social networks– Guarantee other member’s loans

• Most problems occur when – Group has a poor chair, or – Longer-term members are borrowing more than

newer members of the group


RISK MANAGEMENT

$150 - $400

Guarantors


RISK MANAGEMENT

• Member having a guarantor known to the group Chair.

• People were very clear about the limits of their ability to trust others with larger amounts of money.

• People had defined limits about the amount of risk that they were prepared to assume on behalf of someone else no matter how well they knew them


RISK MANAGEMENT

$400 +

Collateral

Collateral

Collateral Collateral

Collateral

Collateral

Guarantors


RISK MANAGEMENT

• Businesses are larger but the entrepreneur usually only has part time employees, often family members as apprentices

• Level of risk is outlined to include collateral based on level of trust and volatility of business


RISK MANAGEMENT

Up to $150

$150 to $400

$400 and Up


SUSTAINABILITY

Understanding the Clients Market

• Grace Period– Don’t sell the same amount each week

• Length of the loan– Market varies according to season– Prepared to pay interest for assured capital –

uncertainty of next loan.


SUSTAINABILITY

• Items not on family asset/liability sheet

– Expected to house and feed relatives children

– Expected to be asked to give relatives gifts (why family shouldn’t be in the same group)

– Expected to give gifts at funerals


NEW PRODUCT DEVELOPMENT

• Fixed Price Interest Inclusive Loan– Banks’ variable interest create distrust– Contractor uses bank loan to on-lend her

product to farmers– Majority of farmers are illiterate– Contractor needs farmers’ trust and to be

‘known’ as trustworthy– Similar to Islamic lending models


IMPACT

• Education of children– Inadequate pension plans, must depend on

children with good jobs to support in old age

• Housing– Co-wives competition– Divorce– Inheritance


REVIEW OF LITERATURE

• Benchmark of what had changed and how much– Tribal and religious differences– Made sense of historical roots of current practices

• Provided insight into norms, values and assumptions

• Was the basis for discussion about things people are semi-aware of


CHINA

USING

PARICIPATORY RAPID APPRAISAL (PRA)


CHINA RESULTS

• PRA successfully used to design 3 loan products each with a different value and term

– Crops $125 - $250 6 Mo.s

– Animal Husbandry up to $375 1 Year

– Small Enterprise $500 - $750 6 Mo.s


CHINA RESULTS

• PRA was also used to define– Installment period for each loan type –15 Days– Interest rate range that was acceptable - Market– Savings to qualify - No– Who should not qualify for loans – Very Poor

and Very rich


LESSONS LEARNED

Processes and procedures need a cultural reference. Provision must be made to capitalize on local practices. Organizations need cultural awareness and the ability to

harmonize with the local culture. Projects require a strategy to bridge the gap between

culture of organization and beneficiary. To build the bridge, organizations must reconcile operating

differences. Harmonization and reconciliation require an exchange of

information.


APPLICATION

Some thoughts


SECTOR APPLICABILITY

• Basic Human Needs

• Good Governance

• Democratic Development

• Human Rights

• Women in Development

• Private Sector

• Capacity Building

• Human Resources


WHO CAN DO THE STUDY?

• Specialized local NGOs

• University students in Anthropology or Sociology – with sector expertise

• Specialized consultants


HOW SHOULD DATA BE TRACKED?

• The CONTEXT in which cultural, social, political, economic and environmental lessons were learned and best practices developed must be captured.

• Only then can meaningful progress be made

• For example, a method that worked in rural Africa is unlikely to be replicable in China.


Microfinance/Microenterprise Management Solution

Market Based Indicators

•Culture

•Social

•Political

•Economic

•Environmental

MF/ME Performance Indicators

•Poverty Reduction

•Enabling Environment

•Sustainability

•Gender Impact

Assess context of Potential Project or Program

Project Design

Project Implementation

Results

Lessons Learned / Best Practices Copyright 2000, All Rights Reserved

Hendricks & Associates and Model Technologies



A Square Peg in a Round Hole?

hendricks & associates microfinance & culture a square peg in a round hole?

Documents

hendricks associates

rich slide

environment slide

solidarity group slide

semiaware of slide

volatility of business

risk role

apprentices level of