people's development with people's money: the mobilisation-organisation-finance nexus

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People's development withpeople's money: The mobilisation-organisation-finance nexusReidar DalePublished online: 01 Jul 2010.

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Development in Practice, Volume 11, Number 5, November 2001

People’s development with people’smoney: the mobilisation–organisation–finance nexus

Reidar Dale

There is a widely recognised need for innovative institutional arrangements to providefinancial services to poor people, and numerous efforts have been made to that end. Thesehave ranged from modifying the services provided by existing banks to the promotion ofpeople-centred systems. Programmes addressing the latter have tended to emphasise a broaddevelopment approach, with financial services as one of several interrelated activities. Thisarticle discusses the main features of organisation and operation in people-centred systems,explores the meaning of social mobilisation in this context, indicates a range of benefits thatsuch systems may generate, and illustrates their features, activities, and benefits through onecase study.

Introduction

Background

Financial services of various kinds are integral features of any monetary economy and havebeen emphasised accordingly in development policy, programmes, and projects. Such serviceshave primarily been regarded by policy makers and planners as macro-level measures forpromoting economic growth or welfare. In less developed countries, in particular, little or noconsideration had been given to the economic and social disparities that these services mightcreate. Over the last couple of decades, a more nuanced perspective on financial services hasemerged. This has been interrelated with a more widespread recognition that the ‘trickle-down’concept of development is over-simplistic, and with documentation of economic margin-alisation of increasing numbers of people in less developed countries.

Much of this reorientation is now captured in the word ‘microfinance’. This term covers avariety of arrangements for generating and distributing financial resources to those with littleor no access to conventional formal financial institutions. Moreover, in microfinanceprogrammes, financial intermediation is commonly seen as one among several more or lessinterrelated activities aimed at raising the quality of life of people who are economically andsocially deprived.

In most instances, the arrangements include a more active role on the part of those who areintended to benefit, both individually and in organised units. This corresponds to greateremphasis in most development work on people’s own involvement and on enhancing the

606 ISSN 0961-4524 print/ISSN 1364-9213 online 050606-16 © 2001 Oxfam GB

DOI: 10.1080/0961452012008535 9 Carfax Publishing

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People’s development with people’s money

abilities of individuals and their institutions. Related concepts of ‘participation’, ‘mobilisa-tion’, ‘empowerment’, ‘organisation building’, and ‘institution building’ have become centralin the development discourse.

The idea of participatory development through innovative organisational arrangements withfinancial services as a core element has now gained so much ground that we may refer to itas a development paradigm. The paradigm has gained in credibility and recognition with thebetter design of programmes adopting it and through documenting the positive impacts ofmany such programmes.

Within this broad paradigm, there are substantial differences of perspective and approach.Put most simply, we may distinguish between ‘people’s organisation with financial services’and ‘financial services with people’s organisation’. In reality, perspectives and approaches varyover a continuum, ranging from the building of people’s own institutions, giving someattention to financial services (among other activities), through to an overwhelming emphasison finance.

Focus of the article

This article outlines a people-centred approach to development that involves financial services.It reverses the line of argument in most microfinance literature, which has focused on howservices from existing or new financial institutions may be tailored to reach and benefit largerand poorer sections of the population than was previously the case.

Our perspective invites an exploration of a wider set of variables than does the more usualone, in particular:

d performance-promoting structures, culture, management systems, work processes, andexternal linkages of people’s organisations whose main activities include financial servicesto their members;

d a range of other development-promoting changes and additional benefits that may begenerated for the members, their households, and their community than those directly relatedto the use of additional financial resources.

Examples of additional benefits that may materialise relatively quickly might be: financialsavings through changes in the conditions of borrowing, increased mutual help among theorganisation’s members, and greater economic security. Examples of more comprehensivechanges that may promote development, particularly in the longer term, might be: changedperceptions of own abilities and opportunities, creation of new or wider social networks, andincreased ability to manage financial resources and economic ventures.

These differences in the scope of analysis are linked to differences regarding potentialbeneficiaries and benefits:

d which sections of the population, in terms of economic status and resource endowment, arein focus;

d what aspects of human distress are being explicitly addressed.1

With the people-centred approach, general propositions are, first, that poorer people maybenefit rather than simply those who can convert additional financial resources intoremunerative production (this being the main criterion of success in most microfinancethinking); and, second, that a broader range of welfare-depriving factors than low cash incomemay be influenced, and synergies between a wider array of inducements may be generated.

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The above connects to, while extending somewhat beyond, a general distinction made byZeller (1999) between a ‘growth’ argument and a ‘safety net’ argument for microfinanceservices. The latter emphasises risk aversion through greater security for, and smoothening of,income and consumption, which are considered prerequisites for increased human welfare.

Below I shall briefly examine the main components of a people-centred approach todevelopment that involves financial services, and discuss the main underlying concepts of‘social mobilisation’, ‘organisation’, and ‘financial intermediation’ before illustrating theapproach through one case study.

The term ‘microfinance’ is not unproblematic in this regard, as it may draw one’s attentiontoo much to the financial components. However, since it is so widely applied and accepted,even in relatively broad approaches, I shall use it as an identification tag for the types ofprogrammes being addressed.

The scope of services

Providers of financial services

Almost everywhere, there now exist several types of financial organisations and, to varyingextents, other providers of financial services. A distinction is commonly made between‘formal’ and ‘informal’ finance providers, though the term ‘semi-formal’ has come to beapplied to a range of intermediate arrangements (Ledgerwood 1999; Johnson and Rogaly1997; Birgegaard 1994).

Formal institutions are subject not only to general commercial laws and regulations in theirrespective societies but also to specific banking regulations and supervision. Informalproviders supply loans through arrangements to which no such laws apply, which normallymeans that disputes cannot be settled by recourse to the legal system. Semi-formal institutionsare registered entities that are subject to relevant general laws, including commercial laws, butare usually not under specific banking regulation and supervision (Ledgerwood 1999).

The main types of formal institutions are commercial banks, savings banks, publicdevelopment banks, and private development banks (Ledgerwood 1999). Lately, the GrameenBank and similar institutions have become alternative financial service providers in somedeveloping countries, focusing mainly on poor people. These institutions are fully formalisednational or regional bodies which incorporate largely self-governed units at the local level, andwhich combine group-based management with professional banking principles at higher levels.

To the category of informal providers belong individual lenders of different kinds as well asa large variety of traditional rotating savings and credit associations (ROSCAs). Semi-formalinstitutions include certain NGOs (or parts of them), financial cooperatives, and what may bereferred to as group-based people’s organisations that have financial services as part of theirportfolio of activities. These, which are the focus of this article, are membership organisations,usually structured in two or three tiers, with small groups at the base. They generate savingsfrom members into commonly managed funds, from which money is re-lent to the members(and sometimes others), usually for a wide range of purposes.

All these bodies give loans, some also accumulate savings, and a few may provide someform of insurance, though those for whom this is a primary activity have not been mentionedabove. The intended uses of these financial resources vary vastly. While some providers limittheir loans (or insurance) to income-generating activities (and often only certain types ofactivities), others make money available for any purpose. Typical examples of the former aremost public and private development banks; examples of the latter include virtually allinformal arrangements and even semi-formal systems, to varying extents.

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In the present context, core questions are whether or to what extent the services areaccessible to most people and, if so, whether or to what extent beneficiaries have any influenceover them.

The rest of this article builds on the now widespread recognition that, with a few notableexceptions, formal financial institutions have largely failed to incorporate the rural populationamong their clientele. It supports an equally widespread view that more beneficiary-centredsystems have either proved or promised to offer alternatives for poor people.

Services of microfinance institutions

We may distinguish between the following main potential pursuits of microfinance institutionsof the kinds addressed here:

Financial intermediation d Savingsd Production loansd Consumption loansd Insurance

Social mobilisation d Sensitisationd Confidence buildingd Motivationd Cooperative learningd Linkage building

Organisation building d Group/Society formationd Inducement of solidarity ethicsd Organisation management trainingd Accountancy training

Enterprise development services d Business management trainingd Production trainingd Sector analysisd Marketing

In some instances, literacy training may be an additional activity that is of particularimportance for managing the financial services. Some organisations even incorporate socialservices such as primary education, primary healthcare, and training in nutrition. While thesemay be essential for the well-being of the people concerned, and even motivational factors forfinancial services, they are more appropriately referred to as additional components to, ratherthan parts of, a microfinance-centred programme.

The focus and scope are reflected in the commonly used concepts of ‘minimalist’ versus‘integrated’. Institutions following a minimalist approach confine themselves to financial


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intermediation only, while those pursuing a more integrated approach incorporate a broader setof activities.

Substantial documentation now exists to support broadening the scope beyond financialintermediation. Two main arguments for this are, first, a need for complementary activities tothe financial transactions in order to make the financial services themselves effective andsustainable; and, second, a range of additional benefits generated through these interlinkedactivities, largely in terms of empowerment in a wider sense (see, for instance, Gulli 1998, inaddition to works mentioned earlier).

For beneficiary-centred programmes, a minimalist approach is rarely feasible. Prerequisitesfor effective financial operations—such as attitude, knowledge, organisational structure, andmanagement systems—are usually lacking and therefore also need to be promoted.Consequently, social mobilisation and organisation building are central components of astrategy for promoting people-centred systems of microfinance, in order that the financialservices be properly managed. Simultaneously, these activities may generate wider benefits.

Savings and loans, for production and usually also consumption, are core activities in anypeople-centred microfinance programme. Savings are needed to generate the money (or mostof the money) that may be lent. In addition, creating a habit of saving may in itself promotedevelopment.

Whether loans should be provided for consumption purposes has been the subject of majordebate in much microfinance literature. The view is now gaining ground that consumptionloans are essential for enabling participants to manage their household economy with greaterfreedom and flexibility and are, therefore, an important measure for how far these have servedto empower them.

Quick and easy access to loans for any purpose at a reasonable interest rate provides, initself, financial insurance in such people-centred systems. Additional arrangements may alsoinclude building up a separate insurance fund through compulsory contributions or by cuttinga slice of the interest paid on the loans taken. Such arrangements may be best developed byinstitutions that are both mature and operate on a relatively large scale (Zeller 1999).

Whether any additional enterprise development services should be provided may largelydepend on whether or to what extent one seeks to promote enterprises beyond simple self-employment ventures.

While in this kind of microfinance programme the financial services should be self-supporting and subsidy-free, crucial questions are how institution-building measures will befinanced and organised and how lasting they will be. Provided that people’s organisationsgenerate their own resources for the internal financial transactions and manage thesetransactions and other activities themselves, long-term institutional support from outside, foractivities such as management and vocational training, may be justified. Alternatively, oradditionally, support services may be purchased from outside or even developed internally, ifand when the organisations generate resources to pay for them.

Social mobilisation

I share Sylvie Cohen’s (1996) broad definition of social mobilisation as a process of engaginga number of people in joint action for achieving development goals through self-reliant effort.Generally, in our context, the focus is on deprived people in local communities. Socialmobilisation is usually promoted by one or more persons belonging to an external organisation,whether a government agency or, more commonly, a non-governmental body. Commondesignations of the community-based worker are ‘social mobiliser’, ‘community worker’,‘catalyst’, ‘change agent’, and ‘animator’.


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The main aims of social mobilisation are, with varying emphasis:

d promoting people’s awareness about structures and processes that influence their livingsituation negatively, about opportunities that may help to bring about improvements, and,often, about a development programme of which that social mobilisation effort is a part;

d strengthening people’s ability to analyse their problems and possible solutions, throughgroup interaction;

d helping people to gain more decision-making power over processes that influence theirliving situation;

d through the above, seeking to augment people’s self-confidence;d promoting the effective use of people’s own and other un- or under-utilised resources;d establishing links between organisations that may be created or strengthened and outside

institutions, for various kinds of support or dealings.

In most instances, these pursuits are closely linked with building local organisations for mutualsupport and common action, encompassing whole communities or, more commonly, specificgroups. In microfinance programmes, mobilisation and organisation building are intimatelyinterrelated.

Social mobilisers may also provide simple enterprise development services, such as trainingin cultivation techniques or transport of a product to a marketplace to test its sale potential.More often, they help the members to obtain access to training, markets, and other facilitiesthrough linkage building.

Although the main emphasis is usually on promoting people’s own analysis and action,much social mobilisation incorporates elements of advocacy. That is, the mobiliser and theorganisation that s/he represents want to promote some social values or development ideal.Work to help disadvantaged people to improve their lot is usually grounded on an ideal ofgreater social equality, and the advocacy element may become particularly strong when thisinvolves organisation and other measures against what is seen as oppression by other people.This is often the case in microfinance programmes.

Organisational options for people-based microfinance

For some time, many programmes have sought to build group-based people’s organisationsthat have financial services as a core activity—albeit with substantial variations in structuresand procedures, reflecting differences in the social context as well as varying perspectives ofthe promoting organisations and individuals within them.

However, little has been written (or, at least, publicised) on this organisational configuration.An outstanding example is Harper (1998), which contains a systematic analysis of manydiverse cases, with a fair amount of emphasis on organisational dimensions and widerinstitutional issues at the group/society level. Fuglesang and Chandler (1993) contains a goodanalysis of the community-based organisational units of the Grameen Bank, whileLedgerwood (1999) and Johnson and Rogaly (1997), among others, also address certainorganisational questions that are of relevance in the present context.

Below, I shall outline the main organisational and related institutional issues that needparticular attention in people-based organisations with a microfinance focus, illustrate corefeatures of organisation and management through the presentation of a case study, and suggestarrangements I consider to be of wide relevance and applicability.

Figure 1 is a simplified representation of three main organisational options.


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Federation

Cluster Bank Cluster Bank Cluster Bank

Society

Groups

Society

Groups

Externalsupportfacility


Model Three

Society

Groups

Society

Groups

Association

Bank

Model Two


Society

Groups

Society

Groups

Model One

People’s organisation Consultative overlay Membership

ControlSupportFinancial transaction

Reidar Dale

One simplification is that individual members are not shown. In virtually all contemporarymicrofinance programmes, financial services are wholly or largely focused on individuals.Here, this is represented by the double finance link at the Group level, signifying financialtransactions (or possible transactions) with the Group as a whole (into/from the Group fund)as well as individual members of the Group. I have assumed that microfinance organisationsare structured in at least two tiers, here referred to as ‘Group’ and ‘Society’.

Model One represents, then, the simplest structure of such organisations, being one Societywith its constituent Groups. A convention seems to have developed that each Group shouldhave between five members (being the standard size of the Grameen Bank Groups) and notmuch more than ten members. A Society commonly contains between five and ten Groups.


Figure 1: Organisational options for people-based microfinance institutions

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Societies are direct membership bodies. Their (usually) monthly meetings are required to beconducted in a fully transparent manner, with all activities undertaken in the presence of allmembers. ‘Everybody’ should know ‘everything’ about their organisation’s affairs, andinteract freely. These principles are represented by a circular form of internal support andcontrol relations.

Hierarchy building tends to become a major question as the system develops. This may haveits advantages (coordination of services and access to more capital) as well as its disadvantagesand threats (increased social distance, reduced transparency, and differentiation in manysenses).

In Model Two, the advantages of remaining small are combined with certain advantages oflarger networks, through (a) an overarching consultative (not decision-making) mechanism,which may promote innovation and good practices through informal inducements, and (b)links with one or more other financial institutions for additional financial services, normally asavings deposit facility and bigger loans. Whether such links are feasible and howadvantageous they may be will vary, depending on the accessibility to other banks and theirbusiness culture.

Model Three shows a big expansion of the people’s organisation, through hierarchy buildingover a large number of Societies. While adding a third tier is common, adding a fourth maybe rare. The model resembles a scenario that has been contemplated within the programme thatwill be presented as our case study.

Participation at the higher levels can only be indirect, i.e. through representation. Moreover,vertical systems of control are unavoidable. Unless great care is taken, there is an obviousdanger that bureaucratic requirements may constrain the lower-level bodies, in which themembers normally do all the work through voluntary effort.

With Model Three, there will be far greater access to loan capital. An important question ishow large proportions of the membership will demand and make good use of such additionalresources. A related question is how to cope with the unequalising effects among themembership of access to increasingly diversified amounts of financial capital from their ownorganisation. Over time, this may undermine the collective spirit on which any people-basedmicrofinance system must be based and, hence, work against the organisation’s sustainability.

The Social Mobilisation Programme in Hambantota, Sri Lanka

Background and general development

Since the late 1970s, Sri Lanka has pursued a policy of integrated rural development, throughcomprehensive Integrated Rural Development Programmes (IRDPs) covering administrativeDistricts. The programmes have been entirely or mainly funded by bilateral and multilateraldonors. The most long lasting and probably most innovative among them has been the IRDPin Hambantota District, an administrative entity with approximately 500,000 people.

In the early and mid-1980s, several community-based programmes were introduced inHambantota, the management of which was placed largely with registered village-levelorganisations. Gradually, the initiators realised that the poorest participated little in decisionmaking and that most local organisations did not give priority to activities which mightbenefit them.

A need was recognised for a programme with more exclusive focus on poor people, assistingthem to address their problems more directly through their own organisations. This led in 1986to the Social Mobilisation Programme. The first activity was the initial training of a numberof social mobilisers to work at the field level.


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The programme developed quickly in the beginning. For various reasons, it then went intoreverse and became somewhat low-key for some years. In the mid-1990s, the programme wasre-activated and partly reorganised. The number of people’s organisations increased rapidlyand has continued to do so. At present, close to 15 per cent of the households in the Districthave a member in one of these organisations.

The information presented below is from the first round of a long-term study I embarkedupon in 1999 to explore the performance of these people’s organisations and the benefitsgenerated for their members.2 Four rounds of fieldwork had been conducted as of mid-2000,of about two months’ duration altogether. The study is limited to samples of organisations andmembers within 3 of the 11 administrative Divisions of the District. There are about 4,700members in these organisations from as many households. Most of the organisations studiedare of relatively recent origin.

Basic features of organisation and operation

From the inception, the people’s organisations have been small Groups linked into Self-banking Societies. In the sample, the large majority of the Groups have from four to sevenmembers and the number of constituent Groups of a Self-banking Society (SBS) ranges fromfour to nine, making for a total membership of an SBS of 28–57. Recently, a third tier—UnionBanks—has been established at the level of administrative Division.

Membership

A main dimension of membership is which social groups are represented in the organisations,by level of poverty. Initially, the Social Mobilisation Programme aimed to mobilise and buildorganisations of the poorest people, primarily by focusing attention on areas inhabited mainlyby landless and smallholder households. Subsequently, the programme expanded to better-endowed localities and people. The recent promotion of Union Banks, with the main purposeof increasing lending capacity, reflects more attention by the present IRDP authorities topeople with substantial investment opportunities. So far, a similar shift of emphasis does notseem to have occurred to any large extent either among the social mobilisers or in the people’sorganisations. A large proportion of their members have belonged, and still belong, to the verypoorest sectors.

In terms of gender, 93 per cent of the members of the studied SBSs are women. Most of theGroups consist only of women, while in the rest a majority are women. The median age is 35years (with quartile values of 30 and 44), while the mean age is close to 38 years. Thus, mostare in the early or middle stages of both their own family lives and their working lives.

Groups

Virtually all the Groups pursue decision making and related deliberations and activities in agenuinely collective manner. They are, therefore, appropriately referred to as collectives.3 Witha few exceptions, the collective activities do not encompass production that is supported bymoney from their organisation; income-generating activities are pursued overwhelmingly at anindividual level.

The collective nature of work is underlined by the fact that almost all the Groups rotate thevenue of their regular meetings among the members’ houses, that this usually goes togetherwith rotation of money-keeping (taking care of any part of the Group fund which is not out asloans), and that most Groups do not recognise the concept of ‘Group leader’.


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The most important event of any Group is the regular meeting, which is usually held weekly.Sometimes, a meeting may be rescheduled or skipped if only few members can attend,something that seems to happen mainly in the principal cultivation season.

The Group meeting has a pre-specified agenda, including a simple opening ceremony,reading and approval of the minutes of the previous meeting, financial transactions (deposits,loan repayments, and issues of new loans), and discussion of any matter of importance to all,some, or one of the members. Examples of more special activities are internal selling of savedrice (the income from which goes into the Group fund) and Group seethu (or ROSCA).

The Groups are units for organising and undertaking a range of other common activities aswell, the main ones being (in order of prevalence):

d mutual help in cases of need of any kind in any member’s household;d labour exchange among the Group members, particularly in planting, harvesting, other

agricultural activities, house construction, and digging of wells;d shramadana (voluntary community works), on roads, temples, schools, etc.;d common contributions, in the form of labour, food, or gifts, to local ceremonies and other

functions;d buying household commodities in bulk and selling these to members and others, with the

profit deposited in the Group fund;d in a few instances, collective cultivation of some annual crop, on leased land or land

belonging to one member, or collective production of some other item.

Most efforts at collective production have been terminated after relatively short periods eitherbecause individual production is more attractive or because of difficulties in making anysubstantial profit.

The regular financial operations are savings into, and short-term loans from, the Group fund.The fund is wholly or primarily built up through two mechanisms: regular compulsorycontributions (savings) by the members and interest on the loans taken by the members andsometimes others. Internal sale of saved rice and sale of household items that the Group hasbought in bulk at reduced price (see above) may be additional sources of income.

The compulsory contributions are made at the Group meetings. The amount per member isusually 5 or 10 Rs per week, but this may be substantially increased for a short period aftercrop harvesting. The interest rate for loans to the members is 2 per cent per month. If moneyis lent to non-members (being the case for some Groups), the rate is much higher (usually 5or 10 per cent).

Some Groups have varying proportions of their fund deposited with their Self-bankingSociety or in the Union Bank, either for safe-keeping during periods of little demand for loansor as collateral for bigger loans.

Loan funds may be taken for any purpose. Most of them are used to satisfy a range ofconsumption needs, which, besides food and clothing, may include children’s education,illness-related expenses, and small house improvements or repairs.


The Self-banking Societies

The Self-banking Societies (SBSs) should share with the Groups an organisational culture thatis conducive for collective dealings, since these have been advocated during the process ofmobilisation. The main features are:

d good knowledge by all the members about all common affairs;d active participation by everybody in common activities;

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d respect for, and adherence to, formal and informal rules of behaviour;d sensitivity to special problems and needs of individual members;d a willingness to make sacrifices for the common good.

Sharing of knowledge, exchange of opinions, participation in decision making, and adherenceto rules are promoted by the organisations’ form (genuinely collective at the Group level anda two-tiered hierarchy with direct membership at the SBS level) and modes of operation(particularly the regular meetings with fully open dealings).

These cultural features were generally found to prevail in the Societies studied. In mostSociety meetings, the proceedings are highly disciplined, well structured, and participatory;the financial discipline is impressive; with a couple of exceptions, no indications were foundof mistrust of leaders or other members; personal care is given to old members of someGroups, who cannot themselves contribute much to the common good; and strongexpressions of solidarity and cohesiveness were made by members of almost every Group,closely related to a range of benefits which the members felt they get from this solidarity(see later).

The most important activity of any SBS is its monthly meeting. Typically, the participationrate varies over the year, particularly in Societies that have many members who travel out oftheir village for agricultural work. Neither office-bearers nor others seem to consider non-attendance to be a serious problem. The usual argument is that members who do not attendgive notice in advance about their absence with the reason for it and authorise other Groupmembers as required. Moreover, all the Societies have regulations preventing persons withsignificant absence from getting loans.

The monthly meeting follows a regular routine. Progress and status reports of each Groupare presented orally by one of their representatives, various specific matters may then be raisedand discussed, agreements are made about loan issues, and financial transactions areundertaken. The financial services to the members are savings and loans.

The SBS fund is built up through the following means:

d share capital, through an initial compulsory purchase of shares (of normally 200 Rs permember), and, for some Societies, additional purchases agreed on subsequently;

d compulsory monthly savings (of 10 Rs per member);d for some Societies, an additional annual membership fee (of 10 Rs) or an additional monthly

optional contribution (of 2–5 Rs);d for most Societies, voluntary savings, by individuals and/or Groups;d interest on loans taken by the members from the SBS fund;d for most Societies, a one-time grant from the Hambantota IRDP, paid a couple of years back,

based on specified performance criteria;d of highly varying but mostly small significance, a range of other means, such as fines

imposed on members who come late to, or are often absent from, meetings, and proceedsfrom fairs or functions that the Society arranges.

In addition, the amount of money available as loans for the membership at any time dependson any deposits by the SBS in, or loans from, the Union Bank, which has now by and largereplaced earlier dealings with other banks.

Most of the loans are taken for investment and/or working capital in production, within oroutside agriculture. There is also high demand for housing loans, and the SBSs normally allowloans to be taken for specific consumption purposes as well. In reality, even parts of manyloans that are formally taken for production are used for consumption.4


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Recently established additional tiers

Over the last couple of years, a third tier of organisation, the Union Bank, has started tobecome institutionalised, and there is one such Bank per administrative Division.

The main purpose has been to augment the capital available for loans to the members in therespective Divisions. This capital is generated through the sale of shares to the members andthrough voluntary savings by members and others. To varying extents, the Union Banks arealready proving their ability to generate substantial savings and issue relatively big loans,although the number of members who have so far taken loans from them is fairly small. Thesocial mobilisers are now also anchored in the Union Bank and work closely with itsManagers.

The Union Bank has been built primarily from above. It has salaried staff (so far paid by theIRDP) and is presently governed by a combination of external personnel (governmentadministrators) and representatives of the SBSs.

The establishment of the Union Banks is part of a bigger effort to create a comprehensivedistrict-wide superstructure, under the name of the Social Mobilisation Foundation (SMF). Thename itself reflects the nature of this body, being a construct of the IRDP. Simultaneously, theSMF is being advocated as the top level of one district-wide people’s organisation (the lowerlevels of the hierarchy being the Union Banks, the SBSs and the Groups), most directly byhaving a former SBS office-bearer serve as its President.

The SMF is supposed to be governed by a Board of Directors, headed by the President, andguided by an Advisory Committee. In reality, its development has been directed primarily bya visionary and committed IRDP Director.

The overriding mission of the SMF appears to have been some combination of cooperativebusiness development and technical support to lower-level bodies. It has a unit (commonlyreferred to as the Banking Union) for promotion and coordination of the work of the UnionBanks (commonly referred to as divisional Union Branches). In addition, it has a TrainingUnit, an Agriculture and Livestock Development Unit, an Enterprise Development Unit, anda Leasing Unit.

Towards sustainable organisations

There is now a need to clarify and agree on an effective organisational structure for the future,in particular concerning the role and character of the Union Bank and any higher-level units,if retained. Any arrangement must build on the well-rooted system of Groups and SBSs, andthe whole construct must be seen unambiguously and understood, by the members and others,as a people-based institution.

The funds of the SBSs in our study are increasing fast. The demand for loans of manymembers is already being met, given their limited capacity to service such loans. With thepresent rate of increase, most SBSs are envisaged soon to be able to satisfy the entire demandof the large majority of the members. Since the relatively few members who want bigger loansshould be able to get those from existing banks, there may not be much of a capital demandargument for expanding the system. Confining the ‘people’s organisation’ to the SBS and itsconstituent Groups while linking into services of existing banks is, therefore, seen as a viableand relatively low-risk strategy.

Still, there are arguments in favour of the Union Banks. Besides making expanded servicesavailable for the members with less effort on their part, the Union Banks may relieve the SBSsfrom having to manage all the increasing savings and the larger loans that will gradually be


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GROUPS

INDIVIDUALS

PresidentFinance Manager

Secretary

SELF-BANKINGSOCIETY

GROUPS

INDIVIDUALS

PresidentFinance Manager

Secretary

SELF-BANKINGSOCIETY

SOCIAL MOBILISATIONSECTION

S.M. Coordinator

BANKING SERVICESSECTION

Finance Manager

UNION BANK

General Manager

Socialmobilisers

SensitisationMotivation

Organisation

Financialmanagement

BOARD

Presidents of the SBSs

GENERAL ASSEMBLY

THE PEOPLE’S ORGANISATION

ASSOCIATION OF UNION BANKS

(Hambantota District)

TRAINING INSTITUTE

(Hambantota District)

ENTREPRENEURSHIP

DEVELOPMENT

FOUNDATION

?

LEASING

COMPANY

?

Financialtransactions

Reidar Dale

demanded. In addition, these bodies may play the role of coordinating the social mobilisationcomponent within their respective Divisions (in which case the name ‘Union Bank’ would notadequately reflect the entire field of operation).

There may be two particularly important conditions for institutionalising this thirdorganisational tier:

d a clear separation in the Union Bank between the functions of banking and socialmobilisation, since these activities need to be conducted according to widely differentmanagement principles;

d professionalising the banking services in the Union Bank, management-wise and technically(requiring, for instance, computerisation).

Simultaneously, the operations of the Union Banks must be effectively governed by themembership, through provisions such as a member-controlled board, dissemination of


Figure 2: Suggested organisational structure of the Social Mobilisation Programme

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information about, and discussion of, Union Bank affairs at the SBS meetings, and avoidanceof condescending attitudes and behaviour by bank staff.

The enterprises at the District level need to be separated in all senses from the sets ofpeople’s organisations, if continued at all. There may be good arguments for retaining theTraining Unit, established through a substantial investment of donor money. This unit maysatisfy a variety of training needs of organisational units and individuals. For this, it maycontinue to receive financial support from the government or donor agencies. Over time,Union Banks and Societies may also have to pay for its services, and the unit may also generateincome from selling its services to others.

A proposed organisational framework, incorporating the Union Banks as a third tier, ispresented in Figure 2.

Emerging benefits

This article has emphasised aspects of organisation and operation. Limitations of space do notallow us to elaborate on benefits for the members. In any case, since the studied Groups andSocieties are only two to three years old, we can talk only of emerging effects at this stage. Ingeneral terms, the main documented initial benefits are:

d Increased economic security. This is a shorthand expression for the ability to borrow moneywhen needed—quickly, without conditions (from the Group fund, at least), and at areasonable rate of interest.

d Savings through release from money-lenders. The majority of the members’ householdshave now entirely replaced loans from private money-lenders, carrying up to 20 per centinterest a month, with loans from their own organisations, at 2 per cent interest, withsubstantial savings for the households.

d Increased social security. This is a wider notion of security, also embedding mutual help ofmany kinds, through the strong social networks created—these being, in turn, rooted in arecognition of the merits of collective action and a culture of intra-Group solidarity andempathy.

d Increased individual capacities and freedom. This incorporates a range of intangiblequalities of people’s lives, such as freedom from a feeling of inferiority and even disgrace(for instance, when having to approach a money-lender), increased knowledge andunderstanding in a range of fields, and greater self-confidence and self-assertion (within andoutside their organisation).

Conspicuously absent from this list of major benefits is increased income from production.Some such benefits have been documented, accruing from increased agricultural yields(particularly from more or better timed inputs) and realisation of investment ideas in otherfields. Overall, however, direct income benefits have to date been modest.

The following considerations are important in this regard. First, many members have noinclination or ability to start self-employment enterprises, having instead joined theprogramme to enjoy other benefits, of financial and other kinds, that their organisationprovides. Second, production-related benefits are expected to increase in the future, withincreasing financial resources and experience. Third, indirect economic gains may becomesubstantial for many households over the longer term, accruing from augmented individualcapacities of various kinds, from a greater ability to exploit opportunities, and from investmentin children’s education, etc.


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Reidar Dale

Conclusion

A new paradigm of participatory development to alleviate poverty has emerged, a core elementof which is some beneficiary-centred system of financial services for deprived people. Itinvolves the building of people’s own organisations for managing these services, which willnormally be interlinked with social mobilisation and training in organisational and vocationalskills.

So far, the main emphasis has tended to be on financial services. Other components havebeen considered primarily as supplementary measures for promoting the effectiveness andefficiency of those services.

This article has addressed people-centred processes of development, with the accumulationof savings and disbursement of credit by people’s organisations as essential components anda common denominator. For programmes with this perspective, an interlinked analysis isneeded of the value-driven basis of the programme and the organisations that are beingpromoted; inducements from outside versus people’s own initiatives; features of organisationand management; and the scope and operation of the financial services.

People’s organisations are usually built in two or three tiers, and linkages may, wherepossible, be promoted to existing banks for any additional financial services. Further hierarchybuilding within people’s organisations involves the need for professional banking systems atthe higher levels and entails a risk of alienating other members, which would in turn pose athreat to sustainability. The main exception so far has been the Grameen Bank in Bangladesh,whose extraordinary fit between membership control at the lower levels, and perspectives,structures, and operations at the higher levels, has been achieved and is being maintained underunique circumstances of vision, leadership, organisational structure, and societal context.

The benefits of people-centred programmes may be varied indeed. Central among them isa potentially wide array of economic and social benefits that derive from easy access to moneyon reasonable terms at any time. In addition, positive changes may occur in participants’perception of their lives and their living environment and in non-financial relations within thehousehold, their organisation, and the local community. The latter may both directly improvethe quality of life of individuals and enhance the prospect of longer-term development of theirhouseholds and communities.

The main argument for such an integrated people-centred approach ought to be its relevancefor highly deprived population groups. It thus challenges the common argument incontemporary literature that microfinance programmes may not benefit the poorest strata of thepopulation. It is hoped that this article will contribute to a recognition that programmes thatoffer microfinance services can be designed to serve the interests and needs of very poorpeople.

Notes

1 This connects to the now commonly recognised difference between ‘poverty’ and‘deprivation’. For elaboration, see publications by Robert Chambers as well as Dale(2000).

2 I have some previous experience with this programme, as donor representative at the timeof its initiation and as academic adviser of a student who wrote her MSc thesis on it.

3 Dale (2000) proposes a typology of development organisations by their form, in which the‘collective’ constitutes the simplest of altogether five major types.

4 This connects to the much-debated question in microfinance literature of the degree offungibility of financial resources, which directly influences how much control outsiders may


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have over how decision-making units such as households use credit. The trend has been toadvocate loosening or even removing the strict conditions of loan use that havecharacterised most conventional lending.

References

Birgegaard, L. E. (1994) Rural Finance: A Review of Issues and Experiences, Uppsala:Swedish University of Agricultural Sciences.Cohen, Sylvie I. (1996) ‘Mobilising communities for participation and empowerment’, in JanServaes, Thomas L. Jacobson and Shirley A. White (eds.) Participatory Communication forSocial Change, New Delhi: Sage.Dale, Reidar (2000) Organisations and Development: Strategies, Structures and Processes,New Delhi: Sage.Fuglesang, Andreas and Dale Chandler (1993) Participation as Process—Process asGrowth: What We Can Learn from Grameen Bank, Bangladesh, Dhaka: Grameen Trust.Gulli, Hege (1998) Microfinance and Poverty: Questioning the Conventional Wisdom,Washington, DC: Inter-American Development Bank.Harper, Malcolm (1998) Profit for the Poor: Cases in Microfinance, London: ITPublications.Johnson, Susan and Ben Rogaly (1997) Microfinance and Poverty Reduction, Oxford:Oxfam.Ledgerwood, Joanna (1999) Microfinance Handbook: An Institutional and FinancialPerspective, Washington, DC: World Bank.Zeller, Manfred (1999) ‘Towards Enhancing the Role of Microfinance for Safety Nets of thePoor’, Discussion Papers on Development Policy, Bonn: Centre for Development Research.

The author

Reidar Dale is Associate Professor of Rural and Regional Development Planning at the AsianInstitute of Technology. He has extensive experience of rural and regional development workin Asia and Africa, as manager, adviser, evaluator, and researcher. Contact details: RDGR,SERD, Asian Institute of Technology, PO Box 4 Klong Luang, Pathumthani 12120, Thailand.Fax: + 66 2 524 6132; < [email protected] > .


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people's development with people's money: the mobilisation-organisation-finance nexus

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