the contextualization of a microfinance model: from india to south africa

Microfinance has come to be seen as the “magic bullet” to alleviate poverty across the world. Focus

has been on scaling up “successful” models within, and beyond, singular cultural settings. We

explore why different stakeholder groups perceived the same microfinance model as successful

in India, yet less successful in South Africa. The study is an explorative case study, combining the

literature on social capital and contextualization, and suggests that historical, socioeconomic, and

legislative antecedents to social capital in India are different in South Africa, thus resulting in a lower

perception of microfinance success in South Africa. © 2012 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com)© 2012 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21444

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In t roduct ion

A s witnessed by the growing public and institu-tional attention, as well as growth of invested or donated, private and public funds, microfinance

(MF)1 has come to be considered the “magic bullet” for poverty alleviation (Bateman, 2010; Consultative Group to Assist the Poor [CGAP], 2008; Stephens, 2009; World Bank, 2000). The “Microfinance Promise” (Morduch, 1999) builds on hopes that social and economic struc-tures can be transformed by providing financial services to the poor. Cornerstones involve “bottom-up” aspects,

including attention to community, focus on women, and helping the underserved. Subsidies are replaced by institutional and client “win-win” propositions through incentives to work, nongovernmental leadership, entre-preneurship in microenterprises, and the application of neoliberal market ideologies (Bateman, 2010; Romani & Lerpold, 2010). The development and existence of social capital is deemed critical to the success of microfi-nance for poverty-alleviation programs (Leigh Anderson & Locker, 2002; Pretty & Ward, 2001; Woolcock, 2001). From an institutional perspective, social capital makes microcredit lending feasible by functioning as an indi-

By

Lin Lerpold

117

The Contextualization of a Microfinance Model:From India to South Africa

Correspondence to: Dr. Lin Lerpold, Stockholm School of economics, Department of Marketing and Strategy, Sustainability research Group, Holländargatan 32, Box 6501, Se-11383 Stockholm, Sweden, +46 8 736 9736 (phone), [email protected].

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thunderbird International Business review Vol. 54, No. 1 January/february 2012 DOI: 10.1002/tie

models are transferred across countries, they may present a cognitive dissonance with the historical, legislative, and sociocultural environment of the recipient country. In this article, we do not focus on measuring actual impact and performance of MF models; instead, we use stake-holder-group perceptions of MF model success as a point of departure to explore social capital and model replica-tion. Thus, we combine the social capital literature in development studies (e.g., Putnam, 1993; Rankin, 2002) with international business theories on knowledge trans-fer and recontextualization (e.g., Brannen, 2004; Kostova & Roth, 2002), and explore the transfer of “microfinance for poverty alleviation” as a form of knowledge, embodied in cultural and ideological values (Romani & Lerpold, 2010). We use the case of Hand in Hand to illustrate differences in localized social capital and the perception of success among stakeholders in MF programs in India and South Africa. The article proceeds with an overview of the literature on social capital, knowledge, and recon-textualization. We continue with a brief overview of our case organization Hand in Hand, a discussion of meth-odology, and an exploration of sociocultural, historical, and regulatory contextualization of why the model might be perceived as successful in India, yet less successful in South Africa. Finally we suggest our contribution and implications for further research.

Socia l capi ta l

Social capital is based on the premise that an interper-sonal network provides value to its members through access to the social resources available within the network (Bourdieu, 1986; Coleman, 1988). Most commonly de-fined in the development literature, social capital refers to “local forms of association that express trust and norms of reciprocity” (Rankin, 2002, p. 1) “that can improve the efficiency of society by facilitating coordinated actions” (Putnam, 1993, p. 167). When individuals engage in networks, they develop a framework for common values and beliefs, which in turn generate trust and norms of reciprocity connected to collective action (Putnam, 1993; Rankin, 2002). The main idea is that individual and group relationships constitute an important asset, one that can be called on in a crisis, enjoyed for its own sake, or leveraged for material gain (Woolcock & Narayan, 2000). The concept of social capital holds a number of assumptions. First, it focuses on sources rather than con-sequences of social capital (Portes, 1998), while recogniz-ing trust and reciprocity as developed in an iterative pro-cess (Staber, 2006). Indeed, the local structure of social relations, as well as the processes by which relationships

vidual collateral substitute where peers, also referred to as “social collateral,” are accepted in lieu of the material collateral normally required in traditional banking (Mor-duch, 1999; Reinke, 1998).

The present MF orthodoxy focuses more on institu-tional financial sustainability than on fostering collective action (Kono & Takahashi, 2010; Rankin, 2002). Since the three largest donors and three largest investors together account for 50 percent of global MF funding2 (CGAP, 2008), institutions’ focus has been on scale economies, technology, and access to more profitable markets. Thus, institutional emphasis has been market seeking, scaling up “successful” microfinance models within, and beyond, developed and developing nations (Bateman, 2010). Microfinance institutions (MFIs) and nongovernmental organizations (NGOs) have increasingly become global in the development field3—for instance, the Grameen model, first developed in Bangladesh, has been trans-ferred to 24 countries, including countries in North and South America and Sub-Saharan Africa. In this way, MF models developed in distinct cultural settings are being transferred to other cultural contexts. Underlying the MF model transfer is the assumption that what works in, for example, Bangladesh or India, will also “work” in the United States or in South Africa. From international busi-ness theories, we know that a well-developed model or successful practice in one country may, or may not, “fit” in another cultural context (Kostova & Roth, 2002). A “model replication” (Winter & Szulanski, 2001) or “copy exactly” strategy, as in the paradox of Disney’s success in Japan but initial failure in France, illustrates how model replication may fail (Brannen, 2004). In the MF context, the international business literature can potentially indi-cate replication issues in the development field. It can, for instance, explain accounts of problems in replicat-ing the Grameen model between villages in Bangladesh (Woolcock, 1999), or why Asian-American immigrants have been more successful in microentrepreneurship than their African-American counterparts in the United States (Woolcock, 2001).

In this article, we are interested in how MF models are received and recontextualized within a context-sensi-tive frame (Rousseau & Fried, 2001; Whetton, 2009). Our focus is on social capital as it relates to the historical, leg-islative, and sociocultural context in which the MF model is enacted (Kostova & Roth, 2002). Drawing on Kostova (1999), we posit: (1) social capital differs culturally across countries and the differences have an effect when infus-ing meaning and values to MF models; (2) microfinance models reflect the antecedents to social capital where they were conceived and developed; and (3) when MF

the Contextualization of a Microfinance Model: from India to South africa 119

DOI: 10.1002/tie thunderbird International Business review Vol. 54, No. 1 January/february 2012

Within the development field, social capital is widely regarded by scholars and practitioners as an impor-tant instrument for economic growth maximization and poverty reduction.

trepreneurship (Romani & Lerpold, 2010; Sanyal, 2009), MF success as a tool for poverty alleviation is predicated on the existence or development of social capital (Leigh Anderson & Locker, 2002; Pretty & Ward, 2001; Rankin, 2002; Woolcock, 2001). As social capital is important for MF success (Gomez & Santor, 2001; Woodworth, 2008), reciprocally, MF can also promote social capital develop-ment, normative influence, and collective empowerment. For instance, Mosley et al. (2004) found that MF borrow-ers built social capital through bonding within social and political organizations, bonding between groups, and bonding between individuals or groups and higher-level hierarchical organizations. Similarly, Sanyal (2009) found that economic ties through MFI programs, group lending network structures, and participation improved women’s social capital and normative influence, thus facilitating women’s collective empowerment. The reliance on social capital in development interventions mobilizing local social networks has led to the growing number of what has been termed “self-help groups”—primarily of female membership—used in contemporary MF models.4

Knowledge and recontextual izat ion

Our point of departure is in “recontextualization”—how a transferred model takes on new meanings in distinct cul-tural contexts—including the way the model is transferred and how the model is received in the host environment (cf. Brannen, 2004; d’Iribarne, 2002). The notion of re-contextualization originates from the field of anthropology

are built, maintained, or adapted, are both a source and an outcome of the local culture in which MF models are transferred. Second, it incorporates different dimensions of social capital and recognizes that groups can have ac-cess to, or develop, more or less social capital (Woolcock & Narayan, 2000). The absence of social capital can have an equally important impact through exclusion from important networks and institutions, where the lack of social capital has been deemed a defining feature of the “poor” (Wilson, 1996). Though institutions such as the World Bank (2000) have wholeheartedly embraced social capital as “the glue” that holds societies together, critics argue that the “downside” of social capital can equally place restrictions on individual freedom and business initiatives, as well as influence downward leveling pres-sures (Portes & Landolt, 1996). The effectiveness of social capital depends on the context in which it is employed (Blair & Carroll, 2008). As a result of contextual depen-dency, social capital can both support and undermine MF programs. For instance, Woolcock (2001) reports on the Russell Sage Foundation’s findings and shows that social capital is a “double-edged sword,” where on the one hand it can provide members with benefits, but on the other hand can also exclude members from benefits or even cost them. Finally, social capital assumes that as trust and norms of reciprocity are developed locally, and maintained in groups rather than at the individual or macro level of analysis, so too must social capital be developed locally and maintained within a specific local social logic. In Bourdieu’s framework (1977) of social and cultural forms, the analysis is on social structure. Individuals do not generate social capital and are not the primary unit of analysis; rather, social capital is a part of, and dependent on, social structures, and must thus be conferred value by a society consenting to its cultural logic (Rankin, 2002). Since social capital consists of local forms of trust, reciprocity, norms, mutual engagement, and networks, the nature and dynamics of social capital vary across countries and are thus culturally influenced. In this sense, some see social capital as not having culture, but rather being culture itself (Staber, 2006).

Within the development field, social capital is widely regarded by scholars and practitioners as an important in-strument for economic growth maximization and poverty reduction (Mosley, Olejarova, & Alexeeva, 2004; World Bank, 2000; Yunus, 2009). Individuals and groups en-dowed with a diverse stock of social networks are in a stron-ger position to confront poverty as well as take advantage of new opportunities (Woolcock, 2001). Besides being predicated on neo-liberal market assumptions (Bateman, 2010; Kah, Olds, & Kah, 2005) and individual microen-

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Though extant conceptual and empirical research on cross-cultural management has sig-nificantly informed theories of internationalization and knowledge transfer in MNCs, relatively little is known about the role of cultural variations on knowledge transfer.

framed experience, important values, contextual informa-tion, and expert insight that provide a framework for incor-porating new experiences and information. Knowledge is created, organized, and transferred by the commitment and belief patterns of its holders and its recipients, who transmit their culture-specific sets of values and frames of refer-ence (Nonaka, 1994). The type of knowledge, complexity of knowledge, and nature of knowledge (Machlup, 1980; Polanyi, 1962; Winter, 1987) matters in recontextualization from one cultural context to another (Bhagat, Kedia, Har-veston, & Triandis, 2002). Microfinance models, similar to business models, consist of both explicit and codified knowl-edge elements such as the written-out and described parts of a model. A blueprint of what is included and when and where things should be done is typical of this type of knowl-edge. Yet, knowledge also includes more tacit processes and know-how. Differences in knowledge are often illustrated in comparing the explicit and codified knowledge. For instance, blueprints of a bike, and a description of what to do to ride the bike, differ from the tacit and know-how type of knowledge needed to actually ride and balance a bike. Furthermore, knowledge can be defined as being more or less migratory, where embedded knowledge cannot be fully articulated and resides in complex social relationships (Badaracco, 1991). Most knowledge scholars have directly or indirectly assumed the importance of context in their arguments. Knowledge has no meaning without being as-sociated to a shared context necessary for the formulation of meaningful messages (Teece, 1981). Furthermore, the product of what goes into the transfer process is different from what comes out because of the context-specific attribu-tions of each setting (Nonaka, 1994).

Multinational corporations (MNCs) have always transferred knowledge in alliances, between countries, across cultural environments between subsidiaries, and between headquarters and subsidiaries. Research has fo-cused on the transactional nature of knowledge transfer and the institutional mechanisms for transfer (Teece, 1981), as well as how the knowledge is received and utilized (Cohen & Levinthal, 1990). Though extant con-ceptual and empirical research on cross-cultural man-agement has significantly informed theories of interna-tionalization and knowledge transfer in MNCs, relatively little is known about the role of cultural variations on knowledge transfer (Bhagat et al., 2002). Cross-cultural research has initially focused on structurally classifying cultures in terms of dimensions, thus focusing on gener-alizations and universal cultural dimensions (Hofstede, 1980). More recent views, however, posit this approach to culture as unsuited to understanding local cultural meanings associated with management behavior (Chap-

where one examines how meanings shift and change in dif-fering cultural contexts (Shelton, 1992). The emphasis on the historical, legislative, and socioeconomic institutions of society in attributing meaning provides an important foundation for understanding how an MF model derived in one cultural context and transferred to another cul-tural context takes on new distinct meanings (Brannen, 2004). Thus, recontextualization is the process by which the MF borrower and MF organization make sense of the MF model transferred from abroad into his or her own cultural environment. In this context, local institutions and their effect on contextualization are important (Scott, 1995). Institutional theory suggests that different firms operating in the same institutional context tend to behave similarly (DiMaggio & Powell, 1983). In meeting the call for comparative studies of institutional effects, Luk et al. (2008) find that the effects of social capital vary between transition and market economies and that social capital works differently in differing institutional contexts. Thus, it is reasonable to assume that MF models conceived in one institutional context and transferred to another might have differences in both reception and perception.

Similar to organizational assets (Brannen, 2004) and strategic organizational practices (Kostova, 1999), MF mod-els can be seen as the embodiment of knowledge. Daven-port and Prusak (1998) define knowledge as a fluid mix of



tion via watershed projects and solid waste management. In this study, we focus on the second pillar involving MF and SHGs for enterprise and job creation.

By the end of 2009, the organization reported 2,724 full-time employees, 877 part-time employees, and 33,956 volunteers. Over 517,000 women participated in 35,862 SHGs. The MF unit had provided loans amounting to about US $70 million and played a role in starting or ex-panding 364,980 microenterprises and 928 medium-sized enterprises (Barnevik, 2010). In 2005, HiH was engaged to assist the government of South Africa in implementing the country’s “Jobs for Growth” program. This program was introduced as a strategic “second economy” inter-vention with the intent to increase self-employment and enterprise development among the poor, especially the young, women, and disabled people in rural and peri-urban areas. HiH worked as a consultant under the pro-gram and trained more than 1,000 development workers, trainers, government officials, and program facilitators. HiH also facilitated exposure visits for South African delegates, including ministers, government officials, and representatives from community-based organizations on trips to India to observe HiH’s MF model in operation. Under the program, the South African government en-gaged 13 community-based organizations to implement the SHG model and started a pilot project with the Man-gaung University of the Free State Community Partner-ship Programme (MUCPP).

exploratory research Design

This study explores social capital and MF model replica-tion in the context of an MF organization, HIH, transfer-ring their MF model from India to South Africa. The case was chosen through “theoretical sampling” (Eisenhardt, 1989; Glaser & Strauss, 1967) because of the cross-cultural comparison and purported model replication made pos-sible between different sociocultural contexts, thus offer-ing the potential for revelatory insight (Siggelkow, 2007), as well as for the achieved insider access needed for a rich and deep understanding of recontextualization (Eisen-hardt & Graebner, 2007). The study takes a midrange theory-building approach (Eisenhardt & Bourgeois, 1988; Weick, 1989), utilizing parallel processing of data and literature, and applying “theoretical sensitivity” (Glaser, 1978). The choice of an in-depth case study on Hand in Hand as a research strategy (Eisenhardt, 1989; Leonard-Barton, 1990) was deemed appropriate for a deeper understanding of social capital and model replication going beyond fact to detail, context, and emotion. The case study approach also afforded a potential for under-

man, 1996; d’Iribarne, 1997). Though the cross-cultural management literature is drawn from social anthropol-ogy, postmodern social anthropology focuses more on interpretation and meanings in relation to their holistic sociocultural context than on structural dimensions. Researchers in this vein try to see the world through the eyes of those whom they are studying, rather than through unilateral rationalistic claims (Chapman, 1996). Management scholars have also started to argue the need for context-informed moderators that facilitate the transfer of organizational knowledge across cultures (Bhagat et al., 2002). Furthermore, it is argued that cultural factors affect the success of transfer, with some cultures providing more favorable environments for the transfer of certain knowledge (Kostova, 1999), and that successful knowledge transfer is dependent on con-sistency between the assumptions and value systems of sender and receiver (Schneider, 1986). Thus, research-ers have called for greater attention to social processes and posited that social relations and social capital are eminently suitable to cross-cultural management studies (Staber, 2006).

Our Point of Departure: Hand in Hand

The idea for the Swedish-Indian NGO, Hand in Hand (HiH), was born during a journey to Tamil Nadu, India, that teaching couple Gunnel and Olle Blomqvist under-took in 1988. The Blomqvists started providing food and education to families in need. With donations, they began building schools for working children and organizing evening classes for illiterate adults. Eventually, the new aid organization began working with entire villages help-ing them drill wells, build houses, and install latrines. From those early activities, HiH’s vision evolved “to eradicate child labor and reduce poverty.” The current organization was established in 1998 as an Indian Public Charitable Trust with the support of Swedish industrialist Percy Barnevik, who had become involved in the work as a donor. Since 2004, HiH has expanded substantially, both geographically and in terms of development inter-ventions. During the last years, HiH also established a presence in Afghanistan and South Africa, and a pilot project was under way in Brazil where HiH acted as con-sultant. Five interconnected pillars comprised what HiH emphasized as a holistic approach to poverty alleviation: (1) child labor elimination and education, (2) self-help groups and microfinance for enterprise and job creation, (3) citizens’ centers to strengthen democracy on a grass-roots level, (4) medical camps and awareness campaigns to improve health levels, and (5) environmental protec-

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nel, teachers, project managers and directors, trustees, and an influential donor. Interviews with HiH manage-ment and operatives, government officers, and local re-searchers in both India and South Africa were conducted in English. Site visits with SHG members and microfi-nanced businesses were selected by HiH, presumably on the basis of those groups and businesses that worked the best. In both South Africa and India, interviews and dis-cussions were conducted mostly in English, or with inter-preters when interviewing self-help group members. Site visits to citizens’ and community centers, schools, and microfinanced enterprises, as well as participant observa-tion of operational meetings, complemented the inter-views. Interviews were also conducted with governmental executives from the Indian National Bank for Agriculture and Rural Development (NABARD), the South African Department of Trade and Industry, the Small Enterprise Development Agency (SEDA), and KHULA Enterprise Fi-nance. Discussions were also held with researchers at the Institute for Financial Management and Research (IFMR-CMR) in Chennai and the Centre for Microfinance at the University of Pretoria in South Africa.

To mitigate issues of “retrospective sensemaking by image-conscious informants” (Eisenhardt & Graebner, 2007, p. 28), it was intended that the interviews cover a balance of perceptions from different stakeholder groups. All interviews were conducted with two research-ers, and were influenced by both a “neo-positivist” posi-tion (Alvesson, 2003) involving a semistructured interview guide around main topics and open-ended unstructured exploration. In this way, we attempted to minimize re-searcher subjectivity and other sources of bias, yet have the possibility to explore new insights, context-specific meanings, and understandings (Fontana & Frey, 1994). Though each topic in the interview guide was covered, interviews were open-ended, allowing for the exploration of responses and the possibility of new insights. Detailed notes were taken in the course of the interviews. Imme-diately following each interview, individual researchers’ notes and emerging themes were discussed between the co-interviewers, and differences in interpretations were discussed and recorded. In the beginning of each interview, the purpose of our research was introduced, and each interviewee was asked to describe their general backgrounds with regard to education, the microfinance industry, and the Hand in Hand organization. Further-more, variations of questions posed to all interview re-spondents involved: What is your view on microfinance as a tool for poverty alleviation? Does it work? Why does it work? Or why doesn’t it work? How do you know if it works? What needs to be in place for it to work? All

standing the “context” (Langley, 1999; Pettigrew, 1987) since the socioeconomic, legislative, and historical envi-ronments were deemed important to our understanding of local social capital and model replication. Thus, the study follows Rousseau and Fried’s (2001) prescription on systematically examining contextual effects through: (1) rich description, (2) direct observation and analysis of contextual effects, and (3) comparative studies. The collection of rich data through, for example, numer-ous, cross-site location observations and semistructured and open-ended interviews, made explicit the differing context-specific meanings of the same words, and the invisible variables in otherwise posited bounded rational-ity of survey techniques. It also facilitated understanding of “configuration” effects, or variable bundling on our understanding (Rousseau & Fried, 2001). For instance, though English was used as both HiH’s India and South Africa main written language, translation from Tamil to English, or IsiZulu and Afrikaans to English, contributed to diverse understandings, nature, and operationaliza-tion of the same English-language concepts and terms. Finally, as “contextualization is designed into research through the choice of research sites, firms and people, where presumably representative variability exists in the phenomena under investigation” (Rousseau & Fried, 2001, p. 3), the identified salient stakeholder groups, the site locations in India and South Africa, and the organiza-tion Hand in Hand were deemed to provide variability in perceptions on MF model replication.

The data were collected over a three-year period and analyzed both in real time, as the transfer unfolded, and after the transfer was deemed accomplished. Multiple data-collection sources allowed for between- and within-methods triangulation (Brannen & Peterson, 2009), and the exploratory results are based on field studies of the HiH operations in India (villages around Chennai and Kancheepuram) and South Africa (villages around Jo-hannesburg and Bloemfontein) that were conducted in January 2007 and February 2009, respectively, multiple interviews and participant observations in London and Stockholm between 2006 and 2010, as well as archival materials authored by HiH. We used a “descriptive stake-holder theory” approach where participants’ view of what the organization was vis-à-vis stakeholders as well as the mechanisms through which different views come into being were explored (Donaldson & Preston, 1995). As such, we availed the perspective that participants’ percep-tions were socially constructed and shared realities (Jones & Wicks, 1999).

Altogether, the study involved some 60 interviews with HiH field operatives, SHG members, health person-



HiH personnel measured success in terms of the num-ber of women mobilized, the number of new SHGs formed, the number of mi-croenterprises supported, and repayment rates.

there were important differences such as HIV/AIDS– related issues, sustainability challenges, the size of SHGs, focus on women, and migratory behavior, and where a basic concept understanding of MF was lacking.

SHG members in South Africa—both men and women who had little previous knowledge of each other—discussed considerable dissatisfaction with HiH’s rules, operations, and routines. In addition, they expressed distrust on many issues—such as the relationship with each other in the group, how their businesses were being developed, how decisions were being made, and the low and insecure income streams, as well as a lack of adequate resources in terms of, for instance, capital and informa-tion. Member turnover in the South African SHGs was estimated at 60% by field operatives, and there was no exit strategy in terms of savings repayment when leaving a group. Governmental bodies such as the South African SEDA and KHULA remained open to the possibilities of MF. In contrast to India, where MF for poverty alleviation was linked to income generation, South African MF or-ganizations emphasized credit for housing and consump-tion spending. Local MF researchers were convinced that MF models for poverty alleviation to the poorest were not successful or even viable in South Africa. Instead, MF for capacity building of small and medium-sized enterprises (SMEs) was considered important and a more interesting possibility. Table 1 is a summary on stakeholder groups’ perceptions of whether MF “worked.”

questions were formed to be open-ended, and examples to illustrate were either freely given or prompted. More questions specific to the different stakeholder groups are given in Appendix A.

Stakeholders ’ Percept ions on the Hand in Hand Model

In India, HiH managers and field operatives as well as SHG members commended the organization for trans-forming many lives. HiH personnel measured success in terms of the number of women mobilized, the number of new SHGs formed, the number of microenterprises supported, and repayment rates. Furthermore, HiH en-hanced social aspects by having women take more lead-ership roles. SHG members—all women from the same villages—spoke positively about the economic and social changes that had come about with their access to MF. Positive benefits included more stable monthly income, training, and more influence over purchases and family decisions. SHG members gave examples of how group members had became closely knit through supporting each other in disputes with husbands or village leaders, or bonding through group support in, for instance, child care. Officials in Indian public or governmental bodies were convinced that the MF tool was effective and ef-ficient in poverty alleviation. They believed the “SHG linkage” had been an important underlying reason for this perception of success. Local researchers were more skeptical and cited cases of client-linked suicides, irre-sponsible practices of for-profit MF organizations, and the debated linkage between economic improvement and social empowerment.

In South Africa, HiH operatives were most con-cerned with making what they called a more effective and customized model to suit the South African context. Because of changes in the political landscape when Thabo Mbeke’s presidency was over, HiH lost its role as a consultant to the South African government. HiH South Africa was formally established as a nonprofit develop-ment agency in 2008, and one of the key coordinators from the Jobs for Growth Programme was recruited as CEO. Indian HiH managers were sent to Johannesburg to teach the HiH model to local South African managers and field operators. South African operatives were also sent to Tamil Nadu to better understand the Indian MF model. Manuals on procedures and routines were written in India and presented in South Africa. This model or knowledge-transfer process was reportedly fraught with tension and resentment. It was argued that the Indian-type MF model could never work in South Africa, where

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sidies or pensions—rather than a possibility or the only option as perceived in the Indian context. Furthermore, the possibilities and limitations of MF within the prevail-ing Indian and South African industrial structure, as well as the importance of the formal and informal sector in the two countries, might further explain the differing stakeholder-group perceptions.

Historical antecedents and forms of Social BondsIn India, where HiH’s MF model was developed, already existing forms of local social capital facilitated percep-tions of MF success and reciprocally, further built on the social capital of members. However, the SHG concept was far from new in India. Already in the mid-1980s, the governmental NABARD started putting funds into what later grew into the SHG-Bank Linkage Programme. This program linked informal women’s groups to the formal financial system (NABARD, 2008). Development NGOs had come to play an important role as intermediaries in this program, mobilizing women, providing capacity building, and linking them with the mainstream banking system. Two decades after the concept was introduced, the SHG concept was an institution in India involving over five million SHG group savings accounts, and by 2008 had the largest client outreach in the world (Fernandez, 2006; George, Maheswari, & Pandian, 2007; Harper, 2002; NABARD, 2008; Sarkar & Singh, 2006). Thus, the concept of MF was well known among rural Indian women, while in South Africa, the MF model and SHG formation in this form was a relatively new concept. This “novelty” might explain some of the dissatisfaction of SHG members (e.g., with HiH’s rules, operations, and routines). Furthermore, Tamil Nadu had a relatively nonviolent political history and a homogeneous population speaking the same lan-guage, Tamil. Although formally abandoned, the caste system plays a central role in Indian society, often deter-mining an individual’s life, both professionally and per-sonally. India’s sociocultural history included patri-local

contextual izat ionSocioeconomic BackgroundIndian postcolonial history emphasizes a significant re-liance on small farming, land rights, and the informal labor sector (Cohn, 1999). In Tamil Nadu, HiH’s SHG members and their families often had some type of liveli-hood (e.g., in agriculture or in micro retail). Access to “reasonably” priced credit in India through MF models, coupled with a large informal sector and the potential of livelihood from microenterprises, emphasized MF as a possibility and resource out of poverty, where few other options were forthcoming. Although both India and South Africa had dualistic economies, involving a minor-ity who enjoyed developed-nation living standards and a majority who lived in poverty, South Africa’s elite owned a majority of the arable land, while the poor were without land (IRIN, 2009). Attempts had been made to change this, but the 13%–87% split in land ownership during the apartheid regime had only shifted slightly to 20%–80% by 2008 (IRIN, 2009). The poor live in rural villages squeezed between commercial farmland and tourist-oriented game reserves. In the urban areas, self-employment is severely constrained by large-scale manufacturing, mining, and the retail sectors. As opposed to India, South Africa’s small-scale trading, micro-retail, and manufacturing were historically relegated to the margins, and the poor are still dependent on the output from the formal economy. Thus, it has been argued that the poor in South Africa have become dependent on state transfer payments such as pensions, disability grants, housing grants, and other subsidies (Baumann, 2005). The prevalence of subsidies and grants in the South African context, as well as struc-tural conditions for an informal, microenterprise sector, can be connected to the different perceptions of success held by the South African stakeholder groups. In South Africa, group members saw access to MF as a right or an entitlement—similar to the entitlement of housing sub-

Local Hand in Hand employees Local Self-Help Group Members Local Public Organizations Local researchers and Mf ScholarsIndia Yes Yes Yes Maybe

the linkage between social and economic sustainability for poverty alleviation questioned

South africa

MaybeModel must be recontextual-ized first

No Yes NoNot for poverty alleviation but for small and medium-sized enter-prises

table 1 Stakeholders’ Perceptions on Whether Mf “Works”



Furthermore, although not formally registered, the In-dian SHG groups were also treated as legal entities and, as such, were able to open up group bank accounts for both savings and deposits. Such legislation worked as a legitimizing and stabilizing force for the entire MF sec-tor in India, whereas in South Africa banks were neither regulated nor encouraged to microlend, nor were depos-its or savings legally possible for groups. Compounding this, SHG members in India were either encouraged, or required, to save regularly before being eligible for SHG membership and group loans. In the Indian context, this savings component was reinforced by the legislative banking acceptance of SHG groups as legal entities. A similar deposit structure was lacking in South Africa. Finally, given the salience of NGOs in MF models, the historic role and perception of civil society organizations in the different countries might be an important aspect of stakeholder group perceptions. In India, civil society had traditionally had a benevolent and altruistic image, whereas in South Africa, civil society focusing on social development had a history of political activism against the apartheid regime (Govender, 2001). This may also have had an impact on MF perception in South Africa, both in terms of how HiH was accepted as well as on how MF interventions were perceived.

contr ibut ion and Impl icat ions

In this article, we have availed a contextualized approach to understanding differences in localized social capital and its connection to stakeholder groups’ perceptions of MF success in India and South Africa. The perception of success of HiH’s MF model in India, and the perception of failure of the same model in South Africa, might be ex-plained by differences in host-country institutional effects from historical, socioeconomic, and legislative antecedents to local social capital. A few reflections stand out. When MF models are transferred between cultural contexts, the existence and universality of social capital underlying MF success are taken for granted. In India, the model “worked” because MF clients had already built close-knit communi-ties and networks, and thus had, over time, developed local norms of trust and reciprocity assumed in the social capital underlying MF programs. In South Africa, the apparent differences in, or lack of, social capital in part due to dif-ferent historical, legislative, and socioeconomic factors could perceivably explain stakeholder-group perceptions of failure. Furthermore, the sociocultural understanding of what MF meant varied between India and South Africa. In Tamil Nadu, MF was understood as a collective resource for the relatively resource-less—especially in terms of social

residence and dense local social networks, where women5 seldom moved away from their villages. Bonds are formed at early ages and last throughout lifetimes (Sanyal, 2009). Even as marriage somewhat reconstructed networks, these new networks were restricted to proximate neighbors and relatives often belonging to the husband’s family (Sanyal, 2009). These forms of social bonds play an important role in building the social capital underlying SHG formation in India but can be considered absent or undeveloped in South Africa. Furthermore, women in Tamil Nadu tended to be more active in the labor force, were more likely to use fertility control, and were more frequent users of health services than women in South Africa (Dyson & Moore, 1983). The relatively higher status of the Tamil women in India, along with the already established social capital, could serve as an explanation to the perceived success of the MF model in Tamil Nadu. South Africa’s historical conflicts and ethnic segregation stand in stark contrast to the stability of Southern India. During the apartheid era—1948 until 1994—the ethnically, culturally, and linguistically pluralist population of South Africa was categorized into different “races,” people were forcibly moved multiple times, and families were separated. Apart-heid policies resulted in disintegrated communities, while large ghetto-like townships in the city outskirts developed. The rapidly spreading HIV/AIDS pandemic further broke up families and made poverty harsher. Hence, histori-cal dislocation and increased migration in South Africa led to less dense networks, thus seemingly undermining the necessary social capital needed for the creation and sustainability of SHGs. This could further explain, as well as be explanatory of, the reported 60% member turnover in HiH’s South African SHG groups. Furthermore, the South African SHGs were formed at the instigation and selection of HiH partners, rather than by SHG members themselves, as was more common in India. Thus, group members had little pre-existing knowledge of each other, and the norms of trust and reciprocity needed for social capital were lacking.

Legislative frameworkThe Indian legislative framework had further helped the development of the MF and SHG model. Since 1992, the Indian NABARD had promoted and monitored the SHG-Bank Linkage Programme, provided funds for capacity building and innovation, and helped change policy to create an enabling environment (Fernandez, 2006). For example, the Reserve Bank of India required all banks to lend 40% of their net bank credit to priority-sector clients, which included microenterprises and agriculture. This spurred MF lending and concept understanding.

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the differing institutional contexts, our study contributes empirically to calls for comparative studies of institutional effects within differing contexts (Scott, 1995). As Luk et al. (2008) found differences in the effects of social capital on organizational innovativeness in the Hong Kong market economy as compared to the Chinese Mainland transition economy, our study illustrates how differing institutional conditions from historical, legislative, and socioeconomic frameworks influencing social capital might have effects on stakeholders’ perception of MF model success.

Our exploratory finding suggests new avenues for both development scholars and implications for practi-tioners in the MF field. Research in development could more systematically and cross-comparatively consider the antecedents and conditions underpinning a development intervention or tool. How does the institutional context shape the reception and context understanding of the intervention? How do localized forms of social capital affect perceptions of the intervention’s success? More specifically, a keen examination of the differing institu-tional contexts and their antecedents, as well as the de-pendent underlying local social capital, should be further researched to fully reap the benefits of microfinance as a development tool for poverty alleviation. For practition-ers, implications on what really makes a model work in one context may set a proper agenda for its recontextual-ization to another.

acknowledgments

This research is part of the project “Microfinance and Poverty Alleviation” undertaken at the Stockholm School of Economics. The author gratefully acknowledges fund-ing from the Jan Wallander och Tom Hedelius samt Tore Browaldhs Stiftelse and generous research access to Hand in Hand personnel and operations.

capital as a resource—for those together without other options. In South Africa, MF instead was seen as an indi-vidual entitlement or a right, similar to public housing, unemployment benefits, and affirmative action initiatives. The contextualization of microfinance models and how antecedent and locally formed social capital affects the per-ception of success are important yet relatively unexplored topics in the development field. The different stakeholder-group perceptions of the same model’s success appear to be associated with differing socioeconomic cultural backgrounds, historical antecedents and forms of social bonds, and the local legislative framework. Cognitive and social perceptions of success are important and have influ-ence on both objective and subjective measures of success (Baron & Markman, 2000; Reijonen & Komppula, 2007). Perceptions of success are linked to status, reputation, and legitimacy, and play an important role in access to further resources at different levels of analysis (Stuart, 1998).

Our study is also a contribution to social capital theory development, as well as social capital dynamics linked to the international business literature. In answer to concep-tual calls for comparative empirical studies (Portes, 1998; Rankin, 2002), we explore the sources and contextualiza-tion of social capital within local institutional frames and provide evidence that social capital may have both a positive and negative impact on stakeholders’ perceptions. Interna-tional NGOs, similar to MNCs, transfer knowledge in the form of organizational business models. Though structural analysis of social capital has largely focused on interfirm and business networks, informal personal relationships have received less attention in the international business literature (Luk et al., 2008). Similarly, though social capital theory in development studies and among development practitioners considers social capital as locally developed and maintained, the literature has assumed a universal rather than cross-contextualized understanding. Given

Lin Lerpold, PhD, is an associate professor at the Stockholm School of economics (SSe) in the Sustain-ability research Group. Dr. Lerpold’s research has been focused on new business models at the base of the pyramid—for instance, microfinance for poverty alleviation; the ongoing corporatization of civil society, especially fundraising organizations; and more recently on global supply chains and human rights. She completed her PhD at the Stockholm School of economics, Institute of International Business, and teaches in MBa, MSc., and eMBa programs in corporate social responsibility and sustainability management, strategic management, and interna-tional organization and management at the Stockholm School of economics in Stockholm, St. Petersburg, and riga. Her professional experience prior to completing her doctorate includes a decade of international strategic planning, project management, and consulting within the international oil industry.



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Notes1. The term microfinance is commonly defined as having two elements, both credits and deposits. Given national regulations, deposits are nor-mally only allowed to be taken by governmentally certified microfinance institutions. Microcredits are, however, also dispersed by numerous nongovernmental aid organizations with few formal accountability requirements.

2. Microfinance funds are normally divided into two types: investor- and donor-type funds, where the difference normally refers to those expect-ing a repayment and return on investment and those who are not. According to the Consultative Group to Assist the Poor (2008), 50% of global MF funds came from the three largest donors and investors. The largest donors were the Asian Development Bank, the World Bank, and the International Fund for Agricultural Development. The three largest investors were the German Government Development Bank, the Euro-pean Bank for Reconstruction and Development, and the International Finance Corporation.

3. The increase of international nongovernmental organizations (INGOs) has been argued to both reflect and contribute to the spread of global institutions and cultural principles based on models of ratio-nality, individualism, progress, and universalism (Boli & Thomas, 1999).

4. MFIs and microcredit organizations are often divided into “welfarists” and “institutionalists,” denoting differences in focus on social and financial sustainability, respectively. Welfarist-type organizations such as development NGOs usually use the term self-help groups (SHGs). Insti-tutionalists referring to the same groups usually use more banking like terms such as joint liability groups (JLGs).

5. A growing number of men leave their villages and families for months at a time in search of work in urban areas. Women in India seldom do.

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Stakeholder Groups Major Interview topicsLocal Hand in Hand em-ployees

• Why do you believe that the HiH model is successful? Why is it not successful? How do you measure suc-cess? Can you give us some examples of success and, alternatively, failure? Why do you consider them successes or failures?

• Were you involved in transferring the model between India and South africa? How?• What worked well and what could have been improved in the transfer? What would you have changed?

Local Self-Help Group Mem-bers

• What business are you in, and with whom, and for how long have you been in this self-help group?• How was the group formed? How were the members chosen? How did you learn about and join the group?• What did you do before you joined the group?• are you satisfied with the group? Business you’ve created? How you work together? How the Hand in Hand

systems work? How and why?• Has your life changed? How? Why? What does you family think about it all?• If the business fails, what will you do? are there any conflicts? With whom? Why? How do they get resolved?

Local Public Organizations • Do you know about the organization HiH? What do you know? What do you think about the organization and what they do? What would you change? What do they address and what do they not address?

• How would you compare HiH with other Mf organizations you have knowledge of? examples?• How do you support their work? How would you further support their work if you had the resources? How do

you work with, or support, other Mf organizations?Local researchers and Mf Scholars

• Same first two bulleted questions as in Local Public Organizations.• What is the future for Mf as a tool for poverty alleviation in your country? What and who will determine how

and whether it works? What changes, if any, need to be made?• What is the impact or performance of Mf? How do you measure impact at different levels of analysis? What

is success and what is failure?• What industry trends do you see? What are the opportunities and major challenges for Mf organizations

today and in the future?

appendix a Stakeholder Groups’ More Specific Semistructured Interview Guide

the contextualization of a microfinance model: from india to south africa

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