Microfinance and social capital: Does social capital help create good practice?

Abstract

Microfinance and social capital: does social capital help create good practice? Sanae ItoThe role of organising and disseminating knowledge as a global public good has become a major preoccupation of international development organisations. One area in which they are particularly active is support for microfinance programmes in developing countries. More recently, the microfinance 'best practices' deposited in, and disseminated by, these international organisations have been associated with social capital. This paper examines the ways in which the notion of social capital is employed to explain the success of microfinance programmes. It argues that various types of social interactions that are generated around successful microfinance operations are randomly called 'social capital'. This means that the presence of social capital does not tell us much about what sort of microfinance programmes, in terms of design and implementation, should be regarded as good practice.

Loan officers and loan ‘delinquency’ in Microfinance: A Zambian case

“…They operated under particular pressure to secure high rates of repayment as their institutions sought financial sustainability, and were assessed primarily on the basis of their credit-delivery performance. Findings in other countries have been similar (Ito, 2003;Rahman, 1999b;Reinke, 1998;Schreiner, 1999). Goetz concluded that the importance and influence of field workers was in principle reflected in whether and how they reconciled their organisations" goals with their own personal preferences.…”

“…Goetz concluded that the importance and influence of field workers was in principle reflected in whether and how they reconciled their organisations" goals with their own personal preferences. Ito (2003) observed that field workers with diverse roles faced the rival demands between increasing loan disbursement and repayment as compared with borrowers" requirements to be sensitive to their own specific circumstances and requirements. Ahmad (2000Ahmad ( , 2002 also argued that the microfinance literature has evaluated the activities of Non-governmental organisations (NGOs) without sufficient reference to s:\staff\repositories\fulltext\business school\4288\journal article-acforum.doc 6 the views of those who actually work with clients.…”

“…As a result loan officers actively pursued defaulters s:\staff\repositories\fulltext\business school\4288\journal article-acforum.doc 20 (a task meant for group leaders) instead of building networks that would enable mutual guarantees (Copestake, et al, 2001;Ito, 2003). Members typically valued harmony more than alternative social sanctions.…”

“…Johnson et al (2003) report similar difficulties in handling defaulters at one of the MFIs in Kenya, but the difference is that, in this case, CETZAM and not the defaulting client bore the costs. The original intention was that the borrower progressively takes over the lender"s responsibilities for monitoring group repayment behaviour, taking action, if necessary, to enforce repayment (Ito, 2003). These arrangements were supposed to free the loan officer for other constructive activities.…”

“…This joint-liability mechanism, it is argued, has been a major methodological breakthrough for lending to the poor (Ahmad, 2002;Bhatt and Tang, 2001;Goetz, 2001;Hulme and Mosley, 1996;Ito, 2003;Rahman, 1999a). However, there is mixed evidence on actual "enforcement" of joint liability, and several authors observe that, while issues of joint s:\staff\repositories\fulltext\business school\4288\journal article-acforum.doc 9 liability are widely discussed in weekly meetings, it is not always "enforced", making the intended shared responsibility difficult if not impossible to realize (Ito, 1999(Ito, , 2003Jain, 1996;Jain and Moore, 2003;MkNelly and Kevane, 2002;Pal, 1999;Rahman, 1999a;Schreiner, 1999;Vogelgesang, 2003).…”