Devfinance: Re: the social component of microfinance

[copgalor]

I would like to add few points to the very interesting views  
expressed below.
For me, cooperatives are created mainly upon an economic basis. One  
can't avoid it, because cooperatives are created by individuals who  
realize that individually they can't obtain what they are looking  
for, generally an economic objective, and then are ready to give up  
part of their individualism, each one of them, and to collaborate,  
each one with the others, to create this ECONOMIC enterprise, the  
cooperative. This was valid to the founders of the cooperatives in  
France, in England and in Germany at the middle of the 19th century.  
This is valid to cooperatives today.

Cooperatives in many countries, including Germany ( see: Munkner,  
H.H. (1999/2000). Corporate governance in
German cooperatives: What happened to Coop Dortmund-Kassel? Review of  
International Cooperation, 92-3(4).
Geneva: ICA. ) fail now a days and during the last 40 years because  
of two elements:
- They were not really belong to their members ( No cooperative in  
Germany is really belonging to its members).
- They were not supply to their members the best possible service at  
the lowest possible cost, but rather prefer to run the cooperative on  
a basis of a policy, encouraged officially by ICA, that a cooperative  
should generate surpluses, as  much as possible, instead of servicing  
its members at the lowest possible cost.

This is one of the problems of the MFIs industry as well: Serving the  
beneficiaries (members) at the lowest possible cost or rather  
generating the highest possible return. The answers I have received  
in series of discussions on the two lists dealing with this industry,  
from most of those who participated in those discussions, were that  
the goodness of the MFIs is before that of the beneficiaries.

I believe that the industry should serve at the best possible way the  
beneficiaries, those who are getting the MF, since this industry was  
created in order to serve those who were unable to be bankable.

Another point which was discussed already is whether the MFIs should  
merely supply credit or more than that. One of the formula practiced  
today, and called "social components" is that if we add training,  
according to the expressed needs of those who are going to get the  
finance, would enable the success of these projects.
I am for training on all its appearances.

I would like to remind us about a major approach to training, pushed  
forward by the world bank during the seventies and the eighties,  
which was the Training and Visits method initiated by Danny Ben-Or,  
and based on the success of the system in Israel.

We don't hear about it today. Mainly because it was mainly aimed at  
agricultural development.
The wrong approach at that time, and now as well, is that the  
developing world needs the development of agriculture. This approach  
was proved by results as a wrong one, since this approach was not  
able to solve the UnderEmployment problem in the traditional rural  
areas in most countries worldwide.

The MFIs should aim at providing MF but more than this. It should  
supply the "social components" as well as other components, essential  
to the success of those who are in need of this MF.

One more point: We should remember that this industry, even when  
successful ( and those who wish to read about the results of the 2005  
year of Micro Finance, in a paper published by UNCDF recently) can  
see that most of the witnesses brought their, are either from those  
whose profession is micro-finance or from few successful small  
businessman/woman.

We need to remember that the majority of those who are in need to get  
out of their undeveloped situation, are not, when individuals, able  
to benefit out of this industry.

Regards

Zvi

On 01/12/2005, at 18:41, Renate Schmidt wrote:

> Dear all,
>
> I would like to refer to the posting of Linda Mayoux regarding the  
> social
> component of group based microfinance.
>
> In the German co-operative sciences community we have an ongoing  
> discussion
> of the social component of our contemporary credit co-operatives.  
> Hereby,
> the opinions differ whether the social components (the co-operative  
> values)
> are an objective of the co-operative by themselves or whether they  
> are only
> a means of the only objective of the co-operative, which is economic
> promotion of its members.
>
> Our co-operative movement was started in the 19th century. Although  
> some of
> the founding fathers had strong social objectives for the co-operative
> movement, the means by which the movement was promoted were mainly
> economical. I dare say that the effect of the social development in  
> Germany
> was more a secondary effect. The development of the existing social  
> capital
> was driven by the individual members' pursuit of welfare. It was  
> further
> driven by the founding fathers' and other local promoters' – who  
> were often
> mayors – intrinsic motive to help.
>
> The social development which was enabled by the German co-ops of  
> the 19th
> century happened mainly through practical experience which the people
> (members and local promoters) gained while acting within own their
> organisation and shaping it according to their needs.
>
> Similarly, group based microfinance also has both economic and social
> features. But one has to be careful when intentionally pursuing both
> economic and social goals in one project. A strong social component  
> –if it
> has the form of pure training, sometimes complemented by sitting  
> allowances
> – may lead to the impression that the whole project is charity and  
> the loans
> are gifts which has an unfavourable influence on loan repayment.
>
> The difference between the founding fathers of the German co-ops  
> and the
> microfinance consultants of today is that while the former were  
> only able to
> engage themselves on part time basis, the latter are fully  
> professional and
> the microfinance movement of today is equally a fully professional  
> industry.
> Instead of unsalaried self-organisation there are paid employees  
> who execute
> the programme designed by the consultants. This has the advantage  
> that most
> concepts are very good. The flip side of the coin is that there is  
> less room
> for the "target group's" experimenting, less room for experiencing  
> their own
> abilities, less room for things which make people grow – socially.
>
> In this way, I would strongly support Linda Mayoux's call for a  
> slower and
> more difficult development involving the people themselves and  
> linking them
> to the policy making process. Maybe we should also pay less  
> attention to
> perfect programmes that determine everything in advance but leave  
> more room
> for the local development of microfinance.
>
> Furthermore I would like to add, that the development community should
> consider to stop seeing the "poor people" as poor, as passive  
> beneficiaries.
> If we don't change our picture of the people for whom we work we  
> will never
> see any sense in involving them in any political process.
>
> In Germany we also have the tendency of seeing the members of the 19th
> century co-ops as poor, and informally we sometimes call these co-
> ops "poor
> people's associations". Of course, in comparison to our standard of  
> living
> of today, these people were poor. But I dare say that the members  
> of these
> co-ops were not the poorest of them but rather the fittest.  
> Otherwise the
> German credit co-ops would not have had the success which they  
> actually had.
>
> Renate
>
> --
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