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Archive for the ‘Microfinance’ Category

Rewiring VSLA Networks

Posted in Informal finance, VSLA, tagged , on October 24, 2012| Leave a Comment »

A cluster of VSLAs in rural Rwanda. Clustering expands the market for governance, and enhances opportunities to ‘rewire’ networks.

The heart of VSLA is ‘time-limitation.’ The time-limitation feature is typically understood as an ‘action audit’ – a way for members to manage risk by giving them an opportunity to say “show me my money.”

A recent study of human cooperation[1] gives us a fresh look at time-limitation. There have been many doubts raised about cooperation: in particular due to the effect of so-called ‘free-riders,’ who exploit its benefits without contributing to its successes. However, (more…)

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Combating Elite Capture: F.W. Raiffeisen

Posted in Financial cooperatives, History, Microfinance, The village, tagged , , , , on March 25, 2012| 2 Comments »

If elite capture is such a serious threat, how was it dealt with during the microfinance revolution in Europe? F.W. Raiffeisen addressed this risk directly: he asked village elites to play leadership roles in the cooperatives – but to derive no material benefit from them.

In speeches he emphasized religious duties of charity and responsibility to community, and encouraged the villagers to elect leading individuals to the board, conditional on their character. Board positions received no compensation. Raiffeisen (more…)

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Elite Capture (2)

Posted in Financial cooperatives, History, Microfinance, tagged , , , , , on March 2, 2012| Leave a Comment »

By 1979 only 61 of the 400 Comilla cooperatives were still functioning.  One observer attributes this result to four factors:  fraud/lack of internal controls, stagnation, diversion of funds, and ineffective external supervision. The central problem of fraud and weak controls “was possible not only because of individual dishonesty, but because the people were not made aware of their rights, and were not in a position to voice their rights (Aditee Nag Chowdhury, Let Grassroots Speak, p. 54).

Partly as a result of Dr. Khan’s experience, later Bangladeshi practitioners in microfinance, such as Dr. Muhammad Yunus and Fazle Hasan Abed, (more…)

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Elite Capture: Comilla

Posted in Financial cooperatives, History, Microfinance, Uncategorized, tagged , , , , on March 1, 2012| Leave a Comment »

The ‘cooperative wave’ of microfinance gave way to the ‘microcredit’ wave in the 1970s. ‘Elite capture’ severely damaged the cooperative wave in the South. The story of the transition from the Comilla model to Grameen Bank, at the inflection point between the movements, is exemplary.

The ‘Comilla Model’ was initiated in East Pakistan by Dr. Akhter Hameed Khan in 1959. Khan drew inspiration from the Raiffeisen credit unions of rural Germany. He envisioned ‘vigorous local institutions’ that could provide credit and access to markets for the farmers of Comilla district. The cooperatives (more…)

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Flexibility in timing and amount – foundation of informal economy

Posted in Informal finance, tagged , , , , , , , on February 20, 2012| 2 Comments »

Layaway plan from Chuka, Kenya, Feb 17, 2012

A shopkeeper shows us his informal yet careful bookkeeping for his customers.  After selecting the product or device they wish to purchase, they come to an agreement with the shop’s owner for a layaway plan that suits their need for flexibility and control over the amount paid each time and frequency of said payments.  Once the total amount is cleared they are free to collect the device and take it home, sometimes taking as long as 2 or 3 years to reach their goal. Since they have selected the product already and the shop has put their name on it, there is an intangible sense of ownership that incentivizes their efforts to complete the transaction as rapidly as they are able.

The sticker seen is used to mark the specific product as an indicator of having been “Sold”, while (more…)

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It Takes Two Hands to Clap

Posted in History, Microfinance, Village institutions, tagged , , , on February 18, 2012| 1 Comment »

Flower mandala, Ahmadabad. Many great traditions need right and left to clap.

The founders of early financial cooperatives believed in ‘cooperation’. This was not a sentimental idea. It was seen as a practical tool for pooling financial and human resources where poverty was too great for individuals to escape by themselves. It required an almost obsessive focus on both prudent financial management and disciplined adherence to operational rules.

Democracy in private enterprise, and practical concern for poorer neighbours, are left-wing ideas. Prudent financial management (more…)

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The First Wave of Microfinance

Posted in Financial cooperatives, History, Microfinance, tagged , , , on February 13, 2012| 4 Comments »

Two rallying cries propelled the second wave of microfinance. First, in the 1970s it was ‘proved’ that poor people repay their loans; and second, we ‘learned’ that you can lend money to poor people and make money doing it. These statements may motivate people, but they are impoverished reflections of history.

The first wave of microfinance began in 1864, and rapidly spread over much of Europe, delivering both credit and savings in villages the banks would not touch. Reflecting on nearly 50 years of village finance practice, the journalist Henry W. Wolff wrote in 1910 that “… there has been found to be no more regular and more scrupulous repayer than the small man.” (People’s Banks, p. 27)

(more…)

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Rural Market Failure — Interest Rates

Posted in Financial cooperatives, History, Microfinance, tagged , , , , , on January 18, 2012| 1 Comment »

Krong Pailin, Cambodia. In the rainy season a 1-2 km trip can take much of the day.

Rural microcredit rates have risen sharply since the dawn of the microfinance revolution. Most modern rates range from 12-60% annually, with unsubsidized rates below 12% being extremely rare. The alternative for most poor borrowers is either no credit at all, or much higher informal rates.

At the dawn of the microfinance revolution, during the 1860s-90s, the Raiffeisen banks of rural Germany charged 5½% (per annum, declining balance) on small farmers’ loans, (more…)

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