It is interesting to be studying microfinance in a classroom setting after 20 years of being involved in the business. I was accepted to a three-week certificate program on Community-Based Microfinance at the Coady International Institute in Antigonish, Nova Scotia, which began last Sept. 26, 2011. We were 12 in the class coming from nine countries. I introduced myself as working in a research and advocacy organization, which has microfinance for one of the focus themes of its rural development program. Others in the class included the director of an NGO in West Nile, Uganda, a Nepalese working for a refugee camp in Thailand, a Jesuit priest assisting a savings and credit cooperative in Jharkhand, India, another Indian working for a consulting company which provides organizational development and technical services to institutions in Bihar, two development workers from CARE-Bangladesh, another Bangladeshi working for the Bangladesh Rural Advancement Committee (BRAC) but based in Afghanistan, an Australian working for low-income groups in Tasmania, a senior manager in a Canadian organization providing financial services to young entrepreneurs, a volunteer program coordinator worker for a women’s organization in Zimbabwe, and a regulator from the Department of Cooperatives in St. Vincent and the Grenadines. Despite our experiences in microfinance work, we all felt overwhelmed and enriched by the amount of information and the deluge of experiences shared during the first days of class.
The program at the Coady Institute promotes community-based microfinance approaches typified by member-owned institutions (MOIs). We learned about the village savings and loan associations (VSLA) approach promoted by CARE across the continent under its Access Africa Program. Twenty to thirty members, mostly women, come together to save weekly, and are allowed to borrow from the fund after three months of saving. At the end of the year, the savings and income accumulated by the group are distributed among its members in proportion to the number of shares each has contributed. Three factors account for the success of the VSLA: flexibility where different savings schemes are adopted by different members depending on their agreements; informality which makes it easy for anyone to join the group; and transparency where loans are taken in front of the whole group.
Another MOI we studied was the self-help groups (SHG), similar to VSLAs but operating in perpetuity. SHGs are “small groups with 10 to 20 members who have voluntarily organized themselves and are related by affinity for a specific purpose and whose members engage in savings, credit and social involvement as instruments of empowerment.” As saving continues, and financing and other requirements expand, the group finds the need to access additional capital and often acquires a legal status through the formation of a federation to be able to link up with formal financial institutions. This model has flourished especially in India where seven million SHGs composed of over 70 million women have been formed, and many of them have opened bank accounts. A total of $2 billion in savings is estimated to be rotating as loan capital and the groups have accessed a total of $6 billion in loans from mainstream formal banks to date.
Interestingly in the late 1990s, the government of India began to promote SHGs on a large scale and began offering revolving loan funds through state-owned banks. The self-help character of SHGs thus took a back seat, as groups started to organize themselves to access the loan funds from banks, with lower incentive and motivation for saving. (This resonates with the unsuccessful Samahang Nayon program of the Marcos government in the 1970s and the recurrent failures of the cooperative movement in the Philippines during earlier years due to government intervention.) But the SHG federations have managed to sustain the movement by providing value-adding services to member groups, with the encouragement of the non-government sector.
In one of our sessions, the class took a field trip to downtown Antigonish to visit the Bergengren Credit Union and learn about its operations. It was amazing to see how this credit union has grown in more than 70 years so that now it is run like a bank. While it cannot always compete with the more sophisticated products of a bank, it manages to stay in competition with the other savings and loan products by providing better customer relations and offering innovative products to the youth and students. As a member-owned institution, it continues to attract members by providing additional income in the form of patronage reward. It also shares its surplus with the community through contributions to hospitals, youth sports events, and partnerships with St. Francis Xavier University and the Coady International Institute.
Time and again in class, Anuj Jain and C.S. Reddy, our facilitators reminded us that there is no one ideal model for providing financial services to the poor. The key to the design and meaningful implementation of a microfinance program is to look at the people and situation of an area or country, to be mindful of the institution’s goals, and to ask the essential question, which is, “Whom are you serving? And why?” In the end, selecting the features that are appropriate for the target groups being served or one intends to serve is more important than the model itself. The partiality towards community-based or member-owned approaches is premised on the belief that the members find savings to be useful when they need small loans and know their situation well enough to make their own decisions and chart the directions of their institution as well as their own lives.