Credit and debt
“I attended a training on how to run the group and how to save by making timely contributions and returning loans correctly. As a result we initiated a savings scheme and started keeping records. We have now saved 2255 Rs.” Bedi is the president of a Self Help group in Bara Kalajhore village, Jharkhand, India.
Every couple of months a member of the Find Your Feet UK office team gives a staff seminar. These are normally based on a book that deals with an issue of relevance to our work.
Recently Betty Williams, one of the Programme Officers at Find Your Feet gave a talk about the book “What’s wrong with microfinance?” The book’s editors, Thomas Dichter and Malcolm Harper, warn against pushing credit as a right and ignoring its darker side – debt. By forging social relations based on shared debt, they argue, previous ones based on traditional reciprocity may be undermined.
Not only this but, as Blogger Tanglad writes in a powerful article A Political Economy of Shame, “given the surprising lack of entrepreneurial or job skills training in microcredit schemes, it’s not unusual for a member to default on her loan. This is when things get even uglier, as the other women in the cohort are forced to extract payment.”
On returning from India a couple of months ago I wrote a blog piece highlighting the power of the Self-Help Group. As the blog piece shows, one of the key aims of these groups is to provide women with access to affordable credit.
So are these groups prey to exactly the problems highlighted above?
In our hands
I actually think that the Self-Help Groups we support differ in their very foundation from some of the groups formed by microfinance institutions (MFIs).
Groups are popular with microfinance institutions because, as Dichter and Harper explain, they provide economies of scale. Groups appraise members’ loan proposals, guarantee loans and provide overdue loan recovery service. They also aggregate members’ savings and repayments and either disburse to new borrowers or deposit in group accounts and keep all the records – the MFI only keeps the group record.
The groups we support are, however, formed with the goal not just of increasing access to credit in an efficient way but of empowering communities to manage their own development process. This is reflected in the fact that the group itself owns the pool of money, rather than it being owned and managed by an institution outside the community. Groups therefore define their own rules, structure and responsibilities, set their own interest rates and make their own credit decisions.
Not a silver bullet but a way forward
It is also reflected in the fact that we don’t treat microcredit as a silver bullet to ending rural poverty.
Poverty elimination needs, as Dichter and Harper put it, “action on many fronts, including social safety nets, effective education, low cost health care and sound macro-economic policies.”
Our partners don’t only train Self Help Group members in financial management skills. They also provide training in vocational skills and raise awareness about the services people are entitled to. The women we work with are therefore not only developing viable small businesses, they are also helping their communities to gain access to essential services such as clean water, healthcare and education.
This has an incredibly powerful effect on the self esteem of Self Help Group members. As I wrote in the “Power of the Self Help Group,” the fact that many women are now contributing to the family income means that they have more of a say in family decisions. And, as I heard in every village I visited in India on my recent trip, the experience of working together in a group with other women for the first time is creating a new sense of trust and cohesiveness.