NextBillion.net - Development Through Enterprise - Attitudinal Barrier to Microfinance - Comments

This practice of gaming the

Ethan Arpi — Thu, 08 Jun 2006 10:28:44 -0500

This practice of gaming the system is by no means unique to the developing world. I have heard countless stories of people here in the US opening new credit card accounts to pay off debts on older ones. It's a vicious cycle. Some people seem to handle their money well and others don't.

Worse than that, other

Derek Newberry — Thu, 08 Jun 2006 10:00:29 -0500

Worse than that, other micro-finance groups like those in Bangladesh have problems with customers gaming the system. While Grameen Bank's high repayment rates were touted heavily in the development community, it was found that what many clients were doing was taking loans out from one bank and then taking loans from another bank to repay the first loan and so on. Micro-finance is a noble cause, but as was noted on the nextbillion blog a while back, it shouldn't be oversold. There are plenty of cultural issues like the one you mention that still erect barriers to proper implementation.

Attitudinal Barrier to Microfinance

John Paul — Tue, 06 Jun 2006 15:19:17 -0500

I just read a news story describing how microfinance schemes in Ghana (and the banks providing them) are being undermined by a refusal to repay loans. According to the article, "The microfinance programme, which is the bedrock of rural banks, is being thwarted due to the attitude of some customers, which is creating many problems for the banks... some people had the perception that the money belonged to the government and was therefore free."

While working in India, I heard similar sentiments about repaying loans. In rural areas, there seemed to be a lack of consequences associated with failure to repay an institutionalized loan (as opposed to a local moneylender). This attitude may be the result of years of government rural development schemes in the form of grants rather than loans. Or it may be a lack of adequate enforcement outside urban areas. Whatever the cause, a cultural belief that money loaned by an institution need not be repayed is likely to slow the entry of larger commercial institutions into this arena, resulting in less microloans being made available to those who need them.

The solution proposed in Ghana was to provide adequate education to the groups and individuals before granting them loans, so that they know their repayments benefit others like themselves. But is this enough? I'm wondering if anyone else has had experience in this area. How widespread is this attitude and what is being done to combat it?