Microfinance and  the Challenge of Socrates   Web Version, June 2009
<ul><li>Micro finance </li></ul>“ Micro” = designed to be useful to,  and  affordable for,  poor people
Members of a Santal (indigenous)  ‘self-help group’ in Rajshahi, Bangladesh.
Microfinance 3.0 <ul><li>Targets 850 million rural people who earn less than $1 a day.  </li></ul><ul><li>Has been buildin...
The Problem is Governance <ul><li>Building ‘Village Finance Institutions’ (VFIs) involves the same business principles as ...
Savings Address Vulnerability <ul><li>Savings needs involve far more than recurring deposits,  especially in rural areas ....
Getting Community Finance Right
The Rights Dimension <ul><li>Poor people have a right to be able to safely form agreements with each other and external co...
<ul><li>…  and the  </li></ul><ul><li>Challenge  </li></ul><ul><li>of Socrates </li></ul>Bust of Socrates  attributed to L...
Writing & Speech <ul><li>“…  to Homer and other writers of poems … and to Solon and others who have composed writings … to...
Oral Culture & Trust <ul><li>“ Long after a culture has begun to use writing, it may still not give writing high ratings. ...
The Source of Trust … <ul><li>…  is community.  </li></ul><ul><li>“ For an oral culture  </li></ul><ul><li>learning or kno...
The media of communication used should match the culture of the institution.  Oral media are normally only used at the ret...
TCE and Governance <ul><li>Transaction cost economics (TCE) shows that there are many costs incurred by villagers in the p...
Tools of Oral Governance <ul><li>Various tools are available to reduce these costs for villagers, including: </li></ul><ul...
Example:  Mnemonics
Auditability <ul><li>Oral records can be audited, but audit  </li></ul><ul><li>skills are specialized: </li></ul><ul><li>a...
Bridges to Literacy & Numeracy <ul><li>Should be integrated into the following </li></ul><ul><li>documents (among others!)...
Example:   bridging towards numeracy through tallies and finger-counting
Reality Check <ul><li>Technology and Rural Poverty </li></ul><ul><li>$100 laptops and mobile phones have many benefits, bu...
Research  Enabling Financially Capable Villages
Hypothesis <ul><li>Much of the institutional fragility in poor villages results from  a mismatch between non-literate and ...
The Shape of Success <ul><li>If the hypothesis is correct, illiterate villagers will  be more likely to: </li></ul><ul><li...
<ul><li>“ Poor people always pay back their loans.  </li></ul><ul><li>It’s us, the designers of institutions and rules, wh...
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Microfinance &amp; the Challenge Of Socrates Web 06 09

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This paper summarizes some of the key aspects of Mathwood\'s current research into the impact of illiteracy on access to finance among 850 million rural people who earn less than $1 a day. It makes practical recommendations about how to expand access quickly and easily.

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  • Microfinance &amp; the Challenge Of Socrates Web 06 09

    1. 1. Microfinance and the Challenge of Socrates Web Version, June 2009
    2. 2. <ul><li>Micro finance </li></ul>“ Micro” = designed to be useful to, and affordable for, poor people
    3. 3. Members of a Santal (indigenous) ‘self-help group’ in Rajshahi, Bangladesh.
    4. 4. Microfinance 3.0 <ul><li>Targets 850 million rural people who earn less than $1 a day. </li></ul><ul><li>Has been building momentum in the past decade, based on village self-reliance. </li></ul><ul><li>This wave merges the best practices of the previous waves to create true banks for poor people, building on skills of village and city. </li></ul><ul><li>None of the models can yet consistently : </li></ul><ul><ul><li>earn local trust and protect deposits, </li></ul></ul><ul><ul><li>respect their own rules (and gov’t rules), </li></ul></ul><ul><ul><li>meet all basic financial service needs of clients. </li></ul></ul>
    5. 5. The Problem is Governance <ul><li>Building ‘Village Finance Institutions’ (VFIs) involves the same business principles as credit unions. But there are important differences. </li></ul><ul><li>Most clients cannot read or write. </li></ul><ul><li>External development agents are heavily biased by literacy. </li></ul><ul><li>Economic democracy and business systems are often alien concepts. </li></ul><ul><li>These differences have led to governance problems in VFIs world-wide. </li></ul>
    6. 6. Savings Address Vulnerability <ul><li>Savings needs involve far more than recurring deposits, especially in rural areas . </li></ul><ul><li>seasonal lump sum deposits to smooth cash flows across the crop year </li></ul><ul><li>occasional surpluses arising out of successful business activities </li></ul><ul><li>irregular recurring sums the women want to avoid spending </li></ul><ul><li>Women are responsible for savings. </li></ul><ul><li>they need quality savings accounts to secure household financial stability, </li></ul><ul><li>later they can start capitalizing on opportunities. </li></ul>
    7. 7. Getting Community Finance Right
    8. 8. The Rights Dimension <ul><li>Poor people have a right to be able to safely form agreements with each other and external contractors, and to expect those agreements to be kept by all involved (‘shareholder rights’). </li></ul><ul><li>Universal Declaration of Human Rights affirms: </li></ul><ul><li>the right to own property in association with others, and </li></ul><ul><li>the right to freedom of association . </li></ul>
    9. 9. <ul><li>… and the </li></ul><ul><li>Challenge </li></ul><ul><li>of Socrates </li></ul>Bust of Socrates attributed to Lysippos, the Louvre
    10. 10. Writing & Speech <ul><li>“… to Homer and other writers of poems … and to Solon and others who have composed writings … to all of them we are to say that if their compositions are based on knowledge of the truth, and they can defend or prove them, when they are put to the test, by spoken arguments, which leave their writings poor in comparison of them , then they are to be called, not only poets, orators, legislators, but are worthy of a higher name …” </li></ul><ul><ul><li>Socrates, Phaedrus , trans. Benjamin Jowett. ( Italics mine. ) </li></ul></ul>
    11. 11. Oral Culture & Trust <ul><li>“ Long after a culture has begun to use writing, it may still not give writing high ratings. A present-day literate usually assumes that written records have more force than spoken words as evidence of a long-past state of affairs, especially in court. Earlier cultures that knew literacy but had not so fully interiorized it, have often assumed quite the opposite.” </li></ul><ul><li>Walter Ong. Orality and Literacy , p. 95 </li></ul>
    12. 12. The Source of Trust … <ul><li>… is community. </li></ul><ul><li>“ For an oral culture </li></ul><ul><li>learning or knowing means </li></ul><ul><li>close, empathetic, </li></ul><ul><li>communal identification </li></ul><ul><li>with the known.” </li></ul><ul><li>Ong, Ibid ., p. 45 </li></ul>
    13. 13. The media of communication used should match the culture of the institution. Oral media are normally only used at the retail interface.
    14. 14. TCE and Governance <ul><li>Transaction cost economics (TCE) shows that there are many costs incurred by villagers in the process of building an SHG. These include: </li></ul><ul><li>search and information </li></ul><ul><li>bargaining and decision-making </li></ul><ul><li>supervision and enforcement </li></ul><ul><li>organizational maintenance </li></ul><ul><li>agency </li></ul><ul><li>internal control </li></ul>
    15. 15. Tools of Oral Governance <ul><li>Various tools are available to reduce these costs for villagers, including: </li></ul><ul><li>collective memory </li></ul><ul><li>action learning </li></ul><ul><li>mnemonics </li></ul><ul><li>story, image and formula </li></ul><ul><li>numeracy tools </li></ul><ul><li>public display </li></ul><ul><li>pictures and symbols </li></ul><ul><li>physical assets (cashbox design …) </li></ul><ul><li>scribes </li></ul><ul><li>technology (mobile phone, computer …) </li></ul>
    16. 16. Example: Mnemonics
    17. 17. Auditability <ul><li>Oral records can be audited, but audit </li></ul><ul><li>skills are specialized: </li></ul><ul><li>auditing collective memory may require querying the group in person, </li></ul><ul><li>the components of the primary information system, from symbols and colour-codes to cashbox design, must be clearly understood by the auditors </li></ul><ul><li>At network levels information systems </li></ul><ul><li>continue to be based on writing. </li></ul>
    18. 18. Bridges to Literacy & Numeracy <ul><li>Should be integrated into the following </li></ul><ul><li>documents (among others!) </li></ul><ul><li>income statements and balance sheets, </li></ul><ul><li>interim financial reports, </li></ul><ul><li>financial plans/projections, </li></ul><ul><li>loan contracts, </li></ul><ul><li>loan application forms (including repayment schedules), </li></ul><ul><li>passbooks, and </li></ul><ul><li>deposit and withdrawal slips. </li></ul><ul><li>  </li></ul>
    19. 19. Example: bridging towards numeracy through tallies and finger-counting
    20. 20. Reality Check <ul><li>Technology and Rural Poverty </li></ul><ul><li>$100 laptops and mobile phones have many benefits, but are not a ‘magic bullet’. </li></ul><ul><li>Initially, villagers won’t trust technology any more than text. If they are poor and rural, they may speak a language (like Santal) with no internet content. </li></ul><ul><li>Some oral information management systems are well adapted to technology however. If they work without technology, there’s a good chance they’ll work with it. </li></ul>
    21. 21. Research Enabling Financially Capable Villages
    22. 22. Hypothesis <ul><li>Much of the institutional fragility in poor villages results from a mismatch between non-literate and modern ways of managing collective information . </li></ul><ul><li>A diagnostic product (‘Socrates’) can be developed capable of measuring this mismatch in any village in the world, in any context. </li></ul><ul><li>Based on local diagnostic results, information management tools can be tailored that greatly reduce distrust and self-exclusion by non-literate villagers, while being open to effective external auditing and supervision. </li></ul>
    23. 23. The Shape of Success <ul><li>If the hypothesis is correct, illiterate villagers will be more likely to: </li></ul><ul><li>join a VFI, </li></ul><ul><li>participate actively in its affairs, and </li></ul><ul><li>serve as managers. </li></ul><ul><li>The VFI earn and maintain trust. This will mean : </li></ul><ul><li>more consistently respect its own rules and procedures, </li></ul><ul><li>attract more savings & more members, </li></ul><ul><li>remain readily auditable and profitable, </li></ul><ul><li>transform into a village pool of capital. </li></ul>
    24. 24. <ul><li>“ Poor people always pay back their loans. </li></ul><ul><li>It’s us, the designers of institutions and rules, who keep creating trouble for them.” </li></ul><ul><li> Dr. Muhammad Yunus, founder of Grameen Bank and Nobel Peace Prize laureate. </li></ul>
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