A fuertes n_chowdhury-group_vs_individual_methodolgy

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A fuertes n_chowdhury-group_vs_individual_methodolgy

  1. 1. 2011 Global Microcredit Summit When does well-designed group methodology and when does well-designed individual methodology work best to strengthen social and financial inclusion and what are those designs? Ana Mª Fuertes (Universitat Jaume I) Nazrul I Chowdhury (Fundation ICO) November 14-17, 2011 – Valladolid, Spain
  2. 2. Introduction • Microcredit – Key element for poverty alleviation – There are 3.600 microcredit institutions around the world – More than 190 million clients (82% women) – European Union • 84 million Europeans live at risk of poverty • 17% of EU27 citizens are social excluded • Women face a much higher risk than men of poverty and exclusion – Microcredit can be a tool for social and financial inclusion as it helps to prevent and redress all the areas of exclusion
  3. 3. Introduction • Microcredit and microfinance organizations follows two types of approaches: – Individual approach – Group approach • in industrialized countries it is atypical – Objective of the paper: To illustrated when and how, in the microcredit/microfinance sector, a group approach and an individual approach can play an effective role to strengthen social and financial inclusion
  4. 4. Introduction • Structure of the presentation – – – – Hypothesis Methodology Empirical Analysis Conclusions
  5. 5. Hypothesis • Mutual Trust – It is the key for any microcredit program to strength social and financial inclusion, regardless of the methodology (group or individual) – To make it successful, guiding principles: • No collateral • Reaching the poorest • Social mandate • Priority to women • Human relations • Sustainability
  6. 6. Methodology • Literature review • Direct observation and field surveys – 4 continents – From each continent, 1 or 2 countries – From each country, 2 or more microcredit or microfinance organizations – 2 different questioners • Personal interview • Processing data • Explore the findings and prove the hypothesis
  7. 7. Methodology Organization Country Continent Benefici aries Banrural Grameen Project Guatemala Latin America 96 ADICLA Guatemala Latin America 21 Friendship Bridge Guatemala Latin America 32 LAPO-Nigeria Nigeria Africa 108 FADU Nigeria Africa 45 Jami Bora Kenya Africa 54 K-Rep Kenya Africa 22 Vision Fund Mongolia Asia 78 XacBank Mongolia Asia 35 Grameen bank Bangladesh Asia 71 Proshika Bangladesh Asia 36 Spanish Banks and Savings Banks Spain Europe 18 Fundation ICO Project Spain Europe 47 Total 663
  8. 8. Social and Financial Exclusion – In Europe, microfinance reduces vulnerability: • Smoothing income • Building assets • Empowering women – Microcredit is for including disadvantaged people into the normal economy – In general, are individual projects
  9. 9. Social and Financial Exclusion – In the group mechanism, the group methodology is • A participatory decision making process • A social club • The clue of trust • The vehicle of social an financial inclusions – But also in group mechanisms the programs have to be well designed to meet basic goals of microcredit
  10. 10. Empirical Analysis • Data – 13 organizations from 6 countries • 3 individual approach • 10 group approach – 663 beneficiaries • Individual approach: 42% women, 58% men • Group approach: 88% women, 12% men – Interviewing executives and beneficiaries
  11. 11. Empirical Analysis – Two different questionnaires: for organizations and for beneficiaries • The questionnaire for organizations explored the methodology, philosophy and financial solvency of the organizations • The questionnaire for beneficiaries explored the guiding principles (hypothesis of this paper) in an easy and direct comprehension in order to achieve to the most important question: Mutual Trust
  12. 12. Empirical Analysis • Questionnaire for beneficiaries: – Question 1 and question 2 relate to the poverty level of beneficiaries before they joined the program: Priority to the poorest of the poor and Social and Financial Exclusion – Question 3 and question 4 relate to Human Relations, one of the key ethics of microcredit, offering social programs – Question 5 and question 6 relate: • Credit without Collateral • Behavioral obligations for repayment (Sustainability) • Mutual Trust – From the data we know what methodology gives priority to Women
  13. 13. Findings from Empirical Analysis 1. Reaching to the poorest – Group approach • 28% beneficiaries had bank account prior to their joining program • 72% did not – Individual approach • 87% beneficiaries had bank account prior to their joining program • 13% did not Group approach outreach to the poorest higher than the individual approach
  14. 14. Findings from Empirical Analysis Did you have any account (private or public) prior to joining the program? 100% 90% 80% 70% 60% yes 50% no 40% 30% 20% 10% 0% individual group findings
  15. 15. Findings from Empirical Analysis 2. Social and financial exclusion – Group approach • 69% beneficiaries had no access to finance before joining the program • 31% had it – Individual approach • 89% beneficiaries had some sorts of access to finance • 11% had not Group lending approach can play a bigger role than the individual to strengthen social and financial inclusion
  16. 16. Findings from Empirical Analysis Did you receive any credit from any sources before join the program? 100% 90% 80% Received loan from banks, NGO’s, MFI’s, cooperatives, etc. 70% 60% Received loan only from money lenders, relatives & neighbours 50% 40% Didn’t receive any loan before join the program 30% 20% 10% 0% individual group findings
  17. 17. Findings from Empirical Analysis 3. Human Relation – Group approach • 73% beneficiaries meet with any of the employees from the organization at least once every 15 days – Individual approach • 67% beneficiaries didn’t meet with any of the employees from the organization during last six months Group lending approach is much more effective than individual lending approach for strengthening human relation and social inclusion
  18. 18. Findings from Empirical Analysis How often did you meet project /NGO/ MFI/ bank people? 100% 90% 80% At least once a week 70% At least once in 15 days 60% 50% At least once every 6 months 40% Not even once in last 06 months 30% 20% 10% 0% individual group findings
  19. 19. Findings from Empirical Analysis 4. Human Relation and Mutual Trust – Group approach • 76% home were visited at least once or more times by the employees of the program – Individual approach • Only 11% home were visited at least once or more times by the employees of the program Group lending approach is much inclusive than individual lending approach
  20. 20. Findings from Empirical Analysis How many times project/NGO/MFI/bank people have visited your house? 100% 90% 80% 70% 60% Visited once or more 50% Never 40% 30% 20% 10% 0% individual group findings
  21. 21. Findings from Empirical Analysis 5. Behavioral obligations – Group approach • Only 8% are familiar with direct physical collateral • Only 6% are familiar with legal instruments – Individual approach • 42% are familiar with direct physical collateral • 45% are familiar with legal instruments In an individual approach physical collateral and legal instruments are much higher than in the group approach
  22. 22. Findings from Empirical Analysis What obliged you to pay your insatalment? 70% 60% 50% 40% individual 30% group 20% 10% 0% Afraid of collateral Afraid of group Afraid of legal action findings Commitment and responsibilities
  23. 23. Findings from Empirical Analysis 6. Mutual Trust and customer satisfaction – Group approach • 72% beneficiaries trust their organizations and satisfied with their services – Individual approach • 29% beneficiaries trust their organizations and satisfied with their services The level of mutual trust and customer satisfaction is relatively high in the group approach rather than individual approach
  24. 24. Findings from Empirical Analysis Do you think your organization is the best in your community? 80% 70% 60% 50% No 40% Yes I don’t know 30% 20% 10% 0% individual group
  25. 25. Findings from Empirical Analysis 7. Priority to Women – Group approach • 88% beneficiaries are women – Individual approach • 42% beneficiaries are women Group approach gives priority to Women, in the individual approach the ratio women to men is lower
  26. 26. Findings from Empirical Analysis The ration of men and women 100% 90% 80% 70% 60% 50% Women 40% Men 30% 20% 10% 0% Individual Group
  27. 27. Conclusions • Well designed microcredit program can play a significant role – to support disadvantaged vulnerable poor – strengthen social and financial inclusion in a developed and industrialized country
  28. 28. Conclusions • Even if the program has an individual approach – if any microcredit program follows the proposed guiding principles – and designs it according to the country context – Microcredit can play an effective role in strengthening social and financial inclusions in any industrialized country

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