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. 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. 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. Introduction
• Structure of the presentation
–
–
–
–
Hypothesis
Methodology
Empirical Analysis
Conclusions

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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