1. Hendricks & Associates MICROFINANCE & CULTURE A Square Peg in a Round Hole?

2. Hendricks & Associates MICROFINANCE & CULTURE Presentation based on: A case study in rural Ghana in 1999 Example from China in 2000

3. Hendricks & Associates TABLE OF CONTENTS Microfinance Culture Study Results Application

4. Hendricks & Associates MICROFINANCE SITUATION MFIs Bring –Strong management –‘Northern’ banking systems –Initial capital –Rapid start-up –Rapid expansion –Low transaction costs

5. Hendricks & Associates MICROFINANCE SITUATION MFIs Need –Community base –Local ownership –Local governance –To move into rural areas –Deal with more traditional rural culture vs. cosmopolitan urban culture

6. Hendricks & Associates CULTURE The way people solve problems and reconcile dilemmas Provides social context to people and gives meaning to their environment

7. Hendricks & Associates CULTURE Outer Layer Middle Layer Core Explicit Artifacts & Products Norms & Values Implicit Basic Assumptions

8. Hendricks & Associates CULTURE Semi-Awareness Level Norms Societies’ agreed sense of what is ‘right’ and ‘wrong’ (How one should behave) Values Related to shared ideals and determine what is ‘good and bad’ (How one wants to behave)

9. Hendricks & Associates CULTURE Assumptions –Obvious ways of solving daily life problems so that the solutions disappear from our consciousness. –If you question assumptions, you are asking questions that have never been asked before.

10. Hendricks & Associates GHANA RESULTS Risk Management Sustainability New Product Development Impact

11. Hendricks & Associates RISK MANAGEMENT ‘Knowing’ –No contract law –‘Knowing’ Guarantees that the person will do what they say Puts guarantor’s credibility at risk Role of the guarantor is to get person to fulfil obligation Highly valued and easily lost Will go to extraordinary lengths to retain

12. Hendricks & Associates RISK MANAGEMENT Up to $150 Solidarity Group

13. Hendricks & Associates RISK MANAGEMENT Solidarity Group –Size varies, if self-determined it outlines the optimum size of local social networks –Guarantee other member’s loans Most problems occur when –Group has a poor chair, or –Longer-term members are borrowing more than newer members of the group

14. Hendricks & Associates RISK MANAGEMENT $150 - $400 Guarantors

15. Hendricks & Associates RISK MANAGEMENT Member having a guarantor known to the group Chair. People were very clear about the limits of their ability to trust others with larger amounts of money. People had defined limits about the amount of risk that they were prepared to assume on behalf of someone else no matter how well they knew them

16. Hendricks & Associates RISK MANAGEMENT $400 + Collateral Guarantors

17. Hendricks & Associates RISK MANAGEMENT Businesses are larger but the entrepreneur usually only has part time employees, often family members as apprentices Level of risk is outlined to include collateral based on level of trust and volatility of business

18. Hendricks & Associates RISK MANAGEMENT Up to $150 $150 to $400 $400 and Up

19. Hendricks & Associates SUSTAINABILITY Understanding the Clients Market Grace Period –Don’t sell the same amount each week Length of the loan –Market varies according to season –Prepared to pay interest for assured capital – uncertainty of next loan.

20. Hendricks & Associates SUSTAINABILITY Items not on family asset/liability sheet –Expected to house and feed relatives children –Expected to be asked to give relatives gifts (why family shouldn’t be in the same group) –Expected to give gifts at funerals

21. Hendricks & Associates NEW PRODUCT DEVELOPMENT Fixed Price Interest Inclusive Loan –Banks’ variable interest create distrust –Contractor uses bank loan to on-lend her product to farmers –Majority of farmers are illiterate –Contractor needs farmers’ trust and to be ‘known’ as trustworthy –Similar to Islamic lending models

22. Hendricks & Associates IMPACT Education of children –Inadequate pension plans, must depend on children with good jobs to support in old age Housing –Co-wives competition –Divorce –Inheritance

23. Hendricks & Associates REVIEW OF LITERATURE Benchmark of what had changed and how much –Tribal and religious differences –Made sense of historical roots of current practices Provided insight into norms, values and assumptions Was the basis for discussion about things people are semi-aware of

24. Hendricks & Associates CHINA USING PARICIPATORY RAPID APPRAISAL (PRA)

25. Hendricks & Associates CHINA RESULTS PRA successfully used to design 3 loan products each with a different value and term –Crops $125 - $2506 Mo.s –Animal Husbandry up to $3751 Year –Small Enterprise$500 - $7506 Mo.s

26. Hendricks & Associates CHINA RESULTS PRA was also used to define –Installment period for each loan type –15 Days –Interest rate range that was acceptable - Market –Savings to qualify - No –Who should not qualify for loans – Very Poor and Very rich

27. Hendricks & Associates LESSONS LEARNED >Processes and procedures need a cultural reference. >Provision must be made to capitalize on local practices. >Organizations need cultural awareness and the ability to harmonize with the local culture. >Projects require a strategy to bridge the gap between culture of organization and beneficiary. >To build the bridge, organizations must reconcile operating differences. >Harmonization and reconciliation require an exchange of information.

28. Hendricks & Associates APPLICATION Some thoughts

29. Hendricks & Associates SECTOR APPLICABILITY Basic Human Needs Good Governance Democratic Development Human Rights Women in Development Private Sector Capacity Building Human Resources

30. Hendricks & Associates WHO CAN DO THE STUDY? Specialized local NGOs University students in Anthropology or Sociology – with sector expertise Specialized consultants

31. Hendricks & Associates HOW SHOULD DATA BE TRACKED? The CONTEXT in which cultural, social, political, economic and environmental lessons were learned and best practices developed must be captured. Only then can meaningful progress be made For example, a method that worked in rural Africa is unlikely to be replicable in China.

32. Hendricks & Associates Microfinance/Microenterprise Management Solution Market Based Indicators Culture Social Political Economic Environmental MF/ME Performance Indicators Poverty Reduction Enabling Environment Sustainability Gender Impact Assess context of Potential Project or Program Project Design Project Implementation Results Lessons Learned / Best Practices Copyright 2000, All Rights Reserved Hendricks & Associates and Model Technologies

33. Hendricks & Associates MICROFINANCE & CULTURE A Square Peg in a Round Hole?