Professional Documents
Culture Documents
Behavior,
and
Social
Capital:
Case
Studies
of
Four
MFIs
in
the
Philippines
Submitted
By
Asuncion
M.
Sebastian
For
Anthropology
of
Development
DVS590P
To
Dr.
Levy
Duhaylungsod
On
August
25,
2012
Under the unorthodox economic principle, social capital has been recognized as a vital ingredient in economic development and an essential factor to growth of physical investment, appropriate technology, and market mechanisms of indigenous grassroots associations. Acknowledged globally as a poverty alleviation tool, microfinance is built on the concept of social capital. The first methodology employed in 1979 in Bangladesh was group-shared liability, which was also adopted by the microfinance institutions (MFIs) in the Philippines beginning 1989. Over the years, however, majority of the MFIs have shifted to individual liability. With this trend, one may be led to ask if social capital still has a role in the effectiveness of microfinance programs in the country. This paper argues that the change in the kind of loan availed by the micro borrowersor the graduation from group loans to individual loanswhich is commonly done without the micro borrowers necessarily leaving the group or terminating attendance in group meetings does not affect the micro borrowers nature and extent of social capital. The change in methodology employed by the MFIsfrom group liability to individual liabilityis also only indicative of the strengthening of vertical social capital relative to the horizontal social capital and not the absence of either. Finally, both vertical and horizontal social capital are necessary in effectively running a microfinance program and systems alone will not suffice. Since the lower-income segments tend to be less trusting than those who are better off and that poverty is linked to the depletion of social capital, management systems alone will not likely work. This paper further proposes this: in general, an MFIs weakness in systems, structures, and managerial skills is compensated by the presence of social capitaleither horizontal or vertical, or bothand vice versa to be effective in implementing microfinance programs. Weakness in social capital may either be complemented by strong institutional systems or be built or strengthened using institutional mechanisms.
Abstract
Table
of
Contents
I.
INTRODUCTION .......................................................................................................................1
A.
RATIONALE ............................................................................................................................................... 1
B.
RESEARCH
QUESTIONS ........................................................................................................................... 2
C.
CONTRIBUTION
OF
THE
STUDY .............................................................................................................. 3
D.
SCOPE
AND
LIMITATIONS ....................................................................................................................... 4
II.
THEORETICAL
BACKGROUND ............................................................................................6
A.
DEVELOPMENT
ECONOMICS
AND
THE
MICROENTREPRENEURS .................................................... 6
B.
INSTITUTIONS,
BEHAVIOR,
AND
MICROFINANCE .............................................................................. 8
C.
THE
ROLE
OF
SOCIAL
CAPITAL
IN
DEVELOPMENT .......................................................................... 11
D.
VARIABLES
ASSOCIATED
WITH
SOCIAL
CAPITAL ............................................................................ 14
E.
SOCIAL
CAPITAL
AND
MICROFINANCE............................................................................................... 16
III.
GROUP
LIABILITY
EXPLAINED....................................................................................... 19
A.
FOUNDATION
OF
THE
GROUP
LIABILITY
METHODOLOGY ............................................................ 19
B.
GROUP
LIABILITY
IN
THE
PHILIPPINES ............................................................................................ 22
IV.
CASE
STUDIES ...................................................................................................................... 23
A.
CENTER
FOR
COMMUNITY
TRANSFORMATION
(CCT) ................................................................... 23
B.
KASAGANA-KA
DEVELOPMENT
CENTER,
INC.
(KDCI).................................................................. 24
C.
TSPI
DEVELOPMENT
CORPORATION
(TSPI) .................................................................................. 26
D.
NEGROS
WOMEN
FOR
TOMORROW
FOUNDATION
(NWTF)........................................................ 28
V.
ANALYSIS ............................................................................................................................... 31
A.
CASE
STUDIES ....................................................................................................................................... 31
B.
STATISTICAL
DATA............................................................................................................................... 32
VI.
CONCLUSION ........................................................................................................................ 34
VI.
DIRECTION
FOR
FURTHER
RESEARCH ........................................................................ 36
WORKS
CITED................................................................................................................................ 38
ANNEX .............................................................................................................................................. 40
Institutions,
Behavior,
and
Social
Capital:
Case
Studies
of
Four
MFIs
in
the
Philippines
I.
Introduction
A.
Rationale
Social capital has been recognized as a vital ingredient in economic development and, as shown in a number of studies, has been essential to growth of physical investment, appropriate technology, and getting prices right of indigenous grassroots associations. The success of cooperatives to manage common pool resources, for example, has also been attributed mainly to the stocks of social capital (Putnam, 1993, p.5). Acknowledged globally as a poverty alleviation tool, microfinance is built on the concept of social capital. The social capital embedded in the network of Bangla women has been the foundation of the group-liability, Grameen lending methodologythe first microfinance methodology that has been institutionalized and replicated globallyalthough its founder Muhammed Yunus did not call the power behind the network of women micro borrowers as social capital. The lending method was adopted in the Philippines in 1989 and only until the mid-2000s did the microfinance institutions (MFIs) adopt the individual liability method called ASA (an acronym for Association for Social Advance but is more popularly known as ASA) that originated also from Bangladesh. In the Philippines, the National Anti-Poverty Commission, the governments implementing arm for the Social Reform and Poverty Alleviation Act, defined the term microfinance as a credit and savings mobilization program exclusively for the poor to improve the asset base of households and expand the access to savings of the poor. It involves the use of viable alternative credit schemes and savings programs including the extension of small loans, simplified loan
application procedures, group character loans, collateral-free arrangements, alternative loan repayments, minimum requirements for savings, and small denominated savers' instruments (Republic Act 8425 Sec. 3J). Today, only a minority of the more than 4,0001 MFIs is using solely the original Grameen method; the rest have either combined the group mechanism of the Grameen method with individual liability (or also called group lending in some literature and Grasya in colloquial Filipino) or adopted individual liability as practiced in the traditional banking system. Among 37 MFIs participating in the MIXmarket, only 11 or 30 percent offer group liability (MIXmarket, 2012). One of the Grameen implementers remarked, Our group method is now dysfunctional. Often, this phrase is used to refer to high default rate on loans or high drop out rates of the borrowers, or both. With this trend in the microfinance sector, one may be led to ask if social capital still has a role in the effectiveness of microfinance programs in the country.
B.
Research Questions
This
study
aims
to
answer
the
following
questions:
1. Does
the
change
in
the
kind
of
loan
availed
by
the
micro
borrowersfrom
group
liability
to
individual
loansindicate
anything
about
the
nature
and
extent
of
social
capital
of
the
micro
borrowers?
One
hypothesis
is
that
the
poorer
segment
needs
more
social
capital
to
achieve
their
economic
goals
in
the
absence
of
other
physical
and
financial
capital.
As
they
become
better
off,
they
tend
to
prefer
to
do
business
on
their
own,
thus
the
shift
from
group
to
individual
loans.
This
change
in
preference
is
also
reflected
in
the
graduation
design
of
loans
of
many
MFIs,
that
is,
those
members
with
bigger
businesses
are
allowed
to
avail
of
individual
loans.
It
could
also
be
because,
as
the
borrowers
become
better
off,
their
social
capital
changes
to
becoming
more
bridging
than
exclusive,
reaching
to
other
and
broader
networks
and
markets
(Woolcock,
1998),
which
is
often
1
Data
as
of
2010.
This
number
was
composed
of
25
non-government
organizations,
200
banks,
and
a
conservative
estimate
of
4,337
cooperatives
engaged
in
microfinance.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 2 of 40
restrained by the features of group liability. This hypothesis is also in line with Putnams (2001) assertion that the more affluent people are more inclined to build social capital. 2. Does the change in methodology employed by the MFIsfrom group liability to individual liabilityindicate anything about the nature and extent of social capital between the micro borrowers and the MFIs? The hypothesis is that weak social capital is compensated by institutional or managerial mechanisms of the intervening organization, in this case, the MFIs. Does the change therefore indicate the weakening of social capital among micro borrowers? The counter argument, however, is that the intervening organization can provide the micro borrowers venues to build and strengthen their social capital instead of setting up managerial or control systems. Another counter argument is that social capital now moves from among the micro borrowers (horizontal social capital) to that between the micro borrowers and MFIs (vertical social capital). 3. What kind and/or level of social capital are necessary in effectively running a microfinance program, if at all? Ultimately, this study aims to establish the relevance of social capital in the microfinance programs today. One argument is that as long as systems, structures, and managerial capabilities are all in place, a microfinance program will be effective even without social capital (Gine & Karlan, 2007). The other is that social capital and management systems go together in the effective implementation of microfinance programs.
C.
In the last 20 years of implementation of microfinance programs in the country, they have been examined extensively in the discipline of mainstream economics and financial management. This study aims to examine four cases of MFIs from
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 3 of 40
the perspective of development economics (or the unorthodox economics), specifically in the light of socio-anthropology. Further, the theoretical frameworks of social capital have not been applied in the Philippine context, much less in its microfinance sectoran ironic phenomenon given that microfinance is founded on social capital and that the Philippines ranked second best performing country next to Peru in terms of microfinance conditions: regulatory framework, investment climate, and institutional development (The Economist Intelligence Unit, 2010).
D.
The choice of the four case studies is based on the MFIs lending methodology, religious orientation, and area of operations. Center for Community Transformation (CCT) Kasagana-Ka Development Center, Inc. (KDCI) Lending methodology Individual Religious orientation Yes Areas of operation Metro Manila, Luzon, Visayas, and Mindanao Predominantly urban operation Metro Manila, parts of Rizal and Bulacan Predominantly urban operation Metro Manila, Luzon, one branch in Bukidnon Predominantly rural operation Visayas and Palawan Predominantly rural operation
Individual
No
Group
Yes
Group
No
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 4 of 40
Several variables are associated with social capital but only two are considered in the selection of the case studies: 1) religious orientation of the MFIs, based on the arguments of Fukuyama (2001), Sen (2002), and Putnam (1993); and 2) the urban-rural characteristic of their areas of location, as suggested by Putnam (1993). Although literature cited education and age as the top two variables associated with social capital, including them in the analysis would require a different, more extensive data gathering and research methods. Of the four case studies, two are predominantly in urban areas using individual liability and two in rural areas using group liability lending method. The line up of case studies, however, would have been more comprehensive had there been four other MFIs operating under these conditions: TSPI, KDCI, and NWTF are non-government organizations (NGOs); CCT started as an NGO but later converted into a cooperative for legal purposes. For this study, regular cooperatives that are into microfinance are not included as there is no organizational or legal distinction between those cooperatives offering microfinance services and those who are offering regular cooperative financing. Banks are also excluded in this study because their recruitment of microfinance borrowers and offering of microfinance services are subject to government regulations, unlike the NGOs. Besides, the NGOs are recognized in development economics literature to have a critical role in the creation and capacity building of grassroots institutions and in intermediating the state and the market forces. Annex shows the position of these subject MFIs among the 37 Philippine institutions participating in the MIXMarket (http://www.mixmarket.org/about), a public portal where MFIs voluntarily share their financial and social performance information. These 37 MFIs account for more than 60 percent of Urban operation, group liability, with religious orientation Urban operation, group liability, without religious orientation Rural operation, individual liability, with religious orientation Rural operation, individual liability, without religious orientation
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 5 of 40
the total 5.1million microfinance borrowers in the country in 2010 (Geron, 2010).
II.
Theoretical
Background
A.
Development
Economics
and
the
Microentrepreneurs
Unlike
orthodox
economics,
development
economics
was
concerned
with
the
institutional
places
of
custom,
culture,
and
technology
in
resource
allocation
and
peoples
mindset,
making
constraints
on
individual
behavior
as
significant
as
choices
(Cameron,
2000,
p.629).
An
anthropologic
view
of
development
based
on
Marxian
philosophy
was
also
introduced.
It
defines
value
as
something
that
is
based
not
on
market
forces
but
on
relations
of
production
determined
historically
and
it
is
these
relations
that
determine
and
govern
those
of
exchange
(Resnick,
1975,
p.319).
Finally,
Lewis
(1984)
furthered
that
market
mechanisms
sometimes
do
not
hold
in
poor
countries,
where
people
do
what
they
do
for
non-economic
reasons
and
not
to
maximize
their
income.
He
emphasized
the
role
of
economic
anthropology
in
development,
especially
that
the
behavior
relating
to
investment,
savings,
risks,
and
having
children
is
not
governed
by
the
calculus
of
marginal
utility
(p.4).
These
propositions
are
true
in
the
context
of
microenterprises.
Many
of
them
do
not
grow
and
scale
up
to
at
least
small
business
category
because
the
life
of
the
enterprise
is
often
co-terminus
with
the
graduation
of
the
last
child
to
go
to
school.
In
other
cases,
business
hours
is
only
what
fits
into
the
microentrepreneurs
remaining
time
after
house
chores
are
done
and
children
are
already
off
to
school.
In
many
occasions,
too,
the
prices
at
the
level
of
microenterprise
are
based
on
suki
(customer
loyalty)
relations
between
the
buyer
and
microentrepreneur
and/or
at
the
time
of
the
dayfirst
buyer
gets
deep
discount
for
good
luck
for
the
rest
of
the
day.
The
best
products
are
also
saved
for
the
suki
and
not
for
the
highest
bidder
or
for
the
volume
buyer
(although
the
volume
buyer
could
also
be
the
suki).
A
study
(Sebastian,
Market
Saturation
of
Microfinance
in
Metro
Manila:
Fact
or
Fiction?
,
2011)
also
showed
that
of
the
90
surveyed
poor
households
in
Metro
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 6 of 40
Manila,
26
of
them
or
almost
29
percent
have
multiple
sources
of
income;
19
of
them
or
21
percent
are
engaged
in
a
microenterprise
combined
with
other
income
sources
such
as
wage
of
other
household
members.
Additional
24
households
or
almost
27
percent
of
the
surveyed
households
earn
solely
from
running
a
microenterprise.
The
households
engaged
in
micro
enterprises
are
usually
operating
sari-sari
stores
and
food
vending,
or
are
involved
in
retailing
(buy-and-sell
or
direct
selling).
Of
the
43
households
engaged
in
a
micro
enterprise,
40
have
capital
not
exceeding
Php5,000
and
31
have
expressed
the
need
for
additional
funds
averaging
Php8,700
to
grow
their
micro
business.
Of
the
household
surveyed
in
the
same
study,
83
or
over
92
percent
have
had
borrowed
money.
Usual
reasons
for
borrowing
are
to
finance
childrens
education
(20
percent),
to
buy
food
(20
percent),
to
acquire
capital
for
micro
enterprise
(20
percent),
and
for
emergency
purpose
or
illness
in
the
family
(18
percent).
Their
top
sources
of
loans
are
family
and
friends
(34
percent),
5/6
or
loan
sharks
(30
percent),
sari-sari
stores
(11
percent),
and
lending
institutions
(9
percent).
The
respondents
said
they
prefer
these
sources
because
of
convenience,
flexible
terms,
and
the
ease
or
absence
of
processing
requirementsthis
despite
the
high
interest
rates
of
the
loan
sharks.
They
also
go
for
a
minimal
interest
rate
and
at
times
interest-free
loans
from
friends/relatives
and
the
neighborhood
stores,
who
understand
their
conditions
the
most
(Sebastian,
Market
Saturation
of
Microfinance
in
Metro
Manila:
Fact
or
Fiction?
,
2011).
Although
the
survey
results
are
not
conclusive
but
are
only
indicative
of
possible
economic
behavior
of
the
poor
microentrepreneurs,
they
show
that
relationships
play
a
major
part
in
the
decision
making
of
the
individuals
as
far
as
their
economic
life
is
concerned,
much
more
than
market
forces.
Since
microentrepreneurs
think
and
behave
this
way,
the
microfinance
institutions,
which
cater
to
their
financial
needs,
would
have
to
consider
these
factors
in
their
design
of
interventions.
Building
on
Beckers
(1965)
notion
of
household
production,
Parente,
Rogerson,
and
Wright
(2000)
established
a
growth
model
that
showed
that
individuals
in
poor
countries
spend
less
time
working
in
the
market.
This
proposition
may
not
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 7 of 40
be exactly true in the case of the many microenterprises whose market only happens to be tightly intertwined with household chores (ironing clothes or feeding the children while manning a sari-sari store), with socialization (selling beauty products while visiting a neighbor who has just given birth), and/or religious events (selling items or putting up temporary stores during Sunday mass and fiestas). This behavior and the pricing system of the microentrepreneurs mentioned earlier make them easily fall into the cracks even of microeconomics. Another insight was provided by Mueller (1984) and Kirkpatrick (1978): while individuals devote much time working, relatively small fraction of it is devoted to activities that generate output that is measured in gross national product accounts (Parente, Rogerson, & Wright, 2000, p.685). Thus, the authors argued that home production, and based on the previous argument on the output of microenterprises, should be made part of the income accounting of macroeconomics.
B.
While
neoclassical
economists
assume
that
individuals
make
decisions
based
on
rational
choice
or
utility-maximization
thinkingwhich
we
have
shown
is
not
necessarily
true
among
the
poor
microentrepreneursinstitutional
economists
argue
that
factors
such
as
culture
of
poverty,
moral
economy,
and
social
formations
influence
the
decision
making
of
people.
They
also
suggest
that
institutions
have
considerable
durability
and
path-dependence
and
recognize
NGOs
as
the
mediator
between
two
competing
dominant
institutional
models the
market
and
the
state.
Under
institutional
economics,
the
NGOs
also
play
an
important
role
in
the
creation
and
capacity
building
of
grassroots
institutions
that
better
represent
their
target
groups
of
vulnerable
people
(Cameron,
2000,
p.633).
The
very
first
MFIs
in
the
country
were
NGOs,
although
the
cooperatives
would
argue
that
as
early
as
the
1900s
they
have
been
offering
microfinance
services
without
calling
them
as
such.
However,
it
was
the
NGOs
that
introduced
group-
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 8 of 40
based
liability
and
weekly
repayment
scheme
that
have
effectively
curtailed
the
credit
risks
inherent
in
the
poor
market.
As
pointed
out
by
Ray
(Development
Economics,
2007,
p.15),
the
formal
credit
sector
excludes
the
poor
not
because
they
are
less
trustworthy
but
because
in
case
of
project
failure,
they
do
not
have
the
resources
to
repay
their
debts.
The
poor
are
thus
compelled
to
turn
to
informal
lendersas
shown
in
the
survey
they
borrow
from
family
and
friends,
from
loan
sharks,
and/or
from
sari-sari
stores.
The
entry
of
MFIs
therefore
gave
the
poor
an
option.
Moreover,
these
MFIs
have
gone
beyond
the
provision
of
micro
creditthere
are
now
micro
insurance,
micro
savings,
as
well
as
non- financial
products
such
as
financial
education,
skills
training,
and
business
developmentan
illustration
of
Camerons
point
that
NGOs
play
an
important
role
in
the
creation
and
capacity
building
of
grassroots
institutions.
Perhaps
another
institution
that
is
popular
among
the
poor
is
the
paluwagan.
This
self-selecting,
-managing,
and
monitoring,
organically
developed
financial
service
has
been
working
for
the
excluded
for
ages.
Paluwaganin
which
each
member
contributes
a
fixed
amount
every
week
and
takes
turn
in
getting
the
lump
sum
pool
of
fundsis
so
organic
that
nobody
really
knows
when
and
how
it
started
in
the
Philippine
society.
Its
counterpart
in
other
countries
is
called
rotating
saving
and
credit
associations
(ROSCA).
This
financial
system
has
no
written
policies
and
is
not
governed
by
any
legal
provisionspeople
function
only
on
the
basis
of
trust
and
should
one
not
pay
his/her
share,
it
would
cost
him/her
the
sense
of
belonging
in
the
neighborhood,
shame,
and/or
peace.
As
cited
in
development
literature,
local,
informal,
non-market
lending
such
as
ROSCA
has
advantages
over
the
large,
formal
credit
system,
because
the
embedded
peer
monitoring
in
the
system,
which
Arnott
and
Stiglitz
(1991
in
Bardhan,
1993)
argued,
can
be
an
important
control
mechanism
for
moral
hazards.
Development
economists
also
looked
into
the
individual
behavior
in
the
face
of
economic
change.
Sen
(2002)
argued
that
individuals
do
not
always
seek
to
maximize
their
self-interest;
instead,
culture
influences
the
individuals
work
ethics,
responsible
conduct,
entrepreneurial
initiatives,
attitude
towards
risk,
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 9 of 40
and other aspects of human behavior that is critical to ones economic success (p.4). Duflo (2006 in Ray, Development Economics, 2007, p.6) further hypothesized that being poor almost certainly affects the way people think and decide. Aside from the survey result in the previous section that illustrates this point, the design of micro credit products is also based on this assumption to some extent, aside from the exercise of prudent risk managementone cannot give the poor too much too soon as they will most unlikely be able to handle it. Thus, micro credit, regardless whether group or individual liability, always has a cap to the loan amount that microentrepreneurs can borrow so as to help them avoid the temptation of splurging or spending the money in non-income generating activities. The first loan usually ranges from Php3,000 to Php5,000; bigger MFIs offer as much as Php10,000 per borrower. However, the loan limit increases over time, as the borrowers start building their creditworthiness. Loans are amortized on weekly basisdaily scheme would put too much pressure on the borrowers while monthly schedule would put them at risk of spending their business income before the loan repayment is due. Budgeting and setting aside money and other resources, including food, for future use can be a challenge among the poor. Thus, financial discipline is commonly made part of the education program of the MFIs. Besides, weekly repayment would allow the borrowers to roll their money as capital for at least six more days. The foregoing discussion supports the arguments of Baumol, et.al, Rodrik, and Collier, that local knowledge and needs should be taken into account and that the problems of the poorest are remarkably different from the rest of the world. (Rodrik, p. 89 in Taylor, 2008, p.550). As shown in the discussion, MFIs as institutions shape the individual behavior of the poor microentrepreneurs, as argued by Ray (Development Economics, 2007, p.19). Sen (2002) further supported this argument in his assertion that behavior depends not only ones values and dispositions, but also on the absence or
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 10 of 40
presence of institutions and on the incentives they generate (p.7). Following Sens argument, trust or social capital therefore can indeed be built by MFIs. Institutional economists further argued the group liability works because the borrowers have incentive to choose their group mates well, thereby taking over the MFIs responsibility of selecting, monitoring, and making the borrowers pay their dues (Hoff and Stiglitz, 1993 in Ito, 2003). For this reason, group liability has been considered an institutional innovation in overcoming information uncertainties (Ito, 2003, p.325). Given this institution-behavior dynamic in microfinance, what then makes a good program? The best practices in the sector are often associated with social capital(Ito, 2003, p.1).
C.
Social
capital
provides
conceptual
and
policy
device
that
go
beyond
the
orthodox
economic
theories
(Woolcock,
1998).
Putnam
(1993,
pp.1-2)
defined
social
capital
as
the
features
of
social
organization
such
as
networks,
norms,
and
trust
that
facilitate
coordination
and
cooperation
for
mutual
benefits.
While
Putnam
defined
social
capital
in
a
group
or
organizational
context,
Fukuyama
(2001,
p.7)
had
a
more
individualistic
take:
social
capital
is
an
instantiated
norm
that
promotes
cooperation
between
two
or
more
individuals.
Woolcock
(1998)
simply
defined
social
capital
as
the
nature
and
extent
of
a
communitys
personal
and
institutional
relationshipswhich
makes
social
capital
relevant
to
the
previous
discussion
on
institutions
and
behavior.
Gleasar,
Laibson,
and
Sacerdote
(2000
in
Gomez
&
Santor,
2001),
on
the
other
hand,
proposed
that
social
capital
maybe
defined
at
several
levels:
country,
community,
and
individual.
At
the
macro
or
country
level,
social
capital
has
both
economic
and
political
functionsin
efficient
functioning
of
modern
economies
and
an
essential
condition
for
stable
liberal
democracy
(Fukuyama,
2001).
Another
way
of
putting
it
is
that
social
capital
is
the
missing
link
in
developmenta
substitute
to
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 11 of 40
state
intervention
with
social
intermediation
in
order
to
overcome
market
imperfections
(Ito,
2003,
p.322).
Social
capital
is
important
in
the
development
of
advanced
Western
economies.
Studies
of
highly
efficient,
highly
flexible
industrial
districts
emphasize
network
of
collaboration
among
workers
and
small
entrepreneurs.
Even
the
new
growth
theory
pays
more
attention
to
social
structure
than
conventional
neoclassical
models
do.
Likewise,
studies
of
the
rapidly
growing
economies
of
East
Asia
also
almost
always
emphasize
the
importance
of
dense
social
networks,
so
that
these
economies
are
sometimes
said
to
represent
network
capitalism.
These
networks,
often
based
on
extended
family
or
on
close-knit
ethnic
communities,
foster
trust,
lower
transaction
costs,
speed
information
and
innovation
(Putnam,
1993,
p.5).
Social
capital
is
a
public
good,
created
as
a
by-product
of
social
relationships,
and
as
such,
tends
to
be
under
produced
if
left
to
the
market
(Kawachi,
Kennedy,
Lochner,
&
Prothrow-Stith,
1997,
p.
1495).
Putnam
(1993,
p.4)
explained
that
successful
collaboration
in
one
endeavor
builds
connections
and
trust,
which
would
eventually
facilitate
future
collaboration
in
other,
not
necessarily
related
tasks.
Fukuyama
(2001)
opposed
this
view,
arguing
that
social
capital
is
a
by-product
of
religion,
tradition,
shared
historical
experience,
and
other
types
of
cultural
norms.
It
is,
more
often
than
not,
created
by
hierarchical
sources
of
authority
such
as
the
religion
and
culture
(p.16;
Sen,
2002).
Citing
Verba
et.
al,
Putnam
(1993,
p.8)
also
acknowledged
that
the
church
is
a
uniquely
powerful
resourcean
arena
in
which
tomake
connections.
Fukuyama
(2001)
also
contended
that
since
cooperation
is
necessary
to
virtually
all
individuals
as
a
means
of
achieving
their
selfish
ends,
they
would
produce
social
capital
as
a
private
good
(pp.7-8).
On
this
premise,
the
author
suggested
that
social
capital
be
created
by
public
policy
that
builds
on
existing
social
network
such
as
the
micro
lending,
educational
institutions
that
promotes
social
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 12 of 40
rules and norms, provision of public goods such as property rights and public safety, and non-intervention in the business of the private sector. Although Cameron (2000) recognized the role of NGOs in the growth of grassroots institutions, Putnam (2001, p.3) argued that most prominent nonprofits are bureaucracies, not associations, so the growth of the civil society sector is not tantamount to a growth in social connectedness. At the community level, social capital may be witnessed in what people are willing to do for each other, their care of the less fortunate members, and the preservation and guardianship of common assets, among others (Sen, 2002, p.5). Members also participate because they like to, not because their participation strengthens social fabric (Putnam, The Prosperous Community Social Life and Public Life, 1993, p.4). Dense social ties facilitate gossip and other valuable ways of cultivating reputationan essential foundation for trust, according to Putnam (1993). Narayan and Cassidy (2001) used the following dimensions in measuring social capital, as applied in the group or macro context: At the individual level, social capital is believed to lead to better levels of economic performance for each person. It may be in the form of charisma, status, or access to networks that enables a person to gain benefits from interactions with others. The return on social capital, on the other hand, may be in terms of Group characteristics, including memberships in informal groups and networks with particular characteristics Generalized norms Togetherness Everyday sociability Neighborhood connections Volunteerism Trust
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 13 of 40
material support, knowledge and information, and/or psychological aid such as encouragement (Gomez & Santor, 2001).
D.
Several
authors
associated
social
capital
with
various
social
conditions
although
the
direction
of
the
causal
relationship
and
the
intervening
mechanisms
are
yet
to
be
established
empirically.
Where
one
lives
and
whom
one
knowsthe
social
capital
one
can
draw
on helps
define
ones
self
and
thus
determine
ones
fate
(Putnam,
The
Prosperous
Community
Social
Life
and
Public
Life,
1993,
p.7).
Living
in
a
neighborhood
depleted
in
social
capital,
for
example,
regardless
of
the
stock
of
individual
resources,
has
deleterious
effect.
Families
in
deprived
neighborhood
have
to
deal
not
only
with
the
societal
issue
such
as
unemployment
but
also
with
the
behavior
and
frustrations
of
other
jobless
families
in
the
neighborhood
(Kawachi,
Kennedy,
Lochner,
&
Prothrow-Stith,
1997,
p.1496).
Putnam
(1993,
p.10)
therefore
suggested
that
if
social
capital
is
indeed
important,
then
intervention
must
focus
on
community
development.
Putnam
(2001)
hypothesized
that
the
following
variables
are
closely
associated
with
social
capital:
Education
and
economic
affluence.
Well-educated
people
are
much
more
likely
to
be
joiners
and
to
trust,
partly
because
they
are
better
off
economically,
but
mostly
because
of
the
skills,
resources,
and
inclinations
that
were
imparted
to
them
at
home
and
in
school
(p.5).
Lower-income
segments
tend
to
be
less
engaged
in
community
and
less
trusting
than
those
who
are
better
off;
however,
declines
in
engagement
and
trust
are
somewhat
greater
among
the
more
affluent
segments
than
among
the
poor
and
middle-income
wage-earners
(p.8).
Some
evidence
also
suggests
that
poverty
is
linked
to
the
depletion
of
social
capital
(Kawachi,
Kennedy,
Lochner,
&
Prothrow-Stith,
1997,
pp.1491-1492).
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 14 of 40
Age. Second to education, age is a strong determinant of social capital. Older people are consistently more engaged and trusting than younger people, although they do not become more engaged and trusting as they age. This phenomenon is explained by period or generation effects, that is, when people are affected by an event in an era or all people born at the same time undergo common experience. If one grew up in a period of high level of civic engagementperhaps, the Martial Law babies or the EDSA People Power generationone is likely to be more trusting and engaged (pp.13-14). Mobility and suburbanization. They tend to disrupt root systems and it takes time for an individual to put down new roots. Residents of small towns and rural areas are slightly more trusting and engaged in civic matters than those who live in metropolitan areas. There is no correlation though between increase in population and losses in social capital (p.6). Employment. Women who are working on a part-time basis are more likely to be engaged in civic matters and more trusting than either those working full time or those who do not work at all. In general, regardless of gender, workaholics or those who work for long hours would cut down on their sleep, eating time, and leisure but not on organizational activities (pp.7-8). Marriage. Successful marriage is statistically associated with greater social trust and civic engagement; conversely, single people tend to be less trusting and less engaged in civic matters. The direction of causality, however, needs to be establishedfor example, divorce may be a consequence and not a cause of lower social capital (p.10). State intervention. By crowding out private initiatives, state intervention has undermined civil society. Demolition of informal settlements is one way of destroying social capital (p.11).
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 15 of 40
Electronic revolution. Television, for example, takes time outside of home and encourages couch potato, passive behavior. While newspaper reading is associated with high social capital, TV viewing is associated with low social capital (pp.18-20).
While there are factors that determine or help build social capital, there are also factors that can destroy it. The growing gap between the rich and the poor, for one, has led to declining levels of social cohesion and trust, or disinvestment in social capital (Kawachi, Kennedy, Lochner, & Prothrow-Stith, 1997). Woolcock (1998, p.182) also argued that social capital tend to be low under the following conditions: Widespread, increasing, or legitimated class, sex, and ethnic inequalities Endemic poverty that cannot be resolved by social safety nets and employment, similar to the argument of Kawachi et. al. (1997) Weak, unjust, flaunted, or indiscriminately enforced laws Polities that are not freely and fairly elected, or when voters have few serious electoral choices Dominant and subordinate groups having little shared stake in common outcomes War, famine, rampant inflation, disease, or chronic underemployment Minorities being covertly or overtly discriminated against
E.
Literature
cited
how
the
MFIs
using
group-based
financial
scheme
have
tapped
social
capital
in
using
information
that
the
group
members
have
about
each
other
in
managing
their
risks.
Hence,
the
MFIs
are
encouraged
to
employ
similar
institutional
mechanisms
to
use
pre-existing
social
capital
or
help
create
it
(Ito,
2003,
p.323).
Serageldin
and
Grootaert
(2000,
p.47
in
Ito,
2003)
argued
that
MFIs
provide
an
informal
framework
for
sharing
information,
coordinating
activities,
and
making
collective
decisions,
something
that
makes
microfinance
program
work
because
members
have
better
information
about
one
another
than
banks
do.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 16 of 40
The
earlier
works
on
microfinance
often
referred
to
group
liability
as
the
sectors
lending
mechanism
because
it
was
the
first
method
used
in
1979.
However,
the
use
of
new
lending
methodologies
put
in
question
the
role
of
social
capital
in
microfinance
programs.
The
ASA
modelan
individual
liability
lending
scheme
that
utilizes
groups
for
meetings
founded
in
1992shows
that
borrowers
pay
on
time
not
because
of
the
social
consequences
of
their
actions
but
because
of
the
incentive
of
continuous
access
to
credit.
Further,
the
Safesave
modelindividual
liability
scheme
with
absolutely
no
group
interaction
that
started
in
1996 suggests
that
social
capital
is
no
longer
a
critical
component
of
microfinance
(Ito,
2003,
p.326).
In
fact,
with
Safesaves
heavy
use
of
modern
technology
and
daily,
door-to-door
visits
to
clients
(who
are
not
necessarily
microentrepreneurs),
one
might
be
inclined
to
think
that
with
systems,
structures,
and
managerial
capabilities
all
in
place,
a
microfinance
program
will
be
effective
even
without
social
capital.
On
Safesaves
opposite
end
in
the
social
capital-system
spectrum
lies
the
self-managed
ROSCA,
which
is
considered
the
embodiment
of
social
capital
(Putnam,
1993,
167-169
in
Ito,
2003).
Ito
(2003)
distinguished
the
social
capital
that
lies
in
the
relationship
among
the
micro
borrowers/micro
entrepreneurs
organized
into
groups
or
centers,
or
the
horizontal
social
capital,
from
that
which
lies
in
the
relationship
between
the
MFI
workers
and
the
micro
entrepreneurs,
or
the
vertical
social
capital.
Vertical
social
capital
is
also
deemed
necessary
in
microfinance
program
in
that
the
MFI
officers
train
the
borrowers,
guide
them
in
business,
recommend
approval
for
their
loans,
and
assess
their
various
needs
even
those
outside
the
micro
transactions.
Ledgerwood
(1999,
p.76
in
Ito,
2003)
of
the
World
Bank
explained
that
more
than
any
other
economic
transaction,
financial
intermediation
depends
on
social
capital
because
it
depends
on
trust
between
the
borrower
and
the
lender.
One
argument
about
vertical
social
capital
is
that,
if
it
really
matters
in
microfinance,
then
how
different
are
MFIs
from
other
formal
institutions?
Even
banks,
commercial
banks
at
that,
do
have
some
form
of
vertical
social
capital
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 17 of 40
with
their
customers.
With
the
Safesave
model,
one
would
also
wonder
if
it
is
really
the
vertical
social
capital
that
makes
this
MFI
work
or
if
its
flexible
product
design
simply
fits
the
market
needs
sans
social
capital
in
the
overall
scheme.
On
the
other
hand,
doubt
is
also
cast
on
the
importance
of
horizontal
social
capital
in
microfinance.
An
experiment
converting
169
groups
with
shared
liability
into
individual
liability
with
sustained
group
meetings
was
held
for
a
year
in
the
Philippines.
Group
meetings
in
individual
liability
were
used
for
consolidation
of
loan
disbursement
and
collection,
while
possibly
maintaining
some
but
not
all
of
peer
screening,
monitoring,
or
enforcement
of
policies
(Gine
&
Karlan,
2007,
p.3).
The
result
was
higher
outreach
or
more
members
joining
the
microfinance
program
while
the
default
rate
remained
the
same.
The
study
explained
that
individual
liability
attracted
new
members
better,
leading
to
bigger
centers,
and
made
the
existing
centers
10
percentage
points
less
likely
to
be
dissolved.
The
unchanged
default
rate
also
implied
that
peer
screening
and
monitoring
do
not
contribute
significantly
in
the
repayment
practice
of
the
borrowers.
However,
the
experiment
also
resulted
in
lower
social
cohesion,
which
was
indicated
by
fewer
number
of
social
events
held,
less
amount
spent
on
social
occasions,
and
the
new
members
not
knowing
the
other
new
members.
In
the
end,
Gine
and
Karlan
(2007)
concluded
that
institutional
mechanisms
is
sufficient
to
recover
loans
without
group
liability
and
that
individual
liability
allows
for
more
growth
and
outreach
(p.27).
The
importance
of
social
capital
in
the
microfinance
is
a
topic
of
discourse
not
only
in
the
financial
intermediation
among
the
borrowers
and
between
the
borrowers
and
the
MFIs;
it
is
also
hypothesized
to
play
a
crucial
role
in
the
success
of
the
microenterprises
of
the
borrowers.
Gomez
and
Santor
(2001)
argued
that
social
capital
is
essential
for
microentrepreneurial
success,
with
social
capital
being
a
positive
determinant
of
self-employment
earnings.
Their
regression
model
showed
that
membership
in
social
organizations
was
positively
and
significantly
related
to
business
successthat
is,
it
pays
to
know
your
neighbors.
Characteristics
of
neighborhood
(e.g.
educational
attainment
beyond
high
school
and
home
ownership)
are
also
positively
and
significantly
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 18 of 40
related to the microentrepreneurs performancewhich is consistent with the earlier proposition of Kawachi et.al. (1997). What the authors further argued is that the success of microentrepreneurs is not solely determined by micro credit and that MFIs must take into account the less observable factors such as social capital that contribute to their borrowers success. Woolcock (1998) had another explanation as to how significant social capital is to the success of poor microentrepreneur. At the initial stage of the micro enterprise, intra-community social capital may help provide the necessary financial resourcesconsistent with the earlier result of the survey conducted among the poor households in Metro Manila. Later, the benefits may come in the form of business linkages. However, over time, the microentrepreneur has to learn to build extra-community social capital as well, to include non-members of his/her community. Woolcock argued that this transition is necessary for the microenterprise to grow. Fukuyama (2001) explained this expansion of social capital in another way: all groups with social capital operate within a radius of trust, usually in a small circle of family and personal friends (pp.8-9) equivalent to Woolcocks intra-community social capital. If ones trust does not extend beyond the circleto form Woolcocks extra-community social capital then the group may not be open to receiving beneficial influences from outside that circle (p.14). Finally, Fukuyama (2001) noted that social capital may have either positive externality, that which leads to collective growth and development, or negatively externalityan example of which is the culture that makes one feel entitled to steal for the benefit of ones family (p.9).
A.
The
group-shared
liability
in
micro
lending,
which
eventually
became
known
as
Grameen
methodology,
was
first
applied
in
Bangladesh,
as
used
in
a
project
by
Muhammad
Yunus
in
1979.
Grameens
focus
was
on
the
landless
poor,
those
who
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 19 of 40
had
no
choice
but
to
earn
by
selling
labor,
and
on
women.
Grameen
had
two
reasons
for
choosing
women:
1)
Bangladeshi
women
did
not
have
access
to
financial
services
apart
from
their
husbands
or
male
figures
in
the
family,
and
constituted
the
majority
of
the
poor,
the
underemployed,
and
the
economically
and
socially
disadvantaged;
and
2)
credit
given
to
women
brought
about
change
faster
than
when
given
to
men
(Yunus,
2007).
At
that
time,
all
Bangladeshi
women,
even
the
rich
ones,
could
not
access
credit
without
their
husbands
because
the
banking
system
was
created
for
men
(Yunus,
2007,
p.71).
There
is
more
to
their
culture
than
simply
not
extending
credit
to
women.
All
Bangladeshi
women
could
not
leave
their
houses
without
their
husbands
or
any
male
member
of
their
family;
all
of
them
could
not
have
any
possession
and
money
matters
are
handled
by
men;
and
in
times
of
hunger
and
famine,
it
is
an
unwritten
law
that
women
have
to
starve.
Anytime
he
wishes,
a
Bangladeshi
man
can
divorce
his
wife.
Hence,
with
this
kind
of
culture,
Grameen
Bank
faced
opposition
both
from
the
government
officials
and
the
religious
leaders
and
created
chaos
within
the
households
of
borrowing
women
(because
their
husbands
wanted
the
money
for
themselves)
when
micro
loans
were
first
introduced.
It
also
had
to
convince
and
enable
the
women
to
enter
the
territory
traditionally
reserved
only
for
men
(Yunus,
2007,
pp.72-76).
Yunus
(2007)
started
a
project,
the
predecessor
of
todays
Grameen
Bank.
He
took
out
a
loan
from
a
bank
and
gave
it
out
to
the
poor
women
producers
as
micro
loans
equivalent
to
US$25
without
collateralhe
served
as
guarantor
to
these
poor
and
transacted
with
the
bank
in
their
behalf.
Following
were
his
insights,
which
formed
the
philosophy
behind
the
Grameen
lending
methodology:
To
my
great
surprise,
the
repayment
of
loans
by
people
who
borrow
without
collateral
has
proven
to
be
much
better
than
those
whose
borrowings
are
secured
by
assets.
The
poor
know
that
this
credit
is
their
only
opportunity
to
break
out
of
poverty.
They
do
not
have
any
cushion
whatsoever
to
fall
back
on.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 20 of 40
(Then) we discovered that support groups were crucial to the success of our operations; we required that each applicant join a group of like- minded people living in similar economic and social conditions. Convinced that solidarity would be stronger if the groups came into being by themselves, we refrained from managing them, but we did create incentives that encouraged the borrowers to help one another succeed in their business. Group membership not only creates support and protection but also smoothes out the erratic behavior patterns of individual members, making each borrower more reliable in the process. If an individual is unable or unwilling to pay back her loan, her group may become ineligible for larger loans in subsequent years until the repayment problem is brought under control. This creates a powerful incentive for borrowers to help each other solve problems and to prevent problems (Yunus, 2007, pp.62-65). What Yunus did to the Bangladeshi womentrusting them with resources despite their lack of financial cushion and skills and encouraging them to form and support their own groupsbuilt the social capital among them. His statements above show how social capital was used to make the Grameen system work. Yunus (2007, p.111) thought that Grameen has succeeded not because of culture but despite the culture. In 1989, three NGOs replicated the Grameen method in the Philippines: Ahon sa Hirap Incorporated (ASHI), Negros Women for Tomorrow Foundation (NWTF, one of the case studies in this paper), and Center for Agriculture and Rural Development (CARD). Yunus (2007, p.157) thought operating a Grameen-type lending program in the Philippines would be a lot easier than doing so in Bangladesh, where long-standing poverty, low status of women, and frequent natural disasters are more extreme(but the implementers) had difficulty managing the staff and the board of directors. It seemed that the Grameen
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 21 of 40
founder knew very well the poors behavior but must have overlooked the institutions that program implementers had to deal with.
B.
Faithful to the foundation of Grameen lending methodology, MFIs employing group liability generally target women and let these women borrowers recruit their own co-members to form a group, whose size may vary depending on the MFI. Ten groups (or around 40 to 50 members) made up a center. The idea is that the women would recruit only those people whom they trust. However, at times, they invite just anyone, even those who are not inclined to do business, so that they could form a group; otherwise, they would not be granted loans. Aside from sharing group liability, where members were obliged to pay for the loan of their defaulting co-members (conversationally called as tapal), they also pool money for center activities or for social insurance (especially for those MFIs that neither have any agreement with third-party insurers nor have their own insurance companies). As in the original Bangladeshi model, the borrowers meet every week for their center meetings where they decide whether to accept a woman into the center or not and determine the loan amount that would be granted each member based on their existing business or business proposal. They are also supposed to meet for mutual support and skill training. Loan disbursement and collection are also done during center meetings. There are instances, however, when center meetings had become nothing more than just a venue for businessdisbursement and collection of payments. Some even perceive this gathering merely as a time away from their business and home, thus they would have preferred to avail of individual loan instead. While in many cases women like being part of a center in that they see it as an opportunity to socialize, some do not like the idea of shared liability, which they perceive as unfair. This perception persists despite the MFIs explanation that they are the ones who choose their group members and that they are supposed to help one another, thus they are held responsible for one anothers liability.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 22 of 40
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 23 of 40
microfinance program still requires high-touch relationship between the members and the loan officers (Chua, 2012). Management systems and social capital. The CCT chairman thought that there is a need to balance management systems and social capital; there cannot be one alone. When only system is at work without social capitalcredit check, assessment of capacity to pay, among othersthat is when problem arises, he said. Even if legal institutions protect MFIs against default or delinquencies, still resorting to legal resolution is an expensive option and CCT would still prefer the smoother, trust-based relationship (Chua, 2012).
B.
Rationale for the choice of lending methodology. When KDCI started operation in 2002, the widely used method then was group liability so it employed the same. However, it had had problems with the good-paying members who got burdened sharing responsibility with the delinquent ones. Hence, when the individual liability ASA was introduced in the country, KDCI became interested, learned the methodology, and adopted it in 2004 primarily to protect its good members. It did not and would not go into pure individual lending because, as the KDCI president explained, the organization is not a bank offering mere financial services; KDCI is a development organization that aims to educate and develop the members, among others (Ignacio, 2012). Horizontal social capital. The change was welcome by the members and the staffthe members would not get penalized any more by paying for the loans of their delinquent group mates and the staff would know exactly who to run after when someone defaults on the loan. While the nature of liability it extends to its members has changed, KDCI still keeps the group mechanismthat is, forming groups and centers and meeting weekly. It is KDCIs way of instilling discipline both among the borrowers and among its staff as well as providing a venue to disseminate information, educate, and alter the behavior of the borrowers. Since loan repayments are supposed to be deposited by the center officers a day before
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 24 of 40
the
meeting,
the
actual
time
devoted
to
meeting
is
spent
on
non-financial-related
activities
(Ignacio,
2012).
The
center
chiefs,
who
are
the
elected
leaders
of
the
center
members,
play
a
key
role
in
the
program.
They
recruit
members,
ensure
that
they
attend
the
weekly
meetings,
communicate
to
the
groups
KDCI
announcements
and
events,
help
in
the
members
business,
and
oftentimes
pay
for
the
members
missed
amortization.
Indeed,
the
center
chiefs
are
in
a
powerful
position
so
much
so
that
KDCI
has
set
up
controls
to
prevent
abuse
(Ignacio,
2012).
Some
members,
however,
complain
about
going
to
the
center
meetings normally,
they
are
the
sari-sari
storeowners
who
feel
the
need
to
watch
over
their
business
the
whole
time
and
those
whose
businesses
have
grown
to
a
considerable
scale
that
finding
time
for
center
meetings
has
become
difficult
for
them
already.
Thus,
KDCI
offers
its
members,
who
have
been
with
the
program
for
a
long
period
and
have
grown
their
business,
individual
loans
sans
the
center
membership
and
thus
they
no
longer
are
required
to
attend
the
weekly
meetings.
However,
many
of
these
members
still
opt
to
join
the
weekly
meetings,
particularly
the
older
ones
(Ignacio,
2012).
Putnams
hypothesis
about
the
relation
of
age
and
social
capital
thus
holds
in
this
particular
case.
KDCI
members,
who
live
in
the
suburban
areas,
usually
with
widely
dispersed
population,
are
also
more
consistent
and
eager
in
attending
center
meetings.
It
is
because
people
treat
the
center
meetings
as
a
venue
to
keep
themselves
abreast
of
the
latest
news
and
happenings
in
KDCI
and
in
their
locality
(Ignacio,
2012).
Again,
this
observation
supports
Putnams
hypothesized
association
of
social
capital
and
peoples
area
of
residence.
Vertical
social
capital.
While
many
also
attend
the
meetings
as
a
form
of
socialization,
KDCI
makes
it
a
point
to
make
each
center
meeting
worth
the
while
of
those
who
are
attending
them.
Thus,
meetings
are
mainly
used
for
member
training
and
education
(Ignacio,
2012).
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 25 of 40
The presence of vertical social capital is apparent whenever there is movement among the KDCI field officers, which is done regularly for control purposes. Normally, it takes some time for the members in a field office to adjust to the newly assigned loan officer and to get back to their normal performance level, that is, in terms of attendance and loan repayment. The president opined that the loan officers would not be able to convince a borrower to take out a loan, try a new product, or repay the loan on time, or understand the predicament of the borrower why she had to miss an amortization, if not for the trust between the loan officer and the borrower (Ignacio, 2012). Management systems and social capital. Despite the presence of social capital in KDCI, the management still sets up structures to make the microfinance program work. For example, it has incentive scheme for the center chiefs in the form of rebates on the principal amount should they be able to achieve the desired number of members (so they would recruit more borrowers) and 100 percent repayment rate (thus at times it is beneficial for them to pay for a members missed amortization and avail of the rebate). KDCI also conducts random audit to check any abuse of power among the center chiefs and workers and has a hotline, which the members can call anytime to express their complaints or grievance concerning a fellow member or any KDCI staff (Ignacio, 2012).
C.
Rationale
for
the
choice
of
lending
methodology.
TSPI
started
with
individual
lending
in
1981
when
it
was
established,
shifted
to
Grameens
group
liability
in
the
1990s,
adopted
individual
liability
in
some
of
its
branches
in
the
2000s,
and
in
2012,
has
moved
back
to
100
percent
group
liability.
The
reason
management
gave
for
the
recent
shift
in
their
methodology
is
delinquency
of
members.
Recently,
it
has
also
opened
individual
loan
windows
for
those
clients
with
big
enterprises
and
thus
require
bigger
loans.
So
as
not
to
burden
the
group
members
with
repayment
problems
and
other
risks,
these
entrepreneurs
are
moved
to
individual
lending
programs.
Not
all
members
can
avail
of
the
individual
loans
thoughonly
those
who
have
been
with
the
group
program
and
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 26 of 40
have
grown
their
business
enough
to
warrant
bigger
loan
amounts
(Mendoza
&
Perfecto,
2012).
Horizontal
social
capital.
For
TSPI,
center
meetings
are
mainly
for
ministry
(similar
to
CCTs
transformation)
and
business
support.
Of
the
weekly
meetings
in
a
month,
three
are
devoted
to
transformational
activities
and
one
for
business
education.
Loan
collection
is
only
a
minor
objective
of
the
center
meetings.
Thus,
despite
individual
liability,
the
individual
loan
borrowers
are
still
asked
to
attend
the
center
meetings.
Some
members
voluntarily
opt
to
attend
the
center
meetings
for
socialization;
still
others,
particularly
those
with
bigger
enterprises,
want
to
stay
with
their
group
out
of
concern
for
those
who
cannot
repay
their
loans
occasionally.
Kawawa
naman
sila
kung
walang
magtatapal
ng
utang
nila
(Pity
them
if
nobody
would
guarantee
their
missed
amortization),
as
some
would
say.
On
the
negative
side,
the
power
position
of
the
center
chiefs
(the
leaders
elected
by
the
center
members)
as
well
as
those
with
bigger
enterprise
(the
economic
leaders
essentially)
has
at
times
led
to
the
creation
of
patron- client
relations
among
the
members
(Mendoza
&
Perfecto,
2012).
The
executive
director
explained
that
social
capital
is
indeed
a
good
tool
in
screening
potential
members;
however,
recruiting
five
to
10
friends
to
join
a
group
would
be
tough
for
anyone,
much
less
if
it
is
for
a
lending
group.
In
some
cases,
people
would
get
just
anyone
even
if
they
do
not
know
them
well
just
so
they
could
join
a
microfinance
programthe
backlash
is
in
the
form
of
default
or
bad
debt
and
eventually
in
the
breakdown
of
a
group.
TSPIs
dropout
rate
of
members
is
between
25
percent
and
30
percent.
Thus,
TSPI
management
opined
that
group
liability
would
not
support
the
growth
of
an
MFI
in
terms
of
outreach,
if
growth
were
indeed
the
main
purpose
in
ones
choice
of
a
lending
methodology
(Mendoza
&
Perfecto,
2012).
Vertical
social
capital.
TSPI
does
not
rotate
its
loan
officers
precisely
because
it
wants
its
loan
officers
to
establish
relationship
with
the
borrowerssomething
deemed
necessary
in
its
ministry.
In
line
with
this
thrust,
the
expected
members
served
by
each
loan
officer
has
been
reduced
only
recently
from
300
members
to
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 27 of 40
200 members so that the loan officers would have more time knowing the members at a personal level and for other non-financing related activities (Mendoza & Perfecto, 2012). Management systems and social capital. For TSPI, systems without social capital will not workin fact, its management will soon launch an employee award that will recognize the works of TSPI staff beyond their call of duty. An example is the case of a loan officer who helped a TSPI member, who was molested but was afraid to tell her family, take appropriate actions. That beyond the call of duty requires high level of trust. TSPIs position on this matter is not only due to its Christian orientation but also due to its nature as a development organization, not a bank (Mendoza & Perfecto, 2012).
D.
Rationale
for
the
choice
of
lending
methodology.
NWTF
has
never
explored
offering
individual
loans,
except
to
those
who
require
bigger
loan
amounts
and
have
been
in
good
standing
in
the
group
programsimilar
to
the
graduated
scheme
of
TSPI
and
KDCI.
First,
NWTF
targets
the
very
poor
segment
of
the
population,
even
those
who
have
no
business
yet
but
are
inclined
to
start
one.
People
of
this
type
are
afraid
to
start
a
venture
on
their
own
and
would
want
a
support
group,
thus
NWTFs
choice
of
group
liability.
Second,
such
borrower
profile
entails
higher
risk
and
thus,
NWTF
has
to
manage
it
by
employing
group
liability.
Finally,
NWTF
does
not
see
any
reason
to
change
a
method
that
has
been
working
well
for
it
for
decades
(Serios,
2012).
Horizontal
social
capital.
For
NWTF,
center
meetings
are
the
venue
for
the
members
to
extend
support
to
one
another
although
its
special
project
manager
admitted
that
at
times,
their
loan
officers
treat
these
meetings
merely
as
a
mechanism
for
loan
collection.
When
asked
if
borrowers
do
not
get
tired
of
group
guarantees,
he
explained
thus:
No,
they
do
not,
because
outside
of
NWTF,
when
they
need
food
or
money
during
hard
times,
they
turn
to
the
very
same
group
members
for
help
(Serios,
2012).
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 28 of 40
To further help their members in their enterprise and complement its group- recruitment mechanism, NWTF conducts income-generating survival skills (IGSS) assessment whereby the household members of a loan applicant undergo an inventory of their business skills and interests and are asked to decide as a household in which venture would they invest their loan money. This way, the micro enterprise becomes a household activity, building on the assets and commitment of each household member (Serios, 2012). In this sense, NWTG taps the most basic source of social capitalfamily or household. Vertical social capital. Recently, too, NWTF has reduced the expected load of loan officers from 500 members to 350 members each. With this load, the loan officers can conduct center meetings for three days in a week; the two other days could be spent for establishing member-relationship, monitoring loan use of members, and identifying member needs. There is also a move to change the rotation policies of loan officerssomething that is done to prevent fraudulent transactions/connivance of staff and members in a branchand assign them permanently to a branch. This change is expected to motivate and retain the performing loan officers as well as strengthen relationship between the members and the loan officers. The manager reasoned that a loan officer would not get to know the people in an area if s/he keeps on moving and job rotation does not necessarily curtail collusion in a branch anyway (Serios, 2012). NWTFs vertical social capital with its members has already been put to test. In 2003, a group from the United States wanted to change NWTFs lending procedure from the traditional graduation of loan amount over time (i.e. by maintaining good standing one will get a bigger loan amount in the next cycle as prescribed in the policy manual) to cash flow-based evaluation of loans (i.e. one may borrow only an amount equal to 50 percent of ones businesss net income or capacity to pay) with the intention of helping NWTF solve its delinquency problems then. The cash flow-based method was piloted in one of the best and oldest branches, with consistent 98-percent repayment rate.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 29 of 40
However,
the
new
method
had
more
implications
on
the
clients
than
what
was
anticipated
by
the
consultants.
Those
members
who
were
already
entitled
to
a
Php30,000-loan,
for
example,
were
allowed
to
borrow
only
Php8,000
as
a
result
of
the
cash
flow
analysis.
Special
loans
were
likewise
discontinued.
Incidentally,
the
pilot
coincided
with
the
off-milling
season,
during
which
time
the
area
was
generally
financially
hardup,
and
with
the
pre-Christmas
months,
when
people
anticipated
higher
spending
and
thus
needed
more
money
(Sebastian,
2005).
After
six
months
of
trial
with
the
cash
flow-based
method,
repayment
rate
dipped
to
65
percent
and
portfolio
at
risk
ballooned
from
over
Php767,000
to
Php5.7million.
Apparently,
the
implementation
of
cash
flow-based
approach
gave
the
borrowers
a
feeling
that
NWTF
no
longer
trusts
them
to
pay
off
their
loans.
Since
their
transaction
was
no
longer
trust-based,
the
borrowers
feared
that
they
would
not
be
extended
loans
in
the
succeeding
cycles
so
they
decided
to
leave
the
microfinance
program
without
repaying
their
loans.
The
branch
performance
went
back
to
its
original
level
only
after
three
years
of
rehabilitation
(Sebastian,
2005).
Regardless
whether
the
borrowers
reaction
of
deliberately
not
paying
back
their
loans
was
right
or
wrong,
it
seems
that
the
well-meaning
systems
innovation
led
to
the
break
down
of
vertical
social
capital.
Management
systems
and
social
capital.
The
NWTF
has
been
dealing
with
concerns
on
operational
efficiency
and
has
been
through
a
number
of
rehabilitation
or
systems
re-alignment,
the
major
ones
being
in
1992,
2000,
and
2004
(Sebastian,
2005).
According
to
the
study
of
Imp-Act
Consortium
(2007,
p.5),
the
key
issue
in
NWTF
is
determining
to
what
extent
a
passion
for
the
mission
acts
as
an
effective
substitute
for
organizational
structures,
systems
and
processes
that
were
deliberately
designed
to
support
the
achievement
of
the
social
mission.
Given
that
its
management
systems
are
not
the
best
in
the
sector,
then
NWTF
must
have
something
that
is
working
wellits
strong
social
capital
perhapssuch
that
in
2011,
it
ranked
eighth
in
terms
of
outreach,
eleventh
in
asset
size,
thirteenth
in
gross
portfolio
amount,
and
fifth
in
portfolio-at-risk
rate,
as
shown
in
the
Annex.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 30 of 40
V.
Analysis
A.
Case
Studies
If
the
claims
of
authors
were
truethat
lower-income
segments
tend
to
be
less
trusting
than
those
who
are
better
off
and
that
poverty
is
linked
to
the
depletion
of
social
capitalthen
the
MFIs
in
general,
the
case
subjects
included,
must
be
doing
a
remarkable
job
in
earning
the
trust
of
the
poor
microentrepreneurs
as
evidenced
by
the
number
of
the
micro
borrowers
in
the
country
today.
All
case
subjects
see
group
mechanism,
even
CCT
and
KDCI
that
use
individual
liability,
as
a
necessary
component
in
their
microfinance
programs.
The
group
structure
primarily
helps
establish
vertical
and
horizontal
relationships
and
serves
as
a
venue
to
promote
human
development-centered
activities
such
as
transformation,
education,
business
skill
building,
and
leadership
training,
among
others.
The
group
mechanism,
in
fact,
is
their
main
differentiating
from
the
banks.
Essentially,
the
case
subjects
are
doing
what
Putnam
(1993)
suggested:
focusing
intervention
on
community
development.
Except
for
NWTF,
all
case
subjects
experience
getting
a
mixed
bag
of
members
who
appreciate
the
weekly
group
meetings
and
of
those
who
do
not.
However,
this
attitude
of
some
who
find
weekly
meetings
burdensome
has
not
been
identified
as
the
reason
why
some
groups
do
not
last.
The
cases
showed
that
group
mechanism
usually
breaks
down
when
1)
group
meetings
are
used
merely
for
loan
disbursement
and
collection,
leaving
out
the
high-touch
expectation
of
members
and
affecting
adversely
vertical
social
capital;
and/or
2)
members
invite
just
anyone
in
order
to
complete
a
group,
which
has
negative
impact
on
the
horizontal
social
capital.
In
the
latter
case,
the
innovation
of
overcoming
information
uncertainties
fails.
In
short,
group
formation
will
not
hold
together
in
the
absence
of
both
vertical
and
horizontal
social
capital.
That
NWTFs
members
in
general
do
not
get
tired
of
group
guaranteeswhich
were
the
complaints
of
the
good-paying
KDCI
members
that
eventually
drove
KDCI
to
shift
to
individual
liabilitymay
be
an
indication
of
strong
social
capital
among
the
NWTF
members.
Note
that
NWTF
operates
predominantly
in
rural
areas,
where
people
tend
to
be
more
trusting
than
those
in
the
metropolitan
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 31 of 40
areas (Putnam, 1993), where KDCI mainly operates. Given, however, that TSPI also operates mainly in rural areas and yet gets a mixed of clients, it is worth examining why NWTFs members are more amenable to group mechanisms. The case of NWTF members not complaining about group guarantees or paying tapal money, as well as TSPI and KDCI members not wanting to leave their group even after graduating to individual loan programs also proves Sens (2002) point that individuals do not always seek to maximize their self-interest. The difference in the perspectives of NWTF and KDCI as far as job rotation of field officers is also interesting. Both MFIs acknowledge that movements in the field affect members performance because of the established vertical social capital. However, while KDCI intends to maintain its control system, simply giving its members time to adjust to the new setup, NWTF is keen on changing its policy to enable its staff to build better and more stable relationships with the members. NWTFs stance is more consistent with Putnams (1993) argument that mobility tend to disrupt root systems and it takes time for an individual to put down new roots thus affecting the build up of social capital. NTWF, like TSPI, has also reduced the load of its field officers to enable them to enhance their vertical social capital. Finally, all four MFIs are unanimous in saying that social capital and institutional/managerial systems go hand in hand. Perhaps, only the mix of these two componentswhich of the two is stronger, more established, more functionalvary across these MFIs.
B.
Statistical Data
If
Gine
and
Karlan
(2007)
were
correct
in
saying
that
institutional
mechanisms
is
sufficient
to
recover
loans
without
group
liability
and
that
individual
liability
allows
for
more
growth
and
outreach,
then
there
must
be
correlation
between
portfolio-at-risk
rate
and
lending
methodology,
and
between
number
of
outreach
and
lending
methodology.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 32 of 40
Table
1
shows
the
growth
in
outreach
of
the
four
case
subjects,
which
is
used
in
this
study
to
indicate
the
breadth
of
social
capital
associated
with
lending
methodologies.
However,
only
KDCI
claims
that
its
change
in
lending
methodology
in
2004
resulted
in
dramatic
increase
in
its
outreach
by
almost
38
percent
the
following
year.
While
CCT
also
experienced
tremendous
growth
of
almost
41
percent
in
2005
and
23
percent
in
2006,
the
management
is
not
sure
what
brought
about
this
positive
change.
In
the
case
of
TSPI,
the
available
data
sets
are
not
sufficient
to
establish
a
pattern
with
its
every
change
of
lending
methodology.
Table
1
Table
2
shows
the
portfolio-at-risk
rate
in
30
days
(PAR-30)
of
the
MFIs.
PAR
is
the
measure
of
delinquency
equal
to
the
outstanding
loan
amount
with
missed
weekly
amortization
that
has
fallen
due
in
30
days
or
more.
Apparently,
KDCIs
increase
in
its
PAR
from
4.5
percent
to
17.42
percent
coincided
with
its
change
in
methodology.
However,
it
has
not
been
established
whether
the
increase
in
delinquency
was
due
to
KDCIs
shift
to
individual
liability.
CCTs
two-point
data
are
not
statistically
valid
to
establish
a
trend
while
TSPIs
limited
data,
again,
will
not
capture
the
possible
impact
of
its
shifts
in
methodology
over
the
years.
Table
2
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 33 of 40
Considering the data of the 37 MFIs in Annex, there is weak, positive, and statistically valid correlation between PAR rate and lending methodology (coefficient=0.012509437). This figure means that MFIs employing group liability somehow tend to have higher PAR than those with individual liability program, implying that social capital within the group may not necessarily help in preventing delinquencies. Similarly, there is weak, positive, and statistically valid correlation between the number of outreach and lending methodology (coefficient=0.013561967). This figure means that the MFIs employing group liability somehow tend to have higher outreach than those with individual liability program, implying that social capital may still have been at work in group membership. This data set presents a margin of error or 16 percent; nonetheless the results are contrary to the conclusion of Gine and Karlan (2007). There is also weak, positive, and statistically valid correlation between the number of outreach and the MFIs religious orientation (coefficient=0.085628994). The result means that MFIs with religious orientation tend to have higher outreach than those that do not, supporting the hypothesis of various authors that religion is very influential in building social capital. The relationship of PAR and religious orientation of MFIs is also weak and positive, although not statistically significant.
VI.
Conclusion
Based
on
the
empirical
evidence
presented,
this
paper
argues
the
following:
1) The
change
in
the
kind
of
loan
availed
by
the
micro
borrowersor
the
graduation
from
group
to
individual
loansdoes
not
affect
the
micro
borrowers
nature
and
extent
of
social
capital.
The
shift
is
commonly
done
without
the
micro
borrowers
necessarily
leaving
the
group
or
terminating
attendance
in
group
meetings
at
all.
2) The
change
in
methodology
employed
by
the
MFIsfrom
group
liability
to
individual
liabilityis
indicative
of
the
strengthening
of
vertical
social
capital
relative
to
the
horizontal
social
capital,
and
not
the
absence
of
the
latter.
Ensuring
members
repayment,
for
example,
now
becomes
the
field
officers
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 34 of 40
function
and
no
longer
the
groups,
while
recruitment
and
monitoring
of
members
performance
remain
with
the
group.
Given
in
the
statistical
analysis
that
MFIs
employing
group
liability
somehow
tend
to
have
higher
PAR
than
those
with
individual
liability
program,
implying
that
social
capital
within
the
group
may
not
necessarily
help
in
preventing
delinquencies,
what
may
be
lacking
in
horizontal
social
capital
is
thus
compensated
by
the
vertical
social
capital
in
the
MFIs
adoption
of
individual
liability.
It
does
not
mean
though
that
vertical
social
capital
has
completely
taken
over
the
role
of
horizontal
social
capital
in
microfinance,
which
is
expressed
in
the
maintenance
of
group
mechanisms.
However,
vertical
social
capital
is
not
synonymous
to
managerial
or
institutional
systems
in
that
the
former
still
use
trust
and
relationships
in
achieving
goals
while
the
latter
uses
more
impersonal
means
to
achieve
them,
such
as
employing
technology
in
screening
and
monitoring
the
members.
3) Both
vertical
and
horizontal
social
capital
are
necessary
in
effectively
running
a
microfinance
program
and
systems
alone
will
not
suffice.
The
basic
assumption
is
that
the
lower-income
segments
tend
to
be
less
trusting
than
those
who
are
better
off
and
that
poverty
is
linked
to
the
depletion
of
social
capital.
Systems
and/or
the
use
of
technology
will
not
likely
earn
the
trust
of
the
borrowers.
In
addition,
statistical
analysis
shows
that
the
MFIs
employing
group
liability
than
those
with
individual
liability
program,
implying
that
social
capital
may
still
have
been
at
work
in
group
membership.
Data
also
shows
the
positive
influence
of
religious
orientation
on
outreach.
This
paper
further
proposes
a
framework
of
analysis
(Figure1):
an
MFIs
weakness
in
systems,
structures,
and
managerial
skills
can
be
compensated
by
the
presence
of
social
capitaleither
horizontal
or
vertical,
or
bothand
vice
versa
to
effectively
implement
microfinance
programs.
Weakness
in
social
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines Page 35 of 40
capital may either be complemented by strong institutional systems or be built or strengthened using institutional mechanisms. On one end of the figure is ROSCA with social capital as its sole foundation; on the other end is Safesave, which utilizes advance technology in operations. Figure 1
How can social capital be used for constructing substantive development programs? (Woolcock, 1998)
The variables Putnam (1993) and Woolcock (1998) associated with social capital can also be tested in the Philippine microfinance context: education and economic affluence, age, location, marital status, employment, electronic revolution, inequalities, and law enforcement, among others. Although this study attempted to establish correlations between PAR and outreach, and the MFIs religious orientation and lending methodology, having bigger sample size of MFIs and lower margin of errors will provide conclusive evidence. Still another study can be written to examine the role of social capital in the success of micro entrepreneurs, as theorized by several authors. Finally, a study centered on the microentrepreneurs perspective on social capital in the context of microfinance operations can also be done, which can likewise test the validity and applicability of Narayan and Cassidys (2001) framework using various dimensions in measuring social capital in a group or community in the Philippine context. The scope of this study may be expanded to test the hypothesis presented in Figure 1: an MFIs weakness in systems, structures, and managerial skills is compensated by the presence of social capitaleither horizontal or vertical, or bothto be effective and vice versa. However, just as Narayan and Cassidy have developed an instrument to measure social capital horizontally, another instrument still have to be developed to measure separately and distinctly an MFIs vertical social capital and its institutional capacity or strength. The proposed hypothesis can also be further tested by including banks and paluwagan groups in the study, which stand at the opposite ends of the social capital-system diagram in Figure 1.
Institutions, Behavior, and Social Capital: Case Studies of Four MFIs in the Philippines
Page 37 of 40
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