|Scratching Where it Itches|
What Bolivian Microlending Programs can Learn
about Rural Household Strategies from Participants
- Project Year: 1995/96
- Country: Bolivia
- Sector: Rural Finance
- MSc Thesis. School of Rural Planning and Development.
University of Guelph. Guelph, Ontario, Canada.
- Author: Nanci Lee - email@example.com
Many private development organizations involved with microlending are
concerned with the impact of their programming on the "quality of life"
of their participants. However, most programs use the "microenterprise"
as their main unit of analysis using largely financial indicators. This
focus does not provide insight intorelated household information regarding
household livelihood strategies, gender roles and the changing and
heterogenous nature of rural cash flows tied to these decisions. This
study uses Bolivian case-studies to show that this information is even more
important in rural where activities and decisions are more integrated and
interrelated than in urban areas. Two microlending programs, women's
village banking technology and solidarity group lending, are examined with
participants. The paper develops the view that part of the challenge
posed to microlending organizations is an epistemological one. Economic
rationality can often supersede attention to context. A monitoring system
based on "participatory" livelihood analyses is explored and presented as a
responsive and time/cost efficient alternative to economically focused
"snapshot" impact studies.
- To understand and identify a variety of household livelihood
strategies and the differing role of microcredit within these strategies
- To understand how participants use different programs to meet their
household livelihood needs
- To understand to what extent different programs (village banking and
solidarity group lending) are and can be designed to meet the livelihood
needs of participants
- To develop a conceptual framework and explore methodological tools
for household livelihood analysis
CONCEPTUAL METHODOLOGICAL FRAMEWORK
The conceptual methodological framework is shaped by Peter Checkland's
Soft-Systems Methodology and Jurgen Habermas' concept of Democratic
Communication. It draws from disciplinary roots in economic anthropology,
gender and development literature, participatory development, rural
finance theory and microfinance literature.
Both qualitative and quantitative methods were used across a six month
period. Following participant observation, direct observation,
key-informant interviewing and participant file review, 40 participants
in three communities in the Cochabamba Valley, Bolivia were selected for
in-depth interviews. Adapted participatory rapid appraisal techniques
were used as the primary tool in the interviews in order to examine, with
participants, a wide variety of household livelihood strategies based on
several characteristics. These characteristics included livelihood
activities, socioeconomic status, level of diversification, nature of
credit programming, location/rurality, household goals, age and gender.
Next, representative samples of participant informationand loan data was
examined to verify the trends identified in the household interviews. Two
microlending organizations were involved: PRODEM (Solidarity Group
Lending) and CRECER (Village Banking). Decision-tree modelling was used
to show why participants chose one program over another. Finally, a
reflective journal documenting the process throughout the study was also
incorporated into the final reports.
- Many organizations do not believe that it is important to understand
why and how their credit is used by participants because they have
confidence in their participants' abilities. However, knowledge of the
relative role of credit within livelihoods is important for determining
effective an appropriate lending methodology and credit product.
Depending on why participants are using the credit, the credit program
may or may not be lending in a way that allows them to take advantage of
- The role of credit varies with many factors, including time/season, the
composition of activities, their long-termhousehold goals and the lending
methodology that they are using. Some roles of credit included a) to reduce
risk or restock after emergencies; b) to even out lumpy income flows for
householdpurchases; c) to diversify activities; d) to store wealth; e) to
invest in capital; f) to add-value to a product by producing it at a
different time. Credit use is fungible, and generally moves freely within
the household according to needs.
- Different lending methodologies benefit particular livelihood systems
over others. For example, producers of corn beer andagriculture tend to be
able to better take advantage of the solidarity group lending methodology
than village banking technology. Preferences for one microlending program
over another tend to have more to do with the flexibility of repayment
schedule,social considerations and location, than with interest rates.
- Participants find interesting ways to take advantage of programs in
accordance with their needs, especially when more than one program is
available. However, microlending programs often underestimate
participants' ability to alter their livelihood strategies to fulfill program
requirements. For example, one of the assumptions behind village banking
is that its weekly payment requirements encourage households to
diversify. Often this is not feasible or desirable.
- Several conditions needed to be present for a community or household
to be able to fully take advantage of both solidarity group lending and village
banking in their present form. In rural communities, where activities
were largely agricultural, without potable water/irrigation, reasonable
access to the local market, and market potential for some
diversification, existing lending methodologies are not flexible enough to
allow this population access.
- However, both PRODEM and CRECER are experimenting with adaptations to
their rural lending methodologies, with successful results. PRODEM, for
example, is using what is called "differential quotas," which simply means
that each solidarity group can tailor their repayment schedule appropriate to
their cash flows. They can choose weekly, bimonthly or monthly payments. As
well they can decide which payments will be interest alone and which will be
interest combined with capital. I have seen, in particularly agricultural
areas, a 12 month loan term, paying interest each month for 11 months and the
outstanding capital and interest in the 12 month with the harvest. What is
interesting, however, is that most choose to may early payments to lower their
(real) interest rate which is a 4% of the outstanding balance.
- While credit use is fungible, control of resources and purchasing
decisions are often less flexible. In rural areas, even where the women
are accessing the loans, managing the money, and purchasing, if a male
spouse is present he will still make the decisions around agricultural
purchases. Particularly in this region, women already handle the money
in the household. Exposure to women's banking circles appears to have a
limited effect on intra-household bargaining power.
- The role and use of credit often had less to do with gender,than it
did with a microentrepreneur's activities. It is often assumed that
women are largely in commercial or service activities. While this is certainly
true, there was also a large number of producer in the Cochabamba Valley,
particularly in wholesale chicha production. In this case, a female
chicha producer has more in common, in terms of credit needs, with a
farmer than a streetvendor. Programming based on the assumption that women
can pay weekly because they are in commercial activities, disadvantage this
large population of women.
- Non-financial decisions and activities affect financial management.
While participants are told explicitly that loans arefor "productive"
uses, they still use loans according to theirimmediate needs. In
Bolivia, various times of year, there is a great deal of spending on
traditional/religious events. To denythat these expenditures occur is
ridiculous and culturally insensitive. What is more important is to
understand periods of financial stress and be able to design flexible
schedule payments which account for them.
- Many of the previous findings are not new. However, programs
continue to design methodologies without considering these points. Many
organizations are aware that this type of participant information is
important, but lack the time and resources to develop methodologies for
tracking. Existing impactand diagnostic methods often leave out information
on households, particularly qualitative data regarding decision-making over
time. The dynamism and fungibility of credit use is not captured. This
study suggests but they also allow participants to be moreactively
engaged in the microlending programming.
- Finally, effective participation, empowerment, poverty alleviation
and impact depend on the context and the participant'sunderstanding of these
concepts. For example, targeting women can,in various circumstances, be
disempowering because it limits the household's ability to mobilize
resources in accordance with theirneeds. However, that is not to argue either
that gender targeting is ineffective or unnecessary. In certain areas,
due to the intrahousehold gender dynamics, microcredit left untargeted is
used for agricultural activities where most of the decision-makingcontrol
is left to the men. The context should define the adaptations necessary
in the lending methodologies.
The importance of livelihood analysis is shown through the practice and
presentation of livelihood analysis in rural Cochabamba, Bolivia. It is
argued that for effective program design and impact monitoring,
microlending programs require an understanding
of how households operate as systems in order to determine how credit and
credit-related decisions play a role within that system. This requires
continual examination of how participants use and take advantage of
differing credit programs to meet household livelihood needs. It is
suggested that a soft-systems livelihood approach to information systems
is one method which monitors while allowing participants to share in the
analysis and examination of their strategies and options. Microlending
organizations often keep limited information on household livelihoods
under the assumption that participants know best how to use their
microloans. However, more qualitative, context-flexible methodological
approaches to information on households is necessary be
fore programming can be responsive to the resourceful strategies of
- Contact address:
International Rural Development Planning
University of Guelph, Guelph, Ontario, Canada
Tel: (519) 836-1408
Hari Srinivas - firstname.lastname@example.org
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