There can be no shortcuts at the BoP

Cabatuan, Iloilo Province, The Phillipines, March 1st 2009

This is not meant to be a complaint about any one organization so much as an observation made by happenstance while in the field. As written about earlier, my hostess in provincial Philippines is a micro entreprenuer running a small village shop which she started with the support of a loan meant to empower women at the BoP. Her story of the entire experience struck me enough to look up online how exactly Grameen had designed the microloan process, for some things in her narrative seemed to imply that the system itself was hobbling the growth of her business.

What I learnt opened my eyes – there seems to be a disrepancy between the original methodology as laid down by Mohd Yunus and the process followed in the field in rural Philippines. A step or two in the process have been removed, specifically this one,

Groups of five prospective borrowers are formed; in the first stage,
only two of them are eligible for, and receive, a loan. The group is
observed for a month to see if the members are conforming to the rules
of the bank. Only if the first two borrowers begin to repay the
principal plus interest over a period of six weeks, do the other
members of the group become eligible themselves for a loan. Because of
these restrictions, there is substantial group pressure to keep
individual records clear. In this sense, the collective responsibility
of the group serves as the collateral on the loan.

This cleared up the confusion I had when I was listening to the details of how the capital loan worked for my hostess, she said they were initially placed in groups of 5 – why, I asked, and she said she had no idea because no, there was nothing involved with the original group of 5, they were only given a loan when the group reached the minimum size of 20 and all 20 were responsible for each other’s performance. That was another major sticking point with the end users – the women who took out the loans because while you may come up with a group of 5 whom you know very well and can recommend, to be responsible for the performance of 20 people, some of whom you may not know as well with respect to their financial acumen or entreprenuerial ability meant that the system was already set up to work against the concept of, to quote,

there is substantial group pressure to keep
individual records clear. In this sense, the collective responsibility
of the group serves as the collateral on the loan.

Imho, there is a difference in peer pressure and collective responsibility involved in a group of 5 versus a group of 20.

Still, as I said in the beginning, the point here isn’t to make a complaint but simply to wonder at what point did the system evolve away from the original successfully working model leading to the challenges that were being faced by the local entreprenuers? And why? Especially since Grameen’s original methodology states in point number 5 on design and development,

The system has evolved gradually through a structured learning process, that involves trials, errors and continuous adjustments.

A clear articulation of the user centered design process where the original prototype of the model was tweaked and changed based on real world field testing and observations in order to evolve into a model that worked, and one assumes, could work across regional and cultural differences. (except perhaps the weekly payment plan but that’s not a reflection of this model so much as a questioning whether only fixed durations are required for those on irregular and unpredictable income streams)

This observation gives rise to the question of scaling and implementation – if a model has been designed and tested and developed into a successfully tested working model, how do you ensure that what are perceived to be expedient shortcuts but could end up being critical to the success of the process do not occur randomly ? Particularly since this user experience resulted in a word of mouth local opinion that its better to not take a loan if you’re interested in working capital to start a business?

This will be something to be discussed during the design process – is it possible, if at all, to strip the insights down to some basic fundamental principles that result in something simple and easy to understand and replicate for continued successful implementation without the need for quality assurance?

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