OF MICROFINANCE PROGRAMS

Program design and implementation

Local condition

• Local context: traditions, norms, community sanction structure, credit discipline and moral commitment (Bardhan, 1995; Woolcock, 1999; Seibel & Torres, 1999; Chowdhury, 2006)

• Consider the needs for non-financial services to make productive use of the loans (Bhatt & Tang, 2001; ADB, 2006).

Social relationship

• Relationship among stakeholders, between community and sponsors, group or community members, between borrowers and staff, among staff themselves and so on (Woolcock, 1999).

• Capability and commitment of staff to deliver the services (Quinones, 2000)

• Donor/sponsor’s commitment on financial and technical supports (Graziosi, 2002; Goodwin-Groen; 2003)

• Confidence building (Syed, 2005)

• The presence of social capital or community network (Olomola, 2002; Ito, 2003; Dowla, 2005)

Development Approach

• Identification of goals and objectives, the means to achieve the goals, and roles of each stakeholder (Graziosi, 2002)

• The adequacy of monitoring (ADB, 2006)

• Products innovation

• Approaches used to design new products and services

• Choice of training methods

Other factors • Use of telecommunication and technology (Syed, 2005)

• Government policies (Remenyi & Quinones, 1997) Financial products and services design

Local

conditions and circumstances

• Clients’ literacy and numeric skills (Quinones, 2000)

• The reasons for the lack of viable formal financial intermediaries in specific communities (Bhatt & Tang, 2001, ADB, 2006)

• Obstacles faced by the targeted communities in their attempt for economic and social advancement and how these obstacles related to the lack of financial services (Bhatt & Tang, 2001)

• The cause of poverty (Bhatt & Tang, 2001)

• Financial behaviours and preferences (Hasan & Iglebaek, 2004)

Cost structure (Woolcock, 1999)

• Resolution on these areas must be negotiated: interest rates, organisational costs, lending policies, identification of active borrowers.

Policies

• Convenience, accessibility, and affordability (Hulme & Rutherford, 2002)

• Flexibility of services in responding to changing market needs (ADB, 2006)

Financial products and services design

Other factors • Use of telecommunication and technology (Syed, 2005)

• Consideration of laws and standards practiced

The success of development depends on the program’s ability to adapt to local conditions and in mobilising and maintaining different types of social relationships (Woolcock, 1999). In the process of adaptation, program organisers should engage in ‘learning by doing’ in the local setting. This action learning task is a time-consuming, ongoing process which may involve setbacks and disappointments until the best practices to suit a given social environment are discovered. This process relies greatly on the support of other stakeholders. The presence of social capital enables mobilising and maintaining social relationships among stakeholders and influence group performance (Olomola, 2002; Ito, 2003; Dowla, 2005). Social capital, such as community networks, establishes norms that foster social trust to collective action to solve problems and secure group benefits.

The success of development also depends on appropriate products and services. Effective product innovation requires an insightful knowledge of local conditions, circumstances, and preferences to be able to set suitable cost structures and policies. Product innovation, especially when it is based on the understanding of financial behaviour and preferences of extremely poor, has become a significant strategy for deeper poverty outreach (Hasan & Iglebaek, 2004).

Another important factor to consider is the need for training (Nelson et al., 1996). Most microfinance programs today do not only provide financial services but also other social services to enhance the possibility of success. Basic education to improve literacy and numerical skills, business skills, and credit management are often provided to make sure that borrowers could participate in the program and utilise the loans in the productive manners. Thus, it is also important for program sponsors to design appropriate training programs and approaches in order to overcome the community’s weaknesses. Training can be delivered in many forms such as

formal courses of short duration, on-the-job training with field back-up, study visits to other successful groups, peer review, workshops of leaders across groups, and cluster meeting.

Participatory approaches are encouraged to create these favourable conditions of success. Participatory approaches facilitate program sponsors’ learning about the local context by allowing the participants to do the following: express their difficulties; share knowledge about their communities; talk about their financial behaviour; and identify their financial preferences. An environment of ‘learning from each other’ creates an atmosphere of trust enhancing social relationships among stakeholders. Research findings confirm that an involvement of stakeholders and beneficiaries in decision-making processes in all phases of a program, including evaluation, help to create a sense of ownership of the process and products and promote participants’ learning from each other (World Bank, 1997). In turn, this is extremely important for long-term sustainability (English, 1997). Participation also makes poor people become self-reliant, capable, informed, confident and proactive to take initiatives that solve their problems, which prevent them from deeper poverty and allow them to pursue sustainable livelihood. This, in turn, strengthens the pre-existing relationships or even builds social capital or social safety nets, which cushion the effects of economic and social shocks (Severo, 2002).

The evaluation of microfinance programs in Thailand: Approaches and findings

There are relatively few studies on microfinance in Thailand. There is no clear evidence of the effect of microfinance on poverty; however, the incidence of poverty in Thailand continuously decreased from 16 per cent in 1999 to 10 per cent in 20045_{. Several studies (McGuire et al, 1998; Meyer &}

Nagarajan, 2000) have noted that specialised microfinance services are not

5

The figures come from Human Development Report 2007/08, UNDP. Poverty incidence is measured by comparing per capita income against the poverty line, which is based on the minimum

important in Thailand because poverty problems in Thailand are relative minor. Another contributing factor is that most Thai communities are able to form self-help groups and networks which, to a certain extent, help them to cope with problems.

Most evaluations of community-based microfinance programs have been undertaken by NGOs and donor agencies involved in the program they have supported. The findings are mostly in the form of stories outlining the benefits and success factors of the programs. A review of the impact of community-based microfinance schemes in Thailand reveals similar results including improvement of economic welfare, creation of social capital and protection, improve personal lives, and enhance community self-esteem in dealing with their own problems. These impacts are listed, with details of sources, in Table 2.6.

TABLE 2.6 IMPACT OF MICROFINANCE AT COMMUNITY LEVEL

Types of

Impacts Aspects of Impacts

Socioeconomic impact

• Production credit groups and women’s groups promote asset growth (Kaboski & Townsend, 2002)

• Pledged savings account lead new jobs and new businesses (Kaboski & Townsend, 2002)

• Reduce probability of borrowing from moneylenders (Kaboski & Townsend, 2002)

• Offer credit access to the poor (Anh, 2003; UNDP, 2006)

• Improve economic status (Anh, 2003)

• Increase income (Anh, 2003)

• Income smoothing (Anh, 2003)

• Facilitate self-employment (Anh, 2003)

• Expansion in household assets (Anh, 2003)

• Diversification by facilitating self-employment (Anh, 2003)

• Improve housing and related infrastructure (Anh, 2003)

• Increase expenditure on agricultural inputs (Anh, 2003)

Impacts related to social capital

• Women’s groups can facilitate members changing jobs (Kaboski & Townsend, 2002)

• Products such as optional savings, flexible saving account and provision of emergency services help to reduce adverse effects of income shocks (Kaboski & Townsend, 2002)

• Community empowerment through joint decision making (Anh, 2003)

• Increase women and children participation (Anh, 2003)

• Build solidarity among community members and enables them to help each other, especially in time of crisis (UNDP, 2006)

• Increase community’s negotiation power over external resources to expand their activities (UNDP, 2006)

Types of

Impacts Aspects of Impacts

Impacts on personal lives

• Increase self-esteem (Anh, 2003)

• More confidence about the future (Anh, 2003)

• Improve lives of poor people (UNDP, 2006)

Social Impacts

• Higher education attainment (Anh, 2003; UNDP, 2006)

• Improve community welfare (Anh, 2003)

• Raise community’s political awareness and enhance capacity and confidence to address their social, economic, and environmental problems (UNDP, 2006)

• Become more capable of planning and managing their own development (UNDP, 2006)

UNDP (2006) has studied four community-based microfinance schemes in Thai rural area. The study revealed several success factors such as self-initiation, participation, leadership, social capital, networking, external supports, and community learning. Each of these factors is explained briefly in Table 2.7.

TABLE 2.7 FACTORS CONTRIBUTING TO SUCCESSFUL COMMUNITY-