How does microfinance get started? It all begins with an animator breathing life into the project.
In my previous post, I described how Chandana, Danture and I conducted the study of microfinance in Sri Lanka. I also discussed the traditional, convivial patterns of finance and pooled labour in the village of Parakatawella that have been transformed and largely supplanted by microfinance.
Our study identified three tactics used by the finance industry to establish microfinance in Sri Lankan villages:
Animating microfinance by recruiting women into self-help groups.
Corporatizing the village by organizing it into a hierarchy
Assembling biopolitical accounts from the individual records of women borrowers
Together, these tactics transform village life into a machine for generating bank profits. We’ll look at each one in turn.
In the beginning
Microfinance begins with an animator, a combination sales rep and finance coach. His job is to get the microfinance program off the ground in each village. Animators are typically freelancers working for the bank on some form of commission. They are always men, and their target borrowers are always women. This is not just a Sri Lankan phenomenon. The myth of gender empowerment seems to be a universal feature of microfinance.
The success of the animator depends on his ability to connect closely with village women while maintaining his status as an expert from the bank. This balancing act allows him to integrate with the borrowing group as a trainer, supervisor, and monitor who operates in a pastoral fashion, establishing financial discipline through encouragement and care.
The animator starts by going from village to village conducting a household survey. Along with basic demographic information, the survey questions cover employment, housing conditions, debt and savings levels, what kinds of good people already own, and their access to land. This data is used to create baseline statistics about the population.
While conducting the survey, the animator starts selling the notion of microfinance to the village women. From nothing, the animator has to breathe life into the microfinance project, and from this he takes his job title: the English word “animator” is used even in Sinhalese.
The animator recruits women into the microfinance program, forming small borrowing groups based on the existing ciettu groups in the village. Ciettu groups, which I described in my previous post, are the traditional kinship groups that gathered women together to work and to pool their savings for big expenditures.
If I can be permitted a Western analogy, the animator is like an evangelist starting a new church. He preaches the gospel of microfinance. A key part of this gospel is that women should start individual microbusinesses instead of working together on convivial tasks like planting and sewing. Getting the women to give up their collaborative work patterns and work alone is one of the tenets of microfinance. This transforms the work relationships between the women from gift to exchange, from friendship to business. Friendships remain, but they now happen outside of their daily business activities. Friendship and work are no longer integrated. The collective energy of the ciettu group remains, however, harnessed by the finance industry in weekly or biweekly meetings where the women review their finances together. The microfinance program rests, in other words, on monetizing the existing social networks of women, while simultaneously individualizing their patterns of labour.
The women are told they will earn more money by starting their own business. Examples of microbusinesses established by microfinance loans in Parakatawella include a dairy farm, a recycling business, and a brassware moulding business. The dairy farmer owns a few goats, and used her microloan to purchase technology to seal milk bottles and to add different flavours to the goat milk. In the recycling business, the microloan was used to purchase equipment to produce ashtrays from scrap aluminium. The brassware business produces household ornaments and distributes them through existing retailers.
These microbusinesses do provide the women with an income. They use it to renovate family homes and put children through school. In some cases, a microbusiness may also employ the woman’s husband. This can have a positive effect on family health issues, such as alcoholism, which is a prevalent illness amongst the men.
For microfinance banks, the small borrowing groups serve as a social mechanism to mitigate the risk that the loans won’t be repaid. Peer pressure, which is especially intense in these groups due to the concentration of family relations, is mobilized by the animator to ensure the women make their regular loan repayments. This is done by celebrating proper repayment behaviour, and by insisting that the group members guarantee each other’s loan. It is up to the group to decide if a woman will be allowed to take a loan, since they will be held responsible if she defaults on it. This mechanism not only spreads the risk, but helps ensure the woman won’t default in the first place, because she knows her sisters and neighbours will be on the hook.
This practice teaches the village women to take on financial risk, which is a key difference between their traditional labour and the way they work under microfinance. As a Central Bank employee commented, “If they can’t or are not willing to take that risk for their group members, how can they be entrepreneurs?”
Risk is also mitigated through compulsory financial training, using curriculum developed by transnational institutions such as the World Bank. Introductory topics cover financial discipline and savings habits. Advanced topics cover starting and improving your own business, accounting, monitoring business performance, value chain development, competitiveness, and responsible business practices. The courses tend to be generic, leaving the women responsible for applying the lessons to their own businesses.
The end goal of both the group socialization processes and the training modules is the same: the production of the bankable person. This is the terminology used by the microfinance institutions. To be bankable means that one has learned the disciplines of saving, record keeping, and responsible repayment of debt.
And the most important of these is saving. Microfinance programs are largely self-funded. Loans are only made to borrowers after they demonstrate their ability to save. They must make regular deposits into a bank account for three months before they can be considered for a loan.
The cumulative effect of these savings is significant. In 2012, total savings in the 14 Sri Lankan financial institutions specializing in microfinance was US$ 583 million, while total credit was US$ 632 million. That works out to 92% of microfinance loans being financed from the microsavings of the rural villagers themselves.
Where microloans come from
Not only is microfinance almost risk free for the banks, it is extremely profitable. The savings accounts pay interest at 6% per year, but the loans carry an interest rate of 2% per month. That compounds to 26.8% per year. This is far higher than the rates that the banks charge their regular business customers.
Bank profitability doesn’t just depend on the small groups of women. The entire village is involved. We’ll look at this in the next post, where I’ll describe the second tactic used by the finance industry to establish microfinance in Sri Lanka: “corporatizing” the village.
Photos © 2012-2013 Wickramasinghe. (I mistakenly dated the photos as 2007 when this was first posted, having misread the timestamp information.)
Alawattage, C., Graham, C., & Wickramasinghe, D. (2018). Microaccountability and biopolitics: Microfinance in a Sri Lankan village. Accounting, Organizations and Society.