learning from south-north links in microfinance

8/7/2019 Learning from South-North Links in Microfinance

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Learning from South-North Linksin Microfinance

Edited by Ben Rogaly an d Chris Roche

An Oxfam W orking Paper


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Contents

Acknowledgements 4Editorial:Learning about learningon microfinance North and South 5Chris Roche and Ben Rogaly

Microfinance North and South:contrasting curren t debates 8Susan JohnsonM icrocredit for povertyalleviation in the N orth :con verg ence of what for whom ? 16Ruth Pearson

Com bating financial exclusionthro ug h co-operatives: is therea role for extern al assistance? 25Ben R ogaly

Sou th-North lessons in microfinancean d the role of social investm ent 35Malcolm Hayday and Mary Locke


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Acknowledgements

Three of the four papers in this collection wereoriginally presented at sessions of the NGOstudy group of the Development StudiesAssociation, in Septem ber 1997. The rem ainin gpaper, by Ben Rogaly, was first presented at aDepartment for International Developmentseminar on the Role of Co-operatives and Self-Help Organisations in December 1997.We are grateful to the individual authors,and to the editor of the Journal of InternationalDevelopment, for permission to publish thepap ers in the form of an Oxfam Working Paper.A shortened version of this Working Paper willappear as a Policy Forum in the Journal of

International. Development, 10 (6), September-Octob er 1998. Contact addresse s for individualcontributors will be found after their papers;correspondence about the collection should beaddressed to Ben Rogaly at the School ofDeve lopm ent Studies, University of East Anglia,Norwich NR4 7TJ, UK, fax 44-1603-505262,email [email protected] would like to thank the EnterpriseDevelopment Group at the Department forInternational Development, UK, for financialsupport in producing this Working Paper.Ben Rogaly and Chris Roche


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Editorial: Learning about learningon microfinance North and South

Chris Roche and Ben Rogaly

Three of the four papers that are included inthis collection were originally presented at twosessions of the NGO study group of the UK-based Development Studies Association inSeptember 1997. The aim of these sessions wasto explore the similarities and differencesbetween microfinance experiences in differentparts of the world, with a particular focus onwhat has been learnt in the 'South' and in the'North' and whether there were any specificlessons which were transferable across theseconventional divides.

Replacing 'developed' and 'developing' with'North' and 'South' is an improvement becauseit reaches beyond the notion of an inevitableprocess of progressive change. However,because of the immense diversity of contextswithin both, South and North are bestconceived of as metaphors (Eyben, 1998: 1).Most of the articles here emphasise th e extre mecare that needs to be exercised in using theterms North and South particularly if one isreally talking about experiences in specificcountries, for example, Bangladesh or the UK.

Microfinance is concerned with deliveringsmall loans, accepting low levels of savingsdeposits, and providing insurance and otherfinancial services to which poor people oftenlack access. The way it isdone has varied histor-ically and across countries. These differentcontexts influence the success or otherwise ofspecific technologies (or designs) used fordelivering services. Three of the articles in thiscollection stress this point (see Pearson on peercollateral, Rogaly on co-operatives and mu tuals,and Hayday and Locke on grassroots revolvingfunds). Th e different technologies vary in term sof how much they cost the institutionalproviders of microfinance including theoften ignored costs of encouraging users toparticipate in groups, in the case of peer-grouplending (Bhatt, 1997; Reinke, 1997). Thesecosts, too, vary according to context.

Johnson's article in this Working Paper showshow the costs associated with particular tech-nologies, and the way they are calculated, hasimportant implications for the potential for'scaling-up' provision of microfinance services.Th e cu rren t orthodo xy, which emphasises as itsbottom line the financial sustainability ofmicrofinance institutions (or progress towardsit), seems to ignore such necessary steps in theprocess (and their costs) as buil ding the linkagesbetween financial systems, local economies, andsocial capital. These steps are analysed inPearson's article from first-hand experience inNorwich, England.

The configuration of actors involved inproviding financial services including butalso going beyond microfinance institutionsthemselves requires a dynamic and possiblychanging (and probably financially unsus-tainable; see Hayday and Locke's contributionto this Working Paper) set of local institutionalarrangements. This is particularly the case iffinanc ially successful micro financ e in stitutionsfollow Michels- iron law of oligarchy (Michels,1915, cited by Uphoff, 1995). While severalinternational donors and others, which arepromoting microfinance today, emphasise theimportance of scaling-up as a necessary condi-tion for achieving the great goal of financialsustainability, Michels' law suggests theopposite: that larger scale inevitably involvesgreater distance from users or members, moreorganisation, and therefore a tendency tooligarchy. The relationship between govern-ance an d scale in financial services co-operativesis examined in Rogaly's contribution to thisWorking Paper.

Such issues are of increased significancewhen it is recognised that international donorconcerns can be traced back to the economicand political interests of No rth ern governmentsand companies, which have domestic as well asinternational agendas. Unequal international


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Learning from South-North Links in Microfinance

power relations mean that certain countries,governments, and commercial entities have adisproportionate influence on the developmen tof global markets, and financial and aid policy,among other things. The strand of 'green' and'new' economics at the root of communitybanking and the social economy in parts ofthe North represents a contestation of thoseinterests from within (see Joh nso n's p ape r).This is important, given that the views andvalues of Northern governments in relation topoverty reduction and wealth creation in theirown societies is likely to influence, if notdominate, their international policy (Stokke,1996). In this very real sense, greater learningand sharing, about, for example, the search foralternative social banking models in the North,are a vital part of influencing internationalagendas in the future.1

However, Pearson in particular highlightspotential danger s in the curren t enthusiasm forSouth-North and North-South learning (seefor example, Maxwell, 1998a), with particularreference to the uncritical importation ofmodels developed and refined elsewhere.Given that development agencies have, orshould have, learnt that the exact replication ofNorthern strategies of poverty reduction andincome generation in the South is unlikely tosucceed, it is ironic that the importance ofcontext an d diversity at times seems to be absen tfrom the debates on what the North can learnfrom the South. This is particularly the casegiven the level of disagre em ent that exists aboutthe causal connections between anti-povertypolicies and practices on the one hand, andtheir impact on the other; as well as the varietyof criteria th at a re used to ju dg e success (for asummary of this discussion with respect to themicrofinance sector, see Joh nso n an d Rogaly,1997, Chapter 5).

Th ere are clearly growing com parisons, con-nections, and even some convergences betweenthe North and the South (Maxwell, 1998b).However, these have, as Gaventa argues, 'oftentimes been articulated in terms of economicconnections brought on by multinationals orcapital mobility, or by cultural connections,encouraged by global media and informationtechnologies'. It is impo rtant also to take note of'social and intellectual connections involvingshared development strategies and concepts'(Gaventa, 1997, emphasis added).This suggests that what need to be shared arestrategies tha t cope with diversity and differ-ence at local level, that are based on adap tation

and learning through doing, and that aregrounded in a common understanding of whatit means to struggle for change in one's ownsociety. The papers presented in this collectionillustrate the worth of such an endeavour butalso caution against simplistic generalisationsand banal comparisons that do not respect thespecificity of par ticu lar con texts or the different,and often conflicting, experiences, aspirations,and strategies of those living and workingwithin them .

Notes1 Co n v e rs e ly , th e r e c e n t Wh i te P a p e r'Eliminating World Poverty: A Challenge

for the Twenty-f i rs t Century ' o f theDepar tment fo r In te rna t iona l Deve lop-ment, UK, can be used as a lobbying andadvocacy tool to attempt to persuade theUK Government to follow its own quiteradical anti-poverty policies in the UK.

ReferencesBhatt, N (1997) 'Microenterprise developmentand the entrepreneurial poor; including the

excluded?', Public Administration andDevelopment 17 (4).Edwards, M and Hulme, D (1995) Performanceand Accountability: Beyond the Magic Bullet,London: Earthscan.Eyben, R (1998) 'Poverty and social exclusion:North-South links', paper presented in theOverseas Development Institute series 'Beyondthe White Paper', L ondon, F ebruary.Gaventa, J (1997) 'Crossing the great divide:building links between NGOs and com-munity based organisations in North and

South', paper prepared for the conferenceon NGOs and Voluntary Organisations,NCVO/LSE, September 18-19,1997.Hayday, M and Locke, M (1998) 'South-N orthlessons in microfinance and the role of socialinvestment', this Working Paper.Johnson, S, 1998, 'Microfinance N orth and S outh:contrasting curren t debates', this Working Paper.Johnson, S and Rogaly, B (1997) Microfinanceand Poverty Reduction, Oxfam: Oxford.Maxwell, S (1998a), 'The same difference',Guardian 25 March.Maxwell, S, (1998b) 'Com parisons, convergence,and connections: development studies Northand South', IDS Bulletin 29 (1).

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Editorial

Michels, R., (1915) Political Parties, reprinted byFree Press, Glencoe, Illinois, (1959).Pearson, R (1998) 'Microcredit for povertyalleviation in the No rth: conv ergence of whatfor whom?', this Working Paper.Reinke, J (1997) 'On groups and sustainability:why the Grameen Bank model does notalways work', African Financing Review 3(11).Rogaly, B (1998) 'Com bating fin ancial exclusionthrough co-operatives: is there a role forexternal assistance?', this Working Paper.Stokke, O (1996) Foreign Aid Towards the Year

2000: Experiences and Challenges, L o n d o n :Frank Cass.Uphoff, N (1995) 'Why NGOs are not a thirdsector: sectoral analysis with some tho ugh tson accountability, sustainability and evalu-

ation' in Edwards and Hu lme (eds) op. cit.

Addresses for correspondenceChris Roche, Gender and Learning Team,Policy Department, Oxfam, 274 Banbury Road,Oxford O X2 7DZ.email: [email protected] Rogaly, School of Development Studies,University of East Anglia, Norwich N R4 7TJ.email: [email protected]


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Microfinance North and South:contrasting current debates1

Susan Johnson

The recognition that poverty is not an exclusivelySouthern phenomenon and that debates aboutsocial exclusion in the North and poverty in theSouth may have much to learn from each otheris an area of current and growing interest.Economic and social processes in the late twen-tieth century appear to be produc ing a 'South inthe N orth' at the same time as rapid developmentin some contexts is resulting in the emergenceof a 'N orth in the S outh'. Explora tion of the simi-larities and differences is still at an early stageand there is a growing agenda of enquiry intothe com parisons, convergences, and connectionswhich these parallel debates and processes offer(O'Brien, Wilkes, de Haan and Maxwell, 1997).

On e area in which parallels are already beingdrawn is that of microfinance practice. The recentMicro Credit Summit held in Washington inFebruary 1997 brought together practitionersfrom both North and South in the fields ofmicrofinance and microen terprise development.An apparent consensus emerged on the appli-cability of microfinance and microenterprise inaddressing issues of poverty in both North andSouth, among a wide range of organisations andapproaches represented at the Summit. It is th epurpo se of this paper to delve m ore deeply intothis seeming consensus and e xplor e how far thisconvergence actually goes.Th e pa per starts by considering the origins ofthe currently dominant axes of microfinancedebates in both the North and South. Itproceeds to an examination of the differentemphasis which each approach give to localeconomic development and the role of socialcapital and cohesion, and then reviews somegender-r elated aspects of microfinance.

Contrasting originsThe view that there is a capital constraint togrowth at either the national or hou sehold level

has been one of the cornerstones of post-wardevelopment strategies. The response was tomake available cheap loans, whether at the macrolevel through the mechanism of multi-lateraland bi-lateral donors to national governments,or at the micro level through developmentfinance institutions and related governmentprogrammes to households. The c urrent empha-sis on microfinance and particularly microcreditis thus an old debate with a new gloss. What isdifferent in the latest chap ter of this story is theidea that lending capital to poor people toalleviate household-level capital constraints canbe don e in ways which ensur e th e sustainabilityof the institution delivering the service.

In the past, experience of credit provisionhad generally been disappointing: repaymentrates were low, interest rates were subsidised,the cost of running the schemes was highbecause relatively small volumes of credit weredelivered direct to individuals, involving highsupervision costs, and default was frequent andwidespread. Over the last 10 to 15 years, inseveral different countries, a number of initia-tives have evolved technologies for lending topoor people, which have overcome some ofthese failings: for example, the finding thatsmall but regular repayments of loan instal-ments were better fitted to the ability of poorpeople to manage credit than were dem ands forthe return of principle and interest as a lumpsum. A range of innovations in access methods,screen ing of borrow ers, and incentives to repa y2have helped to raise repayment rates andpresent poor people as credit-worthy borrow-ers. Furthermore, poor people have beenwilling and able to pay market inte rest rates 3 forthese loans. The reputation of the GrameenBank in these developments is widely known,but microfinance provision is more varied andincludes, among others, the oft quo ted experi-ences of institutions such as BRI in Indonesia,BancoSol in Bolivia, and K-REP in Kenya.


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Microfinance North and South: contrasting cunent debates

The implications of this shift in the'technology' of delivering cre dit to po or peoplego further. When re paym ent rates are high, thescheme itself starts to offer the prospect ofbecoming financially viable. This leads to adesire for increasing the scale of operations ofthe scheme in order to reduce unit costssufficiently to bring the m into line with interestincome. The potential for scaling-up or'outreach' to large numbers of borrowerstogether with 'institutional viability' are at theheart of 'New World' thinking (Otero andRhyne, 1994).

This emphasis on scale and sustainability areevidenced in the materials of major players inthe field such as USAID, the World Bank, themulti-donor Consultative Group to Assist thePoorest (CGAP), and NGOs such as ACCION.At the same time, the twin con cerns of outreachand sustainability found their way into theDeclaration of the Micro Credit Summit held inWashington in February, 1997 as dominantthemes (RESULTS, 1997). This is not to say thatall microfinance practitioners in the Southagree with the orientation of this approach, northat it goes unchallenged. Indeed, manypractitioners founded their initiatives on acritique of mainstream thinking. But thedom inanc e of this app roa ch is now evident fromthe fact that p ractition ers t end to have to justifyto donors deviation from it rather thancompliance with it.

Debates over scale and institutional viabilityare continuing. Only a very few microfinanceinstitutions born of NGOs have yet achievedinstitutional and financial viability (Christen,Rhyne and Vogel, 1994). The benefits ofbuilding financial institutions which cansupport their users for the long term areundeniable. However, the circumstances andpotential for achieving this across a range ofsocio-economic, socio-cultura l, agro-ecological,and physical contexts are much less clear, sincesuch differences significantly affect the costs ofboth 'social' and financial intermediation(Bennet, Goldberg and Hunte, 1996; Websterand Fidler, 1995).The emphasis on scaling-up has causedconcern because some organisations gain theirstrength from their relatively small scale andbelieve that their ability to address poverty willbe compromised by scaling-up, as this oftenleads to a reduction in the related support andservices which poor people require. A furtherconcern is the potential trade-off betweenpoverty focus and sustainability, as institutions

find it easier and more profitable to work withthose who can manage larger loans, and maytherefore 'graduate' away from the originalmem bership bases. Alternatively, if well managed ,the re is the potential for organisations to cross-subsidise services to poorer users with theprofits on services to better-off users. Thepotential trade-offs between impact andsustainability are increasingly being discussedin the literature (Hulme and Mosley, 1996;Johnson and Rogaly, 1997; Mayoux andJohnson, 1997).

The emphasis of 'New World' thinking onscale and sustainability fits the 'counter-revolution' in development thought (Toye,1993) in which the functions of the state arerolled back and the market is rolled in to makeefficient allocation decisions, in a number ofways. First, the emphasis on the financialsustainability of the institutions fits with thelogic of the market taking over and the desirefor subsidies to be removed. Second, thechannels of delivery are privatised through theuse of NGOs and similar agencies usuallyoutside the direct ambit of the state. Third, theprovision of credit with the expectation ofpoverty alleviation relies on the idea that poorpeople are the 'budding micro-entrepreneurs'(Rogaly, 1996) of neo-liberal theory, whom aloan will launch into productive economicenterprise, and a virtuous cycle of income genera-tion, investment, and further growth will result.Such expectations run counter to anunderstanding of poverty which deals withinterlocking dimensions of powerlessness andthe societal and political, as well as economic,constraints that poor people face.

To conclude: there is little within thisapproach to microfinance in the South whichquestions mainstream economic thought aboutpoverty, development, and the role of markets.This picture seems to contrast significantly withthe mainstream of debate around communitybanking in the N orth.The term 'community banking' is used hereto cover a range of models: commercialdevelopment banks, community developmentcredit unions, community development loanfunds, microloan funds, and communityexchange systems (Mayo 1996). Developmentsin the North, and in the UK in particular,appe ar to be rooted aro und two main concerns.First, (as in the South) the practical failure of themainstream formal banking sector to serve thenee ds of low-income gr oups. This failure arisesfrom the need for this sector to increasingly


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respond to deregulation, new technology, andthe globalisation of international capitalmarkets (Mayo 1996), and has resulted in theclosure of bank branches (1,000 in the fouryears to 1993 in the UK) and low consumerconfidence (Mayo 1993). Th e term 'financialexclusion' describes the process by whichpeople lose access to the basic mechanismsthrou gh which they could manage their money(Kaur, Lagnayah an d Mayo, no date). While theallegation that banks employ the practice of'red-lining' (i.e. a conscious policy of closingbanks in deprived areas) has not beensubstantiated in the UK, Kaur et al argue thatthe effect of such c losures is the same since 'bankbranch closure is fastest in more deprived wards(in L ondo n), exacerba ting existing inequities interm s of access to financial services'.This practical concern about financialexclusion appears to mirror the inability offormal ba nking systems in the South to meet th eneeds of poor people but its origins are ratherdifferent. In the N orth this failure is the result ofthe excesses of market forces rather than theirunde r-deve lopm ent. New technology has led tothe ability of financial service providers tosegment their markets precisely and effectivelyin the context of rampant competition, soforcing them to ensure that returns in any marketsegment are being maximised and cross-subsidybetwee n different parts of their business is beingkept to a minimum . Ironically, the problem hascome full circle. While the problem in the S outhis financial market fragmentation due toimperfect information and high transactionscosts, in the North the volume of informationand low transaction costs are propellingmarkets to new levels of segmentation.Th e ideological and theoretical origins of thecommunity banking movement in the Northare located within a strand of 'green ' and 'new'economics which sees conventional monetaryand banking systems as compounding theexcesses of consumption and accumulation.The way in which economic and financialmarkets are developing are seen as 'out ofcontrol' (Douthwaite, 1996) and revolvingaround 'money fetishism' (Daly, 1992). Theseprocesses are condemned as taking inadequateaccount of the environmental and social coststhey impose, and there are attempts to re-conceptualise wealth in ways that value peopleand the environment, and to build alternativeeconomic systems which demonstrate adifferent framework of values.

There appears then to be a fundamentaldifference between the underlying origins ofapproaches to microfinance in North andSouth. The increasingly dominant paradigm inSouthern microfinance is one in which scale an dsustainability are the watchwords, and there is aconvergence with mainstream economic think ingin the need to develop markets and removesubsidies. By contrast, the com munity bank ingdebate in the UK is located within a critique ofmainstream economic and financial systems,and seeks to re-invent them in ways that bringinto focus social, economic, and environ men talcosts and benefits.

Having identified these ideological andhistorical differences, the next two sectionsdraw contrasts between the economic and socialfunctions of financial systems in North andSouth.

Th e role of financial systemsin build ing sustainable localeconomiesThe Northern community banking debate islocated within a wider debate about comm unityeconomic development, and is concerned withthe role offinancial ntermediation in developingand maintaining the health of local economies.This concern recognises that money has a localmultiplier effect and that the more it circulateslocally before exiting from the area, the morejobs and wealth it will create. This leads to anemphasis on self-reliance and an aversion tomoney flowing out of areas. Douthwaiteillustrates the point by the way in which banksliterally truck money out of communities in theUS. Another illustration is provided by thesituation of the South Wales miners, whose pastsavings in the form of pension contributionsinvested through conventional financialsystems migh t be currently enabling investmentand em ployment for people in other parts of theUK or the world, while they themselves are leftwith few employment opportunities. Invest-ment to provide new employment in SouthWales has tended to come from externa l sourcesin the form of transnational corp orations takingadvantage of incentives (such as subsidies) toestablish plants in the area, rather than localsavings being used for investm ent pu rposes . I nthis context, 'new' and 'green' economicsdem and a different relationship between socialand financial priorities.

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Microfniance North and South: contrasting current debates

While the lack of a banking facility can 'pullthe plug on the local economy for an entirecommunity by closing down inner-city branches'(Big Issue quote d in Kaur et al, op cit) because itmakes banking more difficult for localbusinesses and the local community, it is clearlythe n atu re of the banking facility that is the issueat stake. Douthwaite highlights the need forlocally owned and controlled banking facilities as'investor's interests are rarely compatible withthose of a community' (1996, p58). However,local owners hip and control ar e only possible ifresources are locally generated. That is, thesystem must be able to mobilise sufficientsavings and local equity, rathe r than relying onexternal capital,4 if local control is to beretained. Indeed, this perspective also tends tosuggest an aversion to large-scale financialintermediation systems which would tend tomove (apparent?) surpluses of investible fundsto areas of deficit to equalise rates of financialreturn across space.

Credit has dominated the Southern micro-finance debate, and it is only recently thatsavings have come to the fore of the inter-national discourse and been recognised as aservice to which poor people need access(Robinson, 1995; Ruthe rford, 1995). This ispar t of a wider appreciation of the needs of poorpeople for a range of financial servicesextending from savings, insurance, and moneytransmission, to products which will enablethem to deal with medical emergencies or builda house. D espite the emergence of this broa derview of the financial-service needs of poorpeople, the identity of the microfinanceliterature with that of microenterprise develop-ment is still overarc hing.

At the macro level also there is reneweddiscussion of how to increase aggregate savingsrates and reduce the investment-savings gap inorder to fuel investment for growth (WorldBank, 1995). However, while developmentagencies highlight the importance of sustain-able livelihoods at the micro level, the role ofmicrofin ance systems in mobilising local savingsfor local re-investment has not in general beenemph asised at the meso level. This poin t can befurther illustrated by the recently held MicroCredit Summit. This initiative seeks to raise$21.6bn in order to provide 100 million poorpeople with credit by the year 2005. Theorgan isers envisage several potential sources forthese funds, including international commer-cial capital markets. The case of BancoSol

floating Certificates of Deposit on Wall Street isnow much quoted and looked to as an exam pleof how to brin g in 'prem ier financial institutionson a strictly commercial basis' (RESULTS,1997).Th e question posed here is whether all capital is'good' capital or whether there are critical con-siderations to be made about the sources offunds and the quality of the relationships theyinvolve: critically, to whom and how it is account-able. Northern debates have emphasised concernsabout the sources of capital and the nature ofthe financial systems which move capital around.They tend to emphasise the need for such capitalto be 'rooted' within an alternative value frame-work in order for local financial institutions topromote local economic health and wealth. By

contrast, advocates of the 'New World' in theSouth currently ask few questions about thesources of capital, nor of the qualitative natureof the financial institutions bein g built.

Social capitalAn apparent similarity between debates inNorth and South is their attention to socialcapital. Northern debates, in searching foralternative models of economy and society, seesystems of financial intermediation as critical,not simply for ensuring local economic wealthbut also local social health. Social relationshipscan be built as well as destroyed by systems ofeconomic interaction. In the North, old-style so-called 'relationship banking' has given way tothe technology of cash-machines and creditratings agencies5 whereby people become abalance sheets of assets, liabilities, and incomerather than individuals with talents, creativity,and a contribution to make to society as a whole.The situation in which a local bank managerwould know his (sic) customers would also belikely to lead to an assessment of risks andreturns which would take into account widerconsiderations than mere financial returns.Such systems em phasise face-to-face interactionand transaction. The search for alternatives inthe North has led to an emphasis on creditunions, built around the common bond of alocal comm unity, and Local Exchange Tra dingSystems (LETS) schem es, amo ng th e benefits ofwhich can be the social interaction that tradingbrings about (Lang, 1994).

While in the North there may be anincreasing realisation of the need to rebuild

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social capital and put people back into banking,the'ne two rks, no rms an d trust that facilitate co-ordination and co-operation for mutual benefit'(Putnam, 1993) are a strong feature of manyindigenous financial systems in the South. Thediversity and ubiquity of these informal systemsis the subject of a wide literature. These arra nge -ments can be categor ised as those 'for profit' a ndthose which are 'user-owned' (Rutherford,1996). While it is clearly the case that som e localfinancial arrangements are exploitative ratherthan enabling for poor people, user-ownedsystems are likely to be more enabling andsupportive, because the profits are pooled andshared or fed back into the system, andownership and control of the funds are in thehands of the users (Johnson and Rogaly, 1997).

In the North, such informal systems tend toopera te more within immigrant comm unities inthe UK and U S, such as Jamaican 'partn er'arrangements in the UK and 'hui' amongVietnamese immigrants to the US. However,the original format for the 'terminating'building society in the UK was built on similarprinciples to the basic ROSCA6 and dates backto the eighteenth century.Advocates of community banking stress th atlocal financial systems can aid the regenerationof poor comm unities in the North. In th e So uth,many NGO schemes are based on groups, andsome on existing indigenou s systems. Ho wever,a danger of the dominant paradigm's pressurefor scale and sustainability is that schemes maylose their social orientation.The diagram opposite seeks to illustratethese dynamics. The emphasis of communitybanking and related Northern initiatives isclearly to find ways of building social capital in tofinancial systems. This seems to be happening intwo ways. First, formal banks such as the Co-operative Bank in the UK are taking a stake-holder view of their ope rations and recognisingthe interests of customers, staff, and the widercommunity, rather than only those of theirshareholders (Co-operative Bank, 1997). Alsoin the formal sector, Triodos Bank is anexample of an institution finding ways withinconventional banking instruments, such asdeposit accounts, to introduce ethical and socialconcerns by enabling investors to determinewhich sectors they want their savings to beinvested in. On the other hand, credit unions,LETS schemes, and microloan funds are beingseeded to expand the options in the high-social-capital, low-financial-capital quadrant.

In the South, there are many systems whichcan intermediate small volumes of capital withboth low social capital and 'for profit' (e.g.money lenders)7 and high social capital ('userowned' informal systems)". NGO microfinanceinterventions initially, and on the whole, mightfit the high-social-capital, low-volume-offinancial-intermediation quadrant. Howeverthe dynam ics of microfinance in the South seemto be towards scaling-up the volumes offinancial intermediation undertaken. What isnot yet clear is to what extent and in what waythe social relationships involved are to bemaintained and developed, or whether NGOsin converting themselves into registered andregulated financial institutions might begin toente r the first quadra nt and simply become p artof the mainstream financial sector, which ismotivated by profit rathe r than people. Th e biasof the dominant 'New World' approach doesnot clearly put any emphasis on the quality andnature of the social relationships involved inscaling-up and whether and how they are likelyto change with an emphasis on sustainability.

Gender-related issues inmicrofinance North and SouthThe success of some of the best-knownBangladeshi microfinance institutions inenlisting large numbers of women amongsttheir m em bers has led to the growing belief thatmicrofinance is an interventio n u niquelybeneficial to women. While targeting a main-stream development intervention towardswomen is a welcome corrective to previousneglect, the assumption that receiving credit isnecessarily empowering for them requiresfurther examination.

A growing literature is examining the impactof microfinance, in particular credit, on g ende rrelations. Goetz and Sen Gupta (1995) writingon Bangladesh demonstrate that the fact thatwomen belong to the schemes and have accessto loans does not mean that they retain controlof the funds within the household. Mayoux(1997), drawing together a range of evidencefrom South Asia and Africa, demonstrates thevariety of effects, both positive and negative, onwomen, intra-household gender relations, andwomen's relations to the wider community andsociety that are evidence d in practice. This leadsto the, perhaps unsurprising, conclusion thatmicrofinance transactions are located within

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Figure 1: NorthMicrofinance North and South: contrasting current debates

FormalBankingSectorLow

High

Loan sharksPawn brokersCatalogues

Low

FinancialIn termediat ion-*- Ethical/Social Banking

Community Development BankingHigh

Credit UnionsLETSMicroloan funds

Social Capital

Figure 2: South

High

FormalBanking

Low

'For profit'informalschemes

i

N\

Low

FinancialIn termediat ion

? ? ?

i

\ NNGO

High

schemes Social Capital'User owned'informal system s

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existing sets of ge nd er relations, both w ithin thehousehold and within the wider society. As withmost interventions, it is necessary to specificallyorient microfinance interventions to addressaspects of these relations in order to havesystematically positive impacts on genderrelations for most women, most of the time. Yetagain, this means that it is the way in which anintervention is implemented that matters.Northern debates on community bankinghave not been notable for their discussion ofwomen or gender. 'Green' and 'new' economicshave begun to consider how gender relationsaffect the economy and society. Th e area in whichthis has mostly been developed is in ascribingvalue to domestic work (Ekins and Max Neef,1992), and initiatives such as the Index ofSustainable Economic Welfare (NEF, no date)have valued the services of domestic labour.Microfinance interventions in both Northand South will only address gen der inequalitiesif they are designed to do so. In practical termsthis requires gender policies on the part of theimplementing agency; complementary serviceswhich addre ss g end er differences; conditions ofmicrofinance service delivery which are flexibleenough to meet women's needs; and providingthe means through which women can parti-cipate in decision-making on the strategy of theintervention (Mayoux, 1997). At the same time,there is still further thinking and experime nta-tion to be done about the ways in-whichalternative economic and financial systems canaddress in-built gender biases if communitybanking initiatives are to help to deliver a trulyalternative system of gender relations in theeconomic sphere .

ConclusionThis exploration of microfinance debates Northand South has drawn out some significantpoints of contrast and similarity. It hashighlighted important underlying differencesbetween the currently dominant 'New World'approach in the South and the communitybanking approach in the North. Northerninitiatives are located in a critique of the wayconventional financial and economic systemshave segm ented markets in their drive to retainprofitability in an increasingly competitiveenvironment; and in a search for alternativemodels of financial intermed iation which bringsocial relationships and the health of localeconomies back into view. By contrast, the

paradigm which has been described h ere as nowdriving Southern microfinance programmesappears to be rooted in a conventional view offinancial intermediation including a focus onprofitability in order to achieve long-termsustainability.While both sets of initiatives see reducingpoverty and social exclusion as priorities, themea ns throug h which they seek to achieve thesegoals differ. The 'New World' in Southernmicrofinance seeks to develop financial mark etsin ways that do not fundamentally challe nge thelogic of those markets . In contras t, the na tu re offinancial services envisaged by Northern com-munity banking implies a fundamental critiqueof the neo-liberal economic paradig m, and theaim is to build a 'social-oriented ba nkin g system'within an entirely different value-framew ork.Does the 'New World' in Southern micro-finance offer us anything really 'new' or justanoth er dose of the old economic formula?

Notes1 The author is grateful to Tom Fisher and BenRogaly for comm ents on an earlier draft. Erro rsand omissions remain her responsibility.2 See Johns on and Rogaly 1997, Ch apte r 3,

for more details of the nature of theseinnovations.3 Market interest rates here refer to rateswhich cover inflation and at least some of thecosts of default and adm inistratio n. W hile theterm 'market interest rates' is often used indiscussions of these schemes, financialmarkets in the areas in which these schemesoperate are usually highly fragmented, andthere is no single 'mark et interest rat e'.4 External capital comes with a rang e of risksfor the outside investor and it could beargued that equity investments that areprepared to take on some of the risks arepotentially less exploitative than debtrelationships.5 The formal banks are not oblivious to suchneeds, and Barclays now, somewhat ironically,advertises its services to new small businessesas including the services of an 'experiencedRelationship Banker' (Barclays, 1997).6 ROSCA stands for Rotating Savings andCredit Association.7 Money-lender arrangements might be seenas embodying high levels of social capital asthey depend on the lender having knowledgeof the borrower. However, since these

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Microfniance North and South: contrasting current debates

relationships are often for profit and mayincorporate inter-locking contracts whichembody unequal power relations they do notadequately fit the definition of social capital.

ReferencesBarclays (1997) 'Starting a business? Get o n theright road' Barclays Bank PromotionalPamphlet.Bennett L, Goldberg M and Hu nte P (1996)'Ownership and sustainability: lessons fromgroup-based financial services from SouthAsia', Journal of International DevelopmentSpecial issue: Sustainable Banking with the Poor8(2).Christen R, Rhyne E and Vogel R (1994)'Maximising the Outreach of MicroenterpriseFinance: The Emerging Lessons ofSuccessful Programs. A Summary of Findingsand Recommendations', Paper presented tothe Conference on Finance Against Poverty,Reading February 1995.Co-operative Bank (1997) 'Strength inNumbers: Our Partnership Approach', Co-operative Bank.Daly H (1992) Steady State Economics, Earthscan.Douthwaite R (1996) Short Circuit: Strengthening

Local Economics for Security in an UnstableWorld, Resurgence.Ekins P and Max Neef M(1992) Real LifeEconomics: Understanding Wealth Creation,Routledge.Goetz A M and Sen Gupta R(1995) 'Who takesthe credit? Gender, power and control overloan use in rural credit programmes inBangladesh', World Development 24(1).Hulme D and Mosley P (1996) Finance AgainstPoverty, Routledge.Johnson S and Rogaly B (1997) Microfinance andPoverty Reduction, Oxfam.Kaur S P, Lagnayah S and Mayo E(no date)Financial Exclusion in London, New EconomicsFoundation.Lang P (1994) LETS Work: Rebuilding the LocalEconomy, Grover Books.Mayo E et al (1993) Bank Watch, New EconomicsFoundation.Mayo E (1996) Community Banking: A Review ofthe International Policy and Practice of SocialLending, New Economics Fou ndatio n.

Mayoux L (1997) 'Women's Empowerm ent andMicrofinance Programmes: Approaches,Evidence and Ways Forward', D raft overviewpaper.Mayoux L a nd )ohnson S (1997) 'MicrofinanceProgrammes and Women's Empowerment:Strategies for Inc reasing Impa ct', Repo rt of aWorkshop held in Addis Ababa, Jan uar y 1997.NEF (no date) Growing Pains? An Index ofSustainable Economic Welfare for the UnitedKingdom, 1950-90, New Economics Founda tion.

O'Brien D, Wilkes J, de Haan A, and Maxwell S(1997) Poverty and Social Exclusion in North andSouth, IDS Working Paper 55 , IDS Sussex.Otero M and Rhyne E(1994) The New World ofMicroenterprise Finance: Building HealthyFinan cial Institutions for the Poor, ITPublications.Putnam R (1993) Making Democracy Work: CivicTraditions in Mod em Italy, PrincetonUniversity Press.RESULTS (1997) Micro Credit Summit: Declar-ation and Plan of Action, RESULTS,Washington.Robinson M (1995) 'Introducing SavingsMobilisation in Microfinance Programs:When and How?' Paper to the MicrofinanceNetwork, Philippines.Rogaly B (1996) 'Microfinance evangelism,"destitute women" and the hard selling of anew anti-poverty formula', Development inPractice 6(2).Rutherford S (1995) The Savings of the Poor:Improving Financial Services in Bangladesh,Binimoy, Dhaka.Ruthe rford S (1997) A Critical Typology ofFinancial Services for the Poor, ACTION AIDWorking Paper No 1.ToyeJ (1993) Dilemmas of Development, Blackwell.Webster L and Fidler P (eds)(1996) The InformalSector and Microfinance Institutions in WestAfrica, World B ank, Washington.World Bank (1995) A Continent in Transition:Sub-Saharan Africa in the Mid-1990s.

Address for correspondenceSusan John son, Depa rtment for Economic andInternational Development, University of Bath,Bath BA2 7AY.email: [email protected]

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Microcredit for poverty alleviation in the North:Convergence of what for whom?

Ruth Pearson

This paper discusses a pilot project in the UKwhich is providing training, credit, and supportto women from low-income communities inNorfolk (in the east of E ngland ). As well assituating this initiative in the contexts of widerdebates within development studies, inter-national political economy, and social andlabour-market policy, the author is able toprovide an insider's perspective, as Chair of thevoluntary organisation which has co-ordinatedthe development and funding for this project,and overseen the policy and practical nego-tiations with a range of local, national, andinternational partners, as well as with potentialbeneficiaries and participants (Pearson andW atson 1997). Th e discussion raises imp ortantquestions both for assumptions about theconvergence of the analysis of and policy onsocial exclusion and poverty in the North andthe South, and for the relevance of theexperienc e of international development organi-sations seeking to transfer their experience indeveloping countries to cu rr en t initiatives in theUK a nd other industrialised countries aimed atreducing welfare dependence and social andlabour-market exclusion.

Red ucing poverty andstimulating participationin the labour m arket:the global contextPoverty alleviation and social exclusion are nowconcepts which are applied as much to theincreasingly stratified economies and societiesof th e N orth as to the globally differentiated andchronically underdev eloped areas of the South.In the 1960s and 1970s, global linkages weremuch discussed in terms of mutual interest,with the North benefiting from the markets andpolitical stability of the South via investment

and development co-operation from theNorth.1 Since the end of the 'east' whichfollowed the demise of the Fo rme r Soviet Unionand the removal of centrally plan ned 'socialism'as a viable economic strategy for economicgrowth and social re-distribution, we haveentered a new international paradigm. In the1990s there has been a growing consensus thatthere are extremes of economic and socialmarginalisation within the North as well as theSouth (O'Brien et al 1997, Maxwell 1998), andthat those responsible for the development ofappropriate policies in the North could welllook to development analysis and co-operationfor inspiration, example, and direction (Toye1987). Part of the reason for the enthusiasticacceptance of the notion of convergence lies inthe current embracing of globalisation as ananalytical framework for understanding theinterconnectedness of diverse, as well asparallel, tendencies within the world economy(Hirst and Th om pso n 1996). This is reinforcedby the parallels in dom inan t econom ic policy inthe South as well as the North, which haschallenged the role of the state as the majorinstrument of effective economic developmentstrategy and as a unitary agent of re-distrib ution(Booth 1994).

Th e curren t debates, in France and the USAas well as in the UK, conc erning the imperativesof re-modelling the welfare state to deliversocial and economic sustainability in a demo-graphically challenged twenty-first century(Esping-Andersen 1996), have inevitably ledconcerned analysts to redefine social institutionsand th e interface between lab our-market policies,investment policies, and welfare policies.As Joh nso n argu es (this Working Paper) th ecurrent interest in individual and household-based development strategies is not just about

income generation or economic regeneration.Social capital is seen as a major contributor to

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Microcredit for poverty alleviation in the North: convergence of what for whom?

social cohesion , which is regarded as a necessarycondition of participatory, and thereforepolitically stabilising, community-level develop-me nt. Given th e inability of national or regionaleconomies to insulate themselves from therepercussions of economic and political crises,even in far-distant regions (as the currentfinancial and investment re-alignments follow-ing the crisis in Asia illustrate)-, the polarisednat ure of'successful' economic growth is seen tothreaten policy success in the UK as much as inBrazil. Th e cur rent UK government's 'New Deal',which will provide employment opportunitiesfor the u nemp loyed (at the time of writing onlyavailable to the 1 8-24 age gro up who have beenout of work for twelve months or more), isaimed as much at social cohesion and politicalstability as at individual economic opportunityand local economic development. This is aninterest ing echo of the strategic convergence ofpolitical and econom ic liberalisation argum entswhich have followed the end of the Cold Warwhereby demands for political reform havebeen translated into imp lementation of eco-nomic reform/1 Within the hegemonic view thatpolitical freedoms include the freedom to purseeconomic entrepreneurial activity, ProfessorYunus, the creator of the Grameen Bank inBang ladesh, has argued 'Not only should creditfor self-employment be formally welcomed as afundamental human right, it should also berecognised th at it is a hum an right which plays acritical role in attaining all other human rights'(Yunus 1992, cited in Mayoux 1997 : 16).

In this global scenario, the apparent successof microfinance interventions, particularlymicrocredit for production as pioneered inLatin American and Asian countries (Bergerand Buvinic 1989), has meant that it has beenheralded as an appropriate strategy in anumber of highly diverse economic situations.The Micro Credit Summit, which took place inWashington DC in February 1997, took atriumphalist position, celebrating microfinanceas a unique tool for poverty alleviation, andeconom ic developm ent as a global strategy. Theideological and analytical simplifications under-lying this position have been made explicit byseveral com men tators (Mayoux, op. cit., Rogaly1996), while others have pointed out that whatmight appear to be similar or identical policystrategies the provision of microfinancialservices to marginal communities, households,and individuals has a diverse history indifferent places (Johnson 1998, this Working

Paper). In the United States, for instance, manyof the microcredit programm es were developedin the context of the urban community invest-ment strategies which followed the widespreadurban rioting in Los Angeles in the early 1990s.Welfare reform initiatives which date from asimilar period were m otivated by desires both toredu ce the resou rce cost of welfare depe nden cyand to encourage economic activity amongtheexcluded urban poor. The channelling of creditand entrepreneurial support services to thewelfare-dependent can be seen as extendingeconomic opportunity to the socially excluded;though this has taken place in the context ofwithdrawing long-term safety-nets from thoseexcluded from labour and housing markets(WSEP, 1994 and 1995).

There is a danger in assuming that credit isthe panacea for stimulating economic activityand reducing poverty; and there has beenconsiderable discussion in the developmentliterature pointing out the limitations andcontradictions of credit provision as a strategyfor alleviating poverty (Hulme and Mosley1996; Joh nso n and Rogaly, 1997). Thesedebates have stressed the fact that th e dy namicsof social and economic processes are highlydifferentiated, and the patterns of exclusionproduced are cross-cut by gender, ethnicity,race, age, and family responsibilities, and varygreatly in terms of intra-national, intra-regional, and international location (Goetz andSen Gupta 1996, Mayoux 1997).

The Norwich Full Circle Project:adaptation not replicationFor those of us in the UK involved in buildingon international experience and devisingappropriate initiatives involving microfinancefor marginalised groups in our communities,the debates among development analysts andagencies about convergence and adaptation ofsuccessful policies developed in the South areboth welcome and worrying. Without doubtsome of the creative initiatives of developmentorganisations in the South offer importantexperiences for policy analysts concerned withdiversifying the income sources of the poor viacommunity-level regeneration and thedevelopment of intermediate and subsidisedlabour markets. The danger lies in translatingthe notions of global convergence into comm onpolicy prescriptions. Whilst features of end-of-

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the-century Northern economies might appearto reflect those in the developing South underemployment, lack of social and economicparticipation, lack of access to financial servicesand training the dynamics of marketexclusion in a declining and polarising post-industrial economy, in which universal welfaresafety-nets have been an expectation if not anexperience, will differ in many ways from thosein economies where markets are under-developed , commercial and welfare services arethinly as well as unevenly distributed, and fulladult employment in the regulated economyhas never been a policy objective, much lessachieved.

One of the central areas of debate about theefficacy of microcredit in developing countrieshas concerned the implications of the prepon-derance of women amongst loan recipients.Participation in such programmes was initiallyseen as a sign of economic inclusion andempowerment for women. However, subse-quent analysis from the standpoint of intra-household relations has questioned theassumption of positive effects on women interms of power and decision-making within thehousehold (Goetz and Sen Gupta 1996). It hasbeen suggested that women may in fact take onresponsibility for a debt which providesresources for m ale family mem bers to invest orconsume, without this necessarily leading tochanges in gender relations within families orcommunities, or indeed to women's economicparticipation or benefit. It is important there-fore that the new enthusiasm for transferringdevelopment experience and policy from theSouth to the North is done so with the explicitrecognition of the complexities involved indevising appropriate policies. These mustrecognise both the particular nature of intra-household gender relations of groups targetedfor microfinance interventions, and projects,and the ways in which state regulation ofbenefits and fiscal and labour-market systemsconstruct and reinforce gendered economicand social roles in different com mun ities.The Norwich Full Circle project is anexample of one such initiative which has beendeveloped in the full knowledge of inter-national experience and debate (Pearson andWatson op cit). Described as a 'Grameenadaptation' (rather than replication) this projecthas indeed taken elements of experience fromthe South to develop a project which offerscredit as part of a package of training, labour-market guidance, and business support and

counselling to a group of low-income womenchronically excluded from employment andtraining opportunities.Superficially, the operation of this projectappears to resemble quite closely the widelydisseminated principles of the Grameen Bankin Bangladesh. It has utilised the principle ofpeer liability, and the credit for enterpriseelement is based on the establishment oflending circles for four to six women, who takejo int liability for loan decisions and re paym ents.Doing so has involved consistently argu ing to anincredulous local retail banking establishmentthat international exp erience has indicated thatpoor women are very good credit customers,demonstrating a default rate a fraction of thelevel of conventional commercial customers;and that women operating at a scale which wehave termed 'front room' businesses in low-income communities have been progressivelyvulnera ble to financial exclusion, as mainstre amproviders of financial services (retail banks andpost-offices)have increasingly restricted theiroperations. This has me ant no t only that bankshave geographically withd rawn from low- incom eareas but also that an increasing proportion ofhouseholds ar e unable to use banking services,either because they have very low income earned or transfer payments or have adversedebt histories (Rossiter and Kenway 1997:7).However, it is also implicit in m aking th e casefor a microcredit project that it is the knowledgeof the specificity of the target beneficiarieswithin the local and national context whichreveals its relevance and potential for success.Th e paren t organisation ru nn ing th e Full Circleproject is called WEETU (standing for W omen'sEmployment, Enterprise and Training Unit)which was set up in 1987 to respond to theincreasing marginalisation of women in thelocal economy in Norwich and the surr oun dingrura l areas in the county of Norfolk. WE ETU'sobjective was to help women to adapt toeconomic chan ge by lobbying local and n ationalgovernment, by participating in economicplanning at the local level, and by working withstatutory training providers to ensure women'sneeds were reflected at all stages of policyformation and implementation. Over the lastten years, WEETU has developed a number ofrelevant initiatives aimed at tackling differentdimensions of women's economic exclusion,includ ing a wom an-focused g uida nce service ontraining and employment opportunities, anUnpaid Work Project which demonstrated howthe skills women develop in the home and in

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unpaid community work are comparable withthose required for national Vocational Quali-fications in four occupational areas; a Cyber-women project which facilitates women's accessto 'taster' training in information technologydonated by a range of corporate and publicsector providers; a 'Pensions for Women' eventwhich heightened awareness of options andadvice for post-employment income provision;and a Network for women already runningsmall businesses.Many of these pilot initiatives have since beensupported by or incorporated into mainstreampolicy and provision by TECs,4 local auth orities,and statutory bodies. These institutions inrecent years have: developed a range of guidan ce services andenterprise support services for particulargroups; incorp orated WE ETU's Accreditation ofPrior Le arnin g into N VQ qualifications; worked with financial institutions to extendinformation and marketing of appropriatefinancial products; supported training for women in male-dominated 'technical' occupations.

WEETU has thus been able to work onseveral fronts as interpreter and analyser ofthe multifaceted nature of women's economicand labour market exclusion; as initiator andvisionary in terms of developing appropriatepolicy app roach es to address various aspects ofthis problematic; and as a catalyst in theformation of creative and effective partnershipswith a rang e of local actors, includin g public andstatutory bodies as well as the private and thevoluntary sectors.By comb ining an analytic and advocacy rolewith a service development and delivery role,WEETU has been a key resource for localeconomic develop men t strategists. WEETU hasparticipated in policy development as well asplaying a major part in accessing SingleRegeneration Budget and European UnionSocial Funding. The current Full Circle creditproject should therefo re be seen as an extensionof previous activities which have increasinglyfocused on women's access to financial andbusiness services and opportunities. In thisrespect it answers recent critiques in develop-ment studies which have challenged the staticnotion of the feminisation of poverty, which hasconcentrated on the over-representation ofwomen and women-headed households in low-income populations and communities (Chant

1996). Feminist analysis has insisted on theapp recia tion that the dynamics of economic andsocial exclusion are themselves genderedprocesses; and that the ways in which womenexperience poverty are gendered (Jackson1996). Policy initiatives must therefore be firmlygro un ded on a gender ed as well as a structuralunderstanding of women's poverty.

Is peer-collateral app ropriatefor microcredit projects in theNorth?WEETU's international perspective was builtnot only on research in Asia, Latin America, andsub-Saharan Africa. Examination of practice inthe USA and Canada has illuminated thepotential dangers of adaptation withoutmodification mechanisms which have provedeffective elsewhere; and it has also revealed theways in which differences between the contextsof women's poverty in the North and the Southare significant for developing appropriaterespon ses. For exam ple, many American micro-credit projects have abandoned group-basedliability and credit contro l in favour of regulatedindividual loans and repayments, for a varietyof reason s inclu ding cost, sustainability, and thedesire to foster a culture of individual self-sufficiency (Bulcholz and Owens 1997).There are other reasons why it might beconsidered inappropriate to transfer from theSouth the notion of peer collateral. Experiencein Bangladesh has indicated that peer pressurewithin cognate groups is a significant factor inmaintaining high levels of repayment (Mayoux1997). Some analysts argu e th at th e social anomieand lack of kin and community ties among thepoor of Northern cities precludes the kinds ofpeer pressure reported as being a strategicelement in delivering low default rates inBangladesh villages. Experience in some UScities have shown that the peer-lending mech-anism slows the business plans of the mostdynamic and motivated participants, and miti-gates against self-sufficiency by forcing projectstaff to become shadow business managers aswell as project advisers and trainers (Buchholzand Owens 1997).Others insist that peer collateral is the bestinstrument to deliver microcredit, and iseffective in promoting esteem and confidenceamongst individuals from marginal groups,overcoming race and class divisions, andmo tivatin g comm unities to organise for positive

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change. If neighbourhood microcredit andenterprise initiatives are considered to bemechanisms not ju st of individual income an demployment generation but of collectiveorganisation and renewal, the group approachto credit liability and monitoring provides asound basis for other self-help initiatives whichcould rebuild social capital in marginalisedcommunities (Wann 1995).The ways in which credit for enterprise isdelivered to specific groups must alwaysdepend on the context both of the targetpopulation and of the local and national policyenvironment; and the Full Circle Project hastried to tailor the procedures used to theparticular characteristics of its participants. Thetarget gr oup, as explain ed above, is made up ofeconomically marginalised women, a groupwith which WEETU is familiar over long yearsof outreach and training and project work in arange of low-income areas in the region. Theethos of the organisation and its work has beento re-value women's experience and skills andgive them salience in the labour market. Giventhis is unlikely to be achieved by a p/mater-nalistic policy of holding business assets in trustby the organisation, every attempt is beingmade to give women full control and ownershipover the loans from the project and its businessincom e and assets.This approach is possible because the organi-sation has grown up within the communitieswhere it operates rat her than being imposed byfunders or visionaries from outside. In addition,we have eschewed the individual loan strategyeven though the reasons rehearsed above mightalso be relevant here. However, our ownresearch with proto- entrepreneurs and withthe already established Women's Enterprisenetwork indicates that one of the key factors insuppo rting women en teri ng self-employment isnot just access to finance or business training.The women in our target groups value theopportunity to 'network' with their peers.Gr oup meetings are the occasion not just forevaluating loan applications, processing pay-ments, and checking on repayments: they alsoprovide the chance to discuss any business orpersonal difficulties participants may haveenc oun tere d, try out and discuss business plans,get information on potential customers andsuppliers, and share problems concerningchildcare, household dynamics, and familyrelationships (including attitudes to women'sparticipation in the programme).

Our programme has learned much from anestablished peer-lending project run by theWomen's Self Employment Project (WSEP) inChicago, which has developed innovative andeffective mechanisms to organise lending circlesin low-income neighbourhoods. WSEP andWEETU share a commitment to empoweringwomen through collective action, and haveforged mechanisms to achieve this in theunlikely context of supporting individualentr epr ene ursh ip. WSEP have also successfullynegotiated with the state authorities to safe-guard participants' welfare paym ents, principallyincome support, child care, and medicareinsurance, for up to two years following theestablishment of a microenterprise, even whenthe enterprise is receiving credit and achievinga positive trading turnover (WSEP 1995). Thispresents a challenge for WEETU, which hasbeen advocating that the UK's Welfare to Workproject includes the option of training andcredit for potential small entrepreneurs(Pearson 1997). The UK government has nowissued guidelines indicating how such an o ptionmight be operationalised for the current NewDeal for young people being piloted in pathwayareas from January 1998. But negotiations arestill continuing concerning the importance ofring-fencing benefit payments, which representparticipants' subsistence income during theinitial period of enterprise rehearsal andestablishment.5

It is appar ent that the multi-layered n ature ofan initiative like the WEETU Full Circle projectis as much a logical developm ent from previouslycommunity-rooted activities concern ing women'slivelihoods as an externally inspired innovation.Although the examples of Grameen and otherpeer-lending programmes have been instructive,and the evidence and debates over women'sparticipation and empowerment are enlighten-ing, the context is dramatically different. In theUK of the late 1990s, economically- and socially-excluded households have access to a subsis-tence income in the form of a (minimal)entitlement to social security. Participation inthe project offers access to credit as one of thebundle of services to support the developmentof microenterprise at the community level,without which there is little prospect of follow-ing a self-employment path out of poverty.However, th e challenge is quite different fromthat obtaining in poor communities indeveloping countries. First, it is important toemphasise that here, there is no expectation

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Microcredit for poverty alleviation in the N orth: convergence of what for whom?

that such a policy might be an option for all'poor women'. Indeed, research from NorthAmerica suggests that only 10 per cent of anypopulation is likely to have the entrepreneurialskills and aptitude for successful establishmentof their own businesses which might providesustained incom e. Second, a project such as FullCircle is not suggested as the only or even theprimary ap proach to poverty alleviation. Third ,there are alternative entry-points to extensivelocal labour-markets, and the project envisagesthat the training and skills developed byparticipants in the ente rprise training phase aretransferable into the employed labour market,in the same way as the Unpaid Work Projectassumed that experience in community andhousehold work was accreditable and appli-cable in the paid labour sector. Fourth, thenature of risk to the participants is quitedifferent. In the literature on microfinance inthe South, the discussion of risk is attached toprobabilities of loan default (for the project)(Lipton et. al 1996), coercion for rep aym ent (forthe individual), an d intra-household disputesand violence (Goetz and Sen Gupta 1996), andultimately to the fact that access to differentkinds of financial services might not effectivelyincrease household income and economicparticipation, though there is often the implicit(if not explicit) assumption that such financialresources could and should be invested ininformal sector trading of one kind or another(Hulme and Mosley 1996).

Microenterprise as developmentor cheating: Southern andNorthern perspectivesAssumptions about family-based informaleconomic activities are quite different in theSouth and the North. In Northern countries,an d in the UK much more than in the USA orCanada, the pursuit of income-generatingactivities by poor hous ehold s in receipt of publicwelfare payments is considered as illegal, as'moonlighting', and as part of the 'blackeconomy', and has often been considered amatter for official regulation, even condemn-ation. As Connolly (1986) observed 'unlike thepropositions emanating from the First World,where the informal sector is seen as employ-men t disguised as unem ploym ent, the informalsector in the Third World is unemploymentdisguised as employ men t' (p62). In the North,

therefore, informal or unregulated activity istreated as something to be discovered, taxed,and probably eliminated rather than beingconsidered as evidence of entrep reneu rial activitywhich might contribute to local economicregeneration, earnings, and m erit entitlementsto training and financial and other supportfrom the public purse. Indeed, it could beargued that access to support for microcreditfor enterprise could further entrench eco-nomically marginalised individuals and house-holds into the poverty trap byjeopard ising theiraccess to income support. In December 1997th e UK Parliament voted in favour of newlegislation which would result in lone parentswho (re-)enter the labour market losing theirprevious entitlemen t to single-parent allowanceif in the future they leave employment andreturn to benefit dependency. In spite ofpromised government support for a 'welfarewaiver' to protect current and futureentitlemen ts of claimants choosing to enter self-employment, there is little evidence to date th atthe benefit system is flexible enough toaccommodate the long and tortuous processinvolved in previously unemployed peopledeveloping and consolidating an income-gener ating small business.6It is apparent that the tasks for theorganisation promoting the Full Circle projectinclude policy dialogue with government,networking and partnership with other localactors, exploring social security regu lations a ndallied measures, as well as devising original andrelevant business-training materials for thewomen participants in the programme.7 Thereis little relevant experience in the UKconcerning the technicalities (or technologies)of securing and managing loans, ensuringviable repayment patterns, or even of thepossibility and desirability of financial sustain-ability, although the literature on Southernmicrocredit exp eriences discusses these m attersat length (Johnson and Rogaly, op cit; Mayoux1997; Wood and Sharif 1997; McNamara andMorse 1998).8 The issue of sustainability willneed to be addressed, n ot in the narro w sense ofgenerating the operational costs of the projectfrom the interest on the loans, but in the widercontext of assessing the ra nge of benefits to theindividual and the community of the enter-prises initiated through the project, against thecost to the public purse of maintaining suchindividuals in a situation of welfare depend-ency, with all the social and well-being costs

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associated with social and economic exclusion.But such calculations can only be made in thecontext of a mature state, which has theresources and political will to provide a welfaresafety-net which allows for the possibility of low-income individuals beginning the process ofmov ing towards econom ic self-sufficiency.

Summary and conclusionsGiven these differences, what can we say aboutthe convergence thesis illustrated at thebeginning of this article? There are two centralpoints worth making . First, while accepting th atparallel policy approaches such as credit formicroenterprise might well be appropriate inboth the No rth and the South, the significance ofsuch initiatives will be very different. In theSouth, access to subsistence income is not seenas a direct entitlement or part of economiccitizenship bu t as something th at should only beexchanged directly for work (Maxwell 1998:5).In the No rth, it has been the case that 'work ing'(or earning money) is deemed to exclude thepoor from entitlement to socially-providedsubsistence income, and entrepreneurial activityby such groups is considered to be 'cheating'and therefore unacceptable. If there is to be anyscaling-up of the WEETU-Full Circle initiativether e would first need to be a major shift in theways in which entrepreneurship is valued interms of welfare, social policy, and being apositive option for the poor themselves.Second, it is clear from internationalexperience that high levels of participation bywomen in microcredit schemes are oftenassumed to deliver women's empowerment as aby-pro duct of loan circulation and any resultingeconomic activity. In Britain, as in otherNorthern countries, poor women are denieddirect access to state welfare benefits if econo micdependence on any man can be minimallydemonstrated. The extent to which partici-pating in a microcredit scheme can lead to theeconomic empowerment of low-income womenwill depend very much on the shape of familytax and credit proposals currently beingdiscussed by government (See Lister 1998 andSutherland 1998).This conclusion has implications for bothacademic analysts and development agencieswho wish to follow up an attractive and morallypersuasive analysis of convergence. Und oubtedly,the manifestations of social and economic

exclusion are remarkably similar in both theNorth and the South, and an analyticalframework from a globalisation perspectiveindicates similar broad trends and tendencies.However, the specific policy implications will bedifferent. The dynamics of financial exclusionin the North are closely linked with exclusionfrom the labour market, and microcredit forenterprise schemes seek both to promoteeconomic activity and to link participants to awider network of banking and credit services.In the case of WEETU, this objective is notdelivered solely by providing small loans butrather through a complex bundle of serviceswhich include appropriate training andprofessional and group support, linking withnetworks of business advice and training,education in financial plann ing and budg eting,and liaison and negotiation with public officesdealing with welfare and other benefits.

In many" parts of the So uth wh ere financialservices are seen to offer a missing link toenhance livelihood strategies, labour-marketregulation is rudimentary if not absent, andentitlements to loans and grants are not alter-natives to gainful employment, but comple-ments to minimal income-g eneration.It is also impo rtant to bear in mind that in theUK (as in many other countries) policydevelopment and delivery necessarily involveenga gem ent with a complex a nd specific web ofagencies, from national and local government,from the private and corp orat e sector, and fromstatutory agencies and the voluntary sector.Historically in Britain, international develop-ment agencies have not played any part eitherin the policy dialogue and advocacy or thepolicy implementation aspects of suchinitiatives. They should perhaps be cautiousabou t the role and m ann er in which they seek tooperationalise the newly fashionable 'conver-genc e' thesis, and the ways in which they seek topersuade government and other organisationsthat there are lessons to be learnt from theirexperiences in the South.

Notes1 In th e 1970s ther e was mu ch talk of the newInternational Economic Order, which tookthe position that the North could benefitfrom redistributing resources to develop the

South. This argum ent was best articulated inthe 'Brand t Report', published in 1980.

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2 Marks and Spen cer, for exam ple, were said tohave lost 25 million in Hong Kong andselsewhere (Observer, 25 Janua ry 1998).3 The USA and multilateral institutions such asthe European Development Bank haveprovided a great deal of technical and finan-cial support for programmes of economicliberalisation and privatisation in Easternand Central European countries and inRussia and other states of the Former SovietUnion (FSU). Cuba, on the other hand, whichhas been forced to introdu ce economic reformspartly as the result of the USA's politicallymotivated em barg o, as well as the collapse ofits former trading partners in the FSU, hasbeen subject to extreme pressure from theUSA to intro duc e political liberalisation.

4 TECs are Training and Enterprise Councils,parastatal bodies in England and Wales, fund-ed by central government, which compriserepresentatives from the public and corporatesectors. The responsibilitities of TECs are toprovide appropriate policy interventions,including provision of research, training,and economic development policies tosupport economic development in theirregions, and to enact appropriate measuresto eliminate skills shortages and otherstructural labour-market problems.5 Th er e are various different mechanismswhich can be implemented to ensure thatwomen participating in the Full CircleProject do not risk their own or theirhousehold's access to income support andother benefits. To date, we are awaiting theoutcome of proposals expected in the Budgetconcerning changes in the Family Creditsystem and the proposed Working FamilyTax Credit (see Lister, 1998 and Sutherland,1998). Ministers from the UK Department ofEmployment have given their support inprinciple in order to ensure the success ofwhat has been termed 'a pioneering projectwhich [should be seen] as a model for thewhole country' (Fair Play 1997: 3).6 In the USA some states have been relativelyimaginative in setting up such regulatorysystems. The system described in WSEP(1995) is the result of several years ofadvocacy, dialogue, and research by WSEPand other groups committed to suchstrategies (see WSEP 1994).8 Full Circle has subcontracted the provision ofloan mana gem ent and monitoring systems toCAF.

ReferencesBerger, M and Buvinic, M (eds) (1989) Women'sVentures: Assistance to the Informal Sector inLatin America, Kumarian Press, West

Hartford, USA.Booth, D (ed) (1994) Rethinking Social Develop-ment: Theory, Research and Practice, AddisonWesley Longman, Harlow.Brandt, W et al (1980) North-South: A Programmefor Survival. Report of the Independent Com-mission on International Development Issues (TheBrand Report), Pan Books, London.Buchholz, D and Owens, M (1997) 'Debate: Peerlending does not work' at the Conference ofthe Association for En terprise Op por tun ities:'Enterprise Works!', Omaha, Nebraska, May.Chant, S (1997) Women-Headed Households:Diversity and Dynamics in the Developing World,Macmillan Press, Londo n.Connolly, P (1986) 'The Politics of the InformalSector: A Critique' in N Redclift and EMingione (eds) BeyondEmployment: Household,Gender and Subsistence, Blackwell, Oxford.Esping-Andersen, G (1996) Welfare States inTransition: National Adaptations in GlobalEconomies, Sage, Londo n.Fair Play National Newsletter: September 1997,DfEE, London.Goetz, A M and Sen Gupta, R (1996) 'Who takesthe credit? Gender, power and control overloan use in rural credit programmes inBangladesh', World Development 24 (1) pp 45-63.Grown C and Sebstad, J (1989) 'Introduction :Towards a wider perspective on women'semployment', World Development 17 (7).Hayday, M and Locke, M (1998) 'South-Northlessons in microfinance and the role of socialinvestment', this Working Paper.Hirst, P and Thompson G (1996) Globalization inQuestion, Polity Press, Cam bridg e, U K.Hulme D and Mosley P (1996) Finance AgainstPoverty: Volume 1, Routledge.Jackson, C 1996 'Rescuing gender from thepoverty trap', World Development 24 (1)pp489-504.John son S (1998) 'Microfinance No rth a ndSouth: contrasting current debates', thisWorking Paper.Johnson, S and Rogaly, B (1997) Microfinanceand Poverty Reduction, Oxford: Oxfam.Lipton, M, de Haan, A and Yaqub, S (1996)'Credit and Employment for the Poor'Politica Internazionale 3 September Octoberpp 153-166.

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Lister, R (1998) 'The implications for women ofrepla cing family credit with a working familytax credit' Paper presented at seminar hostedby the Women's Budget Group, on : 'ThePurse or the Wallet? : The impact on womenof the 1998 budget', London, February.Maxwell, S (1998) 'Comparisons, convergenceand connections: development studies inNorth and South', IDS Bulletin, 29 (1).Mayoux, L (1997) 'Wom en's Empo wermentand Micro-Finance Programmes: Approaches,Evidence and Ways Forw ard' D raft OverviewPaper for Pilot Project: Micro FinanceProgrammes and Women's Empowerment:Strategies for Inc reasing Im pact, July.McNamara N and Morse, S (1998) DevelopingFinancial Services: A Case Against Sustainability,On Stream Publications, County Cork,Ireland.O'Brien D, Wilkes, J, de H aan, A and Maxwell,S (1997) 'Poverty and Social Exclusion inNorth and South' IDS Working Paper 55 , IDS,Sussex.Pearson, R (1997) 'Credit for Micro-Entrepreneurs : Issues relating to policies onWelfare to Work and Local EconomicDevelopment' mimeo, May, School ofDevelopm ent Studies, UEA, Norwich.Pearson, R and Watson, E (1997) 'Givingwomen the credit: The Norwich Full CircleProject', Gender and Development 5 (3) pp.52-57.Rogaly, B (1996) 'Microfinance evangelism,"destitute women" and the hard selling of anew anti-poverty formula', Development inPrad ice6(2)pp l00-112 .

Rossiter, J and Kenway P (1997) 'Int rod uct ion 'in J. Rossiter (ed) Financial Exclusion: CanMutuality Fill the Gap 1?, New Policy Inst i tute .Sutherland, H (1998) 'A lOp tax band: Whobenefits?' Paper presented at seminar hostedby the Women's Budget Group, on : 'ThePurse or the Wallet? : The impact on womenof the 1998 budg et', Lond on.

Toy e, J (1987) Dilemmas of Development:Reflections on the Counter-revolution inDevelopment Theory and Policy, Oxford, Basi lBlackwell.

Wa nn, M (1995) Building SocialCapital: Self Helpin a Twenty-first Century Welfare State, Ins t i tutefor Public Policy Research , L ond on.Wood G D and Sharif, I (eds) (1997) Who NeedsCredit? Poverty and Finance in Bangladesh,Dhaka, Oxford University Press.WSEP (1995) Self-Employment: A Gu ide for AFDCRecipients, The Women's Self EmploymentProject (WSEP) Chicag o.WSEP (1994) 'Nets, Ladders and Bridges:Expanding Welfare R eform Optio ns' Apolicy paper of the Women's Self-Employment Project, Chicago.

Address for c orrespon denceRuth Pearson, School of Development Studies,University of East Anglia, Norwich NR4 7TJ.email: [email protected]

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Combating financial exclusion through co-opera-tives: is there a role for external assistance?

Ben Rogaly1

1 IntroductionNorthe rn development agencies working in theSouth as well as public policy analysts in theNorth (for example, in Britain) have beenreassessing the potential for co-operativefinancial services providers to increase access tothose who are currently excluded (Rossiter,1997; Leyshon and Thrift, 1997; Lennon andWhite, 1997; Galludec, 1997).2 In a recentreview 3 of the role of co-operatives by the UKDepartment of International Development(DFID), a broad-based definition was usedsubsuming co-operatives within the broadercategory of 'self-help organisations'.4 In asmuch as co-operatives are self-help organisa-tions, even to consider forms of externalassistance would appear paradoxical. Outsidesupport and self-help could reasonably beregarded as contradicting each other. More-over, as the recent literature on 'social capital'shows, the formation of groups and co-operative action are historically and spatiallycontingent (Harriss and De Renzio, 1997).There can be no blueprint for externalassistance but is there a role?

This article attempts to distil some lessonsfrom recent policy discussions regarding therole of co-operatives in both South and Nor th incombating financial exclusion. 'Co-ope rative' isused as a broad category to include organisa-tions on a continuum from those operatingstrictly according to mutual principles5 to thoseretaining the label 'co-operative' but whichoperate entirely as government or commer-cially-owned entities, nevertheless aiming topromote a philosophy of co-operation. Th e co-operatives examined here have been selectedopportunistically, on the basis of the availabilityof recent policy documents assessing theirperformance. Together they are illustrative ofthe wide ra nge of organisational types which fall

within the category of 'financial services co-operatives'. They include credit unions, Co-operative Banks, savings and credit networks,and those 'village bank s' which are user-owned.The approach adopted in the remainder ofthe article is briefly to sketch out (in section two)the background to the renewed interest in co-operatives as providers of microfinancialservices, in order to set out three commonassumptions for examination against thelimited available evidence on the governanceand performance of the selected organisationsand organisational types. Governance isimportant here because part of the analysis,which follows in section three, relates to thequestion of whether the d egre e of mutuality inan organisation's structure and its commitmentto promoting a philosophy of co-operationenables it more effectively to respond to thedemands for financial services from thosepresently excluded from formal-sectorprovision. The analysis shows how governanceis influenced by relations w ith those institutionsinvolved in external assistance to co-operatives.It is to these institutions (working in both Southand North) that the pointers in the fourth andfinal sections are addre ssed.

2 Why the renew ed intere st inco-operatives South and N orth?Financial services provision by self-helporganisations is nothing new. It stretches backat leastfivehu ndr ed years to the Italian monti-di-pieta (Conaty and Mayo, 1997, p4n3; Haydayand Locke, the fourth article in this WorkingPaper). The rise of formal co-operation ingeneral has been associated with times ofeconomic hardship the pioneering weaver-co-operators of Rochdale in England, forexample, had responded to new tariffs on

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imports of woollens to the United States andassociated deterioration in wages and condi-tions of work (Gibson, 1996, p60). Sou th- No rthlinks in co-operative microfinance havehistorically existed through the involvement ofcolonial governments, European missionaries(Galludec, op cit), and, in post-colonial times,international donors in catalysing (andproselytising) the development of all kinds ofco-operative.However, co-operative credit has recentlyshown signs of decline in Britain. Most of thelarge British mutuals, the building societies,which began in the last century by inter-mediating local savings into housing loanswithin their own narrowly defined geogra phicalareas, have in recent years transforme d them -selves into banks and been floated on theLondon stock exchange.6 In the 1970s and1980s co-operative credit also made a bad nam efor itself in many post-colonial settings, as co-operatives have been appropriated by govern-ments and used for political ends, to thedetriment of sustainable and accessible financialservices provision . In many cases, officials fromstate co-operative depar tme nts took over as theman agers of credit co-operatives. This did littleto improve management and at the same timereduced any sense members might have hadthat the co-operatives were theirs (Harper,1997, p4; Huppi and Feder, 1990, pi 97 ). In thecase of credit co-operatives in rural-TamilNadu, India, in

learning from south-north links in microfinance

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