Institutionalising Suspicion: Investigating the Role of Social and Cultural Norms in the Governance and Management of User-Owned Microfinance Systems

This paper examines the attempts being made to develop the provision of financial services in developing countries by using the traditional solidarity that exists in most of these countries.

The structure of the paper is as follows:

• Section one:
  • Reviews literature on group-based financial mechanisms;
  • Explores their strengths and weaknesses;
  • Considers the implications for their development;
  • Sets out a conceptual framework to investigate them.
• Section two reports findings from baseline data collected on groups testing the tools being designed;
• Section three reports findings from field research carried out with a sub-sample of groups.

The paper concludes that:

• In group-lending schemes, there are a lot of loan delays and defaults;
• There is an open-ended view of default;
• Gender and education play a role in default behavior and the effectiveness of follow up;
• Trust in leaders limits suspicion about their actions and the effectiveness of sanctions.

The paper presents the following implications of the study:

• Self-help groups must recognize that they have a responsibility to promote discipline in repayment and follow-up;
• Loans need to be sufficiently small and flexible in design for discipline to be promoted without over-exposing clients to debt'
• The portfolio management and default tool might need to address the delay and default distinction specifically.