When Money Flows into Informal Groups
I had the pleasure of being at the end of a distinguished chain passing along a new study. (Dale Adams sent it to Hugh Allen who shared it with Savings Revolution). It’s called Outside Funding and the Dynamics of Participation in Community Associations, by two researchers with excellent credentials who were not familiar to me at all: Mary Kay Gugerty of the University of Washington and Michael Kremer of Harvard University.
The researchers were looking at Community Associations in general, and not at Savings Groups in particular, and they were looking more at the effect of grants than at loans. Nonetheless, the paper has findings that are completely consistent with what I have seen in bank linkage programs in which the group as a whole guarantees a loan which is on lent to only a few members. From their summary:
We find little evidence that outside funding expanded organizational strength, but substantial evidence that funding changed group membership and leadership,weakening the role of the disadvantaged. The program led younger, more educated, and better-off women to enter the groups. New entrants, men, and more educated women assumed leadership positions. The departure of older women, the most socially marginalized demographic group, increased substantially.
Exactly. What I have seen in group loans to SGs: tensions inside the group increase. Only some people take the loan. Silent grandma in the corner puts her savings at risk to gurantee the loan to Charlie, who wants to buy a motorcycle. The poorest people - those who most need to save - drift away from the group. And the group becomes something it never was intended to be, a credit solidarity group.
Why is this surprising to anyone? You have a group of people who came together to save as a group, and now you ask them to borrow as a group - as if poor people didn’t already have enough risk. External loans-to-SGs inevitably change the group in important ways - maybe some good, certainly some harmful, especially to the poor.