The Microcredit Summit Campaign (MSC) recently released its 2013 report: Vulnerability: The State of the Microcredit Summit Campaign Report. This report is the latest update in an ongoing campaign to reach more than 175 million of the poorest families with microfinance services and ensure that 100 million of those families rise out of poverty by the end of 2015. For the first time since reporting began in 1998, the total number of clients and the number of poorest families reached by microfinance declined. This means a major setback for the campaign’s goal.
According to the report, this drop in clients reached was an unfortunate, but expected, setback in the microfinance industry for 2012. Major causes for the decline include backlash from the financial crisis in Andhra Pradesh, oversaturation of current markets and misaligned incentive structures that reward MFIs for more clients and higher returns – not a reduction of poverty. To get back on track, the report recommends that the microfinance industry further utilize technology, gain a deeper understand of end users, and use both to develop more appropriate products.
Last week, I had the opportunity to further explore the reports’ insights by joining a webinar on the report hosted by the MSC. A point of discussion that particularly struck me was the importance of group dynamics in microfinance lending groups and the potential risk that technology will hinder them. Professor Luisa Brunori, a psychology professor at the University of Bologna, explained that lending groups—which create a form of moral support for borrowers to help them repay—are not just ways to lower a microfinance institution’s costs and ensure loan repayment. They also provide a medium for intimate interaction that produces what Professor Brunori describes as, “a near infinite amount of relational goods.” These “relational goods” can take the form of a simple sympathetic gesture or support during tough times.
Through her research, Professor Brunori has found that relational goods are a key benefit of lending groups and have a positive effect on microfinance institutions. This point of discussion becomes more interesting when we consider the effect technology, especially mobile technology, has on the benefits of groups. Mobile technology is often depicted as critical to successful financial inclusion due to its wide reach and low cost. But does it rob lending groups of these relational goods in the process?
I’m struck by this point of discussion because, in a broader sense, this is a question of our time. Mobile technology has a huge positive impact on cost, time, and effort but can also have a negative impact on effectiveness and engagement. What is the right balance? This is debated in different industries all over the world. We see it in schools, at offices, and among social circles. What’s exciting is that the microfinance community can (and should) look beyond its own sector for answers. 2U is developing the best methods for delivering university-level education online. Salesforce is working to make the digital work environments more social. The innovations are out there. Let’s work across sectors to find them.
-By Ryan Steinbach
*Disclaimer: The views represented here are the opinions of the individual blog author and do not represent the views of Oikocredit USA.