Group dynamics, gender and microfinance in Bolivia

Journal of International Development

J. Int. Dev. 16, 519–528 (2004)

Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/jid.1089

GROUP DYNAMICS, GENDER ANDMICROFINANCE IN BOLIVIA

CARMEN VELASCO1 and REYNALDO MARCONI2*1FINRURAL, La Paz

2PROMUJER, Bolivia

Abstract: This paper examines the wider impacts, or externalities, of microfinance in

Bolivia, an environment in which the loss of confidence in the formal banking system and

the proactive role of the Superintendencia de Bancos in converting NGOs into deposit-taking

institutions have been positive factors. Our focus is on the group-lending technology of

ProMujer, which practises a ‘credit plus’ technology in which training, health and advisory

services for women only are linked with lending (and savings services through FIE). There is

some preliminary evidence that such groups have achieved the externality of stimulating

collective public action outside of the immediate microfinance context (for example by

lobbying for better public services or changes in policy); such growth seems to happen most

readily where the group has collective experience of adversity, and/or where intragroup

equality is high. They also have exemplary repayment rates, which—unlike those of most

other microfinance institutions—did not fall off during the recent recession. This creates a

second externality for the economy as a whole—a contribution to macro-economic stability.

We hypothesise that the chain of causation goes from ProMujer’s ‘credit plus’ ancillary

services, to client loyalty to the institution, to high repayment rates, to ability to expand

lending and investment. Copyright # 2004 John Wiley & Sons, Ltd.

1 MICROFINANCE AND GENDER WITHIN THE POLITICAL

ECONOMY OF BOLIVIA

In this paper we offer an analysis of the role of microfinance in Bolivia which is both

general and specialized. From our position as managers of, respectively, a co-ordinating

network for the microfinance system as a whole (FINRURAL) and one women-only NGO

within that system (ProMujer) we present some reflections on the social impact achieved

within Bolivia by different kinds of microfinance design, and on how that impact might be

further enhanced.

The current structure of microfinance in Bolivia is the product of an even more serious

crisis than the one which currently afflicts the country—the hyperinflation of 1985, which

Copyright # 2004 John Wiley & Sons, Ltd.

*Correspondence to: R. Marconi, FINRURAL, Edificio Montevideo. Piso 3, Av. Arce 2081, Bolivia.E-mail: [email protected]

marked the climax of many decades of chronic political instability. This crisis, in particular,

brought about a complete loss of confidence in the formal financial sector, which created an

opportunity for microfinance organizations to offer, over the following ten years, a financial

product which had previously been inaccessible for small Bolivian enterprises (Glosser,

1993; Hulme and Mosley, 1996, ch 9). The other factors favouring a spectacular growth of

microfinance in this period derived from the consequences of a structural adjustment

process of proportions almost rivalling those of eastern Europe, which pushed thousands of

people out of mining and other state employment into self-employment, assisted by a

centre-right government which saw microfinance as a particularly appropriate technique

(Newman et al., 1991) for ‘mitigating the social cost of adjustment’.

Under the stress of these changes, the Bolivian macroeconomy experienced a pro-

nounced structural change away from the primary (agriculture and mining), and in favour

of the tertiary sector1—the principal market for most microfinance institutions. This was

favourable for the nascent microfinance sector, which, at the end of 2002, accounted for

less than 6 per cent of all savings deposits, only 9 per cent of the portfolio, but 57 per cent

of bank customers (Microfinanzas, December 2002, Annex 1) and the small business

sector, now principally served by microfinance institutions, supplied an estimated 80 per

cent of all employment.

Under the impetus of a creative regulatory environment which allowed a number of

microfinance NGOs to convert themselves into banks or ‘private financial funds’,2 the

Bolivian microfinance sector had by the middle of the 1990s achieved not only rapid rates

of growth but also serious profits, with BancoSol for several years achieving the highest

rates of profit of any financial institution.3 These profits, in the classical manner, attracted

new entrants into the industry, in particular consumer-credit houses (Fondos Financieros

Privados (FFPs) de consumo). Several of the new entrants, such as the FFPs ACCESO,

CrediAgil and FASSIL, put nearly all their eggs into the microcredit basket, but with

important changes of procedure. They offered larger loans than established microfinance

organizations and commercial banks, generally for the purchase of consumer durables

such as televisions and washing-machines rather than business assets; and their techniques

of loan appraisal were much more casual. However, under the pressure of this competition

several of the established credit providers, including BancoSol and PRODEM, also

increased their loan size,4 and in the process none of the players in the game noticed

either the deterioration of portfolio quality that was taking place or the increase in

customers’ overall debt-service ratios, as bigger and less well-supervised loans were thrust

at an already over-exposed market. The entry of these new players was so rapid,5 indeed,

1Rhyne (2001), table 2.1, states that between 1985 and 1989 the share of manufacturing within the informal sectordeclined from 31 to 17, whilst the share of trade and services grew from 35 to 56 per cent.2Fondos financieros privados (FFPs): nonbank financial institutions authorised, unlike NGOs, to takedeposits from the public.3The entire microfinance sector earned a return on assets of 4.8 per cent in 1997, which had fallen to �0.5 per centby December 2002.4‘Before the middle of 1999 (BancoSol) introduced a whole heap of new financial products, generally aimed at ahigher market stratum than that occupied by solidarity groups. It placed itself in competition with conventionallenders by increasing its maximum loan size from $30 000 to $100 000. It introduced mortgages, giros endescubierto, and consumption loans. [It also introduced a minimum limit on savings deposits, therebydiscriminating against low-income consumers—Authors] An employee protested: ‘The end of the worldoccurred when BancoSol offered a $50 000 loan to the Roda family’ (a well-known rich Bolivian family)’Rhyne, 2001, pp. 153–154.5For example: the clients of ACCESO grew between 1995 and 1998 from zero to 90 000—a larger number ofclients than BancoSol had achieved in twelve years.

520 C. Velasco and R. Marconi

Copyright # 2004 John Wiley & Sons, Ltd. J. Int. Dev. 16, 519–528 (2004)

as to unbalance the entire microfinance sector and to create a serious problem of over-

indebtedness even before the global crisis hit Bolivia in 1999 (Marconi, 2002). The main

focus of all this overlending was the urban sector, where economies of scale could more

easily be achieved and the perceived costs of lending kept down. There were some

occasional successful experiments in rural credit, such as the FFP PRODEM and the

NGOs ANED and CRECER, but the growth of these organizations was heavily limited by

their dependence on donor financing (FINRURAL, 1998).

We thus at the onset of the global financial crisis, which hit Latin America only in 1999,

have a dual structure of microfinance in Bolivia (Table 1) in which some financial

institutions have come under the purview of the regulator, the Superintendencia de

Bancos, and others remain outside. This structure is, as in many developing countries,

biased towards the services sector in urban areas. But two much less expected paradoxes

also emerge from Table 1. In the first place, the locus of financial instability—the

consumer-credit FFPs—is in the regulated and not in the unregulated sector. Secondly, the

gender balance is almost the same as between the regulated and the unregulated sector

(broadly 40 per cent male to 60 per cent female), and in both cases very different from the

prevailing ratios in global microfinance, where about four-fifths of borrowers are women6

and many microfinance institutions will not accept male clients.

In what follows, we wish to make a connection between these paradoxes and the wider

impact of microfinance. We shall examine the service-provision technology of one

particular microfinance NGO (ProMujer); we then speculate on why microfinance

institutions with this lending technology have had particularly high levels of financial

stability through the recent recession, and discuss the connection between this financial

stability and the institution’s wider impacts.

Table 1. Financial institutions in Bolivia: portfolio, clientele and gender distribution(December 2001)

Value of Number of Gender balance Percentageportfolio clients of clients female

($ million) (thousands) (thousands)

Male Female

Formal banking sector:

Domestic private banks 4208 206

Foreign private banks 367 10

Mutual funds 319 49

Microfinance sector:

(i) Regulated microfinance

entities (able to take deposits)

Banco Sol 76 56 22 34 60

Consumer-credit FFPs 41 19 7 12 62

Microfinance FFPs 87 118 58 60 51

(ii) Savings and loan

co-operatives 213 46 29 17 36

(ii) NGOs (not authorised to

take deposits) 48 137 53 84 61

Source: FINRURAL, Microfinanzas, December 2002 issue.

6Seventy-nine per cent of microfinance borrowers are women according to the most recent (2003) data: HelziNoponen, personal communication, IMPACT global meeting, Polokwane, South Africa, 5 May 2003.

Microfinance in Bolivia 521


2 ALTERNATIVE MICROFINANCE TECHNOLOGIES

Microfinance performs a conjuring-trick: it achieves higher rates of loan repayment (and

often, as in the case of BancoSol, higher rates of profit) than conventional banking, without

having access to the collateral which conventional banks employ to protect their loan

portfolio. It performs this trick through constructing social relationships which substitute

for collateral by putting pressure on the borrower to repay loans. These relationships may

be either group-based (in which case peer pressure within the group is an important

element in pressure to repay) or individual-based, in which case the pressure comes from

loan officers and in some cases mentors and others within the client’s community. Both

modalities are well-developed in Bolivia, and there is some evidence of progression from

group to individual loans as the client’s loan size and income increase. In this paper our

focus is on the group-based technologies employed by the NGO ProMujer.

Groups are sets of interrelated persons who interact to perform a task or pursue

an objective; and in ProMujer, they pursue many objectives additional to a technology

for the administration and repayment of loans. In particular, they provide opportunities for:

* Social learning—which converts the more formal mentoring and training in business

practices, legal systems and healthcare that accompanies the provision of financial

services within the organisation into a process of mutual support;

* Gender solidarity—an opportunity for women clients to share their experiences as

women and thereby to optimize their economic role within the household;

* ‘Group reproduction’—as when a group formed for loan monitoring and training

purposes develops into a pressure group to secure better health or education, or to

pursue a common political objective. Further examples are given below.

The idea that the inclusion of the socially excluded in networks might have a substantial

economic payoff has, of course, recently been popularised (e.g. World Bank, 2000) under

the name of social capital. The form of social capital which ProMujer seeks to create is, as

we have seen, gender-specific and dynamic. As a response to the initially low self-esteem

and limited family support among members of the target group, the unit of organization is

the all-female group, typically 15–25 members. But the establishment of group members as

mutually supportive independent entrepreneurs is simply a point of departure in a process of

personal and collective development in which the development of technical skills7 and

capacities for collective organization are key milestones. As in organizations such as BRAC

and SEWA of South Asia the ultimate objective is the empowerment of the disempowered,

not only in relation to patriarchal family structures but also in relation to a condition of state

weakness which has recently been aggravated by the crises of February and October 2003.

These longer-term objectives have obvious significance for the way in which evaluation is

done, but they are also, as we shall see, important for the economy as a whole.

3 ‘NARROWER’ AND ‘WIDER’ IMPACTS

There is therefore a wide range of indicators against which the performance of any micro-

finance organization needs to be assessed, but particularly an ‘integrated’ organization

7The anecdote was told by Carmen Velasco, at the Rajendrapur conference which gave rise to this volume, of aclient who was beaten by her husband every time she came to the loan centre, but who one day was not beaten,‘because I am a student now’. Oral presentation, Rajendrapur, 6 January 2003.



Table 2. Bolivia: indicators of microfinancial performance, 1997–2002. (portfolio in $ millions;default rates expressed as percentages)

1997(Dec) 1998 1999 2000 2001 2002(e)

Commercial banks 3185 4023 3786 3174 2769

Cooperatives and mutual societies 426 469 457 465 442

Microfinance houses:

BancoSol*:

Portfolio value $mn 63 74 82 77 81 81

Portfolio in arrears (%) 1.9 4.5 7.0 12.3 14.7 9.4

Microfinance FFPs:

PRODEM



FIE**



Caja Los Andes**

Portfolio value $mn 28 35 46 52 64

Portfolio in arrears (%) 5.8 6.5 7.6 8.1 5.8

BancoSol and all microfinance FFPs, total

Total portfolio value $mn 93.4 140.9 161.8 181.8 205.7 230.5

Portfolio in arrears % 2.0 4.6 6.7 9.3 11.0 7.3

Consumer-credit FFPs:

Acceso

Portfolio value $mn 80 88 32 5 1 Insig.

Arrears rate % 20.0 19.9 31.9 29.4 7 0

Fassil


Arrears rate % 8.6 14.1 15.7 22.6 40

Consumer-credit FFPs, total

Portfolio value $mn 88.3 109.0 47.9 24.4 19.6 6.9

Arrears rate % 19.4 19.4 29.6 20.9 29.5 39.8

NGOs:

ProMujer


Arrears rate (%) 0.4 0.4 0.6 0.3 0.6 0.2

CRECER


Arrears rate (%) 2.3 0.4 0.3 0.3 0.5

SARTAWI


Arrears rate (%) 3.9 5.4 6.0 8.3 23.0 17.2

ANED

Portfolio value 5.8 6.4 7.2 7.4 8.3 10.5

Arrears rate (%) 4.7 5.1 7.3 10.5 15.7 19.0

Other NGOs 34.3 47.5 42.7 50.8 34.0

All NGOs


Arrears rate (%) 4.5 6.8 7.1 10.5 12.1 13.2

Total microfinance sector:

Portfolio value ($mn) 236.3 292.0 257.1 246.5 291.0 315.4

Value of savings ($mn) 188.3 240.3 223.8

Arrears rate (%) 10.1 8.0 11.5 13.0 10.2

Source: FINRURAL, Microfinanzas: Boletin financiero, 12/02 (available at www.finrural-bo.org)Notes:**only offers individual loans, *offers some individual loans.



committed to social development objectives such as PROMUJER. In Table 2 we set out

measures of portfolio growth, arrears, and where possible also more direct measures of

impact such as influence on investment and empowerment. It is to be borne in mind that

the data in Table 2 relate to a period of recession during which GDP growth as a whole

averaged less than 1 per cent and for the services sector, which is the main focus for

microfinance, often fell well below zero (Marconi and Mosley, 2003).

Of considerable importance for PROMUJER are also the wider community-building

impacts8 achieved, in particular, through training and the provision of incentives to the

development of group functions. These for the most part have to be assessed with the help

of a qualitative methodology, by contrast with the quantitative methodology used in

Table 2.

We conducted pilot interviews, in August 2002, with five groups9 from the El Alto

branch of ProMujer to assess the extent of growth in group functions. We began from the

hypothesis that a group’s capacity to extend and develop its capacities for public action

will depend on:

(i) leadership capacities of group members: which may in turn depend on pre-existing

assets such as political experience, assets, training received, etc.;

(ii) the collective experience of the group. If the group has already overcome a crisis that

can affect its level of collective confidence and thus its capacity for collective action

(as already observed in the study of social capital in Russia and Eastern Europe,

above);

(iii) Perceived inequality within the group—which can debilitate the group’s solidarity

and its capacity for collective action;

(iv) Relations of group members with the organization—if the organization provides

incentives for leadership in public action, this can encourage possibilities for

spontaneous action by the group;

(v) External influences—often the stimulus which turns feeling into political action can

be traced to a shock (an injustice or an action by the political authorities) which a

client has experienced.

In pilot interviews conducted in August 2002 we obtained material which supported stories

(i), (iii) and (v). In particular, members of microfinance groups had diversified from simply

supporting each other’s businesses into running a joint canteen, provision of co-ordinated

volunteer help in a medical centre and campaigning together against the government’s

removal on import duties on second-hand clothes (which had badly hit the several

interviewees who sold clothes). The more expansionist groups appeared to be those which

had lower levels of inequality (hypothesis (iii) and which had experienced injustice directly

rather than by proxy (hypothesis (v)). The more expansionist individuals were those at

higher levels of income,10 operating in groups with effective leadership (hypothesis (i)).

We need to see these outcomes not only in relation to the benchmark of ‘satisfactory

performance’ on the various indicators but also in relation to the performance of other

organizations in Bolivia. It will be recalled that PROMUJER (and its sister ‘village

8These are the main ‘wider impacts’ investigated here. Others may also be important, in particular those relatingto labour markets, transmission of knowledge and stabilisation of income; see also the argument in section.9Estrellas de Belen, Huayna Potosi, Juan Pablo II, Luna Nueva and Sartawi (! this is also the name of a rivalNGO).10This contradicts the assertion of Sebstad and Cohen (p53) . . . .



banking’ organization, CRECER) differ from other microfinance organizations in Bolivia

in the following ways:

* In the first place, in both institutions the clients are purely female; a characteristic

associated almost worldwide11 with higher repayment rates, whether because women

are more risk-averse, or have fewer possibilities of obtaining credit outside

microfinance, or take more seriously the consequences for their children of their

failing to repay, or a combination of the above.

* Secondly, average loan size is smaller; hence the possibilities for exercising political

leverage on the creditor—(or, in the manner described above, on the Superintendency

of Banks) in order to induce forgiveness of the loan are smaller.

* Thirdly, both institutions offer a form of quasi-insurance in which emergency loans are

offered in case of need (on a vote of clients within a solidarity group) from an ‘internal

account’ financed by a surcharge on the interest rates paid by all members. In Bolivia,

as in other developing countries, it is very hard for low-income people to gain access to

insurance,12 which inhibits their room for manoeuvre in the event of a sudden adverse

shock such as market collapse, children’s ill-health or burglary. The ‘internal account’

provides a modest form of insurance, and thereby of managing debt, not available to

clients of other Bolivian NGOs.

* Finally and perhaps most importantly, the village banks provide credit as a ‘means and

not an end in itself’ (Marconi, 2002, p. 4), within a package comprising technical

training, health services, advice on legal rights and—political education. In other

words they practice an ‘integrated’ rather than a ‘minimalist’ model: a model which,

however much out of fashion with the microfinance establishment (Otero and Rhyne,

1995; Robinson, 1996; and even, in the current context, Rhyne, 2001) compels intense

loyalty from the women who benefit from it, by offering a range of services going far

beyond a substitute for collateral. This loyalty leaves no room for doubt, in the event of

crisis, as to who will be the first creditor to be repaid.

As shown in Table 3 and Figure 1, these characteristics have enabled PROMUJER and

CRECER to achieve levels of financial performance and social impact which are not only

satisfactory in relation to conventional performance benchmarks, but also in relation to

other financial institutions in Bolivia, notably those which are more focused on profit and

less on the achievement of social objectives such as the consumer-credit FFPs (private

financial funds). Whereas the loan volume of the bulk of the microfinance sector, and most

of all the consumer-credit FFPs, declined through the recession, the loan volume of the all-

female, integrated credit institutions rose continuously to the present day (Figure 1). We

believe that this ironic fact deserves a little more investigation.

4 CONCLUSION

The interesting aspect of the success of PROMUJER, and CRECER (and also the

individual-lending institutions FIE and Caja Los Andes) is that it contradicts the ‘lemons

model’ of Akerlof (1970) which states that in a market with asymmetric information

caused by uncertainties about product quality—which the Bolivian microfinance market

11Indonesia, interestingly, appears to be an exception; Hulme and Mosley(1996), vol. 2, chapter 11.12The 2000 World Development Report (World Bank 2000, p. 143) states that ‘insurance markets are virtuallynon-existent in developing countries’.



certainly is—bad products will, by analogy with Gresham’s law, drive out good and the

nice guys will finish last. In Bolivia it is the bad guys (the consumer-credit FFPs), who

sought to live purely by the rules of the market, who have been, over the course of the

recession, virtually driven out of it and (at least some of ) the nice guys, who have sought to

provide services and have been driven by principles going far beyond the requirements of

loan recovery and profitability, who have succeeded in it. Of course, a part of this unusual

result is due to the consequences of regulation by the Superintendencia de Bancos—a

parameter not contained in the models of Stiglitz and Akerlof; but this is not the whole

story. Another part of it consists in the approach of the ‘nice guys’ to their clients, which

took it as axiomatic that clients’ motivation was not purely economic, and based elements

of the microfinance package—training, legal services, health and education services—on

this supposition. These elements have turned out to be important components of clients’

coping strategies during the recession, hence the fact that they have induced loyalty in

repayment towards institutions which provided those services. During the crisis, this

approach turned out more successful, as a means of achieving loan recovery and growth in

the portfolio, than the more materialistic strategies used by the consumer-credit FFPs and

even by BancoSol.

In our impact assessment, we have examined both effects which are specific to the

individual client, such as investment, income and empowerment, and also effects which go

‘wider’ than the individual client, in particular intrahousehold relationships, the provision

of incentives to institution-building and political participation and the stabilisation of

community income. In all of these respects there are impacts, as documented above, which

go beyond the person—the female client in PROMUJER—who is the immediate

Table 3. Bolivian microfinance organisations; Performance indicators and possible explanatoryfactors

Indicator ProMujer and CRECER Other microfinance organizations

Client well-being indicators

(Dec 2002)

Poor and destitute(%) 38.3% 10.6%

Without lowest level of education(%) 14.1% 5.1%

Asset value $ 421.6 924.4

Average annual sales $ 757.9 2502.8

Institutional performance indicators

(annual average 1997–2002)

Growth of portfolio 24.7% 5.7%

Growth of customer base 26.2% �5.3%

Default rate 0.6% 9.8%

Return on assets 6.9% �1.9%

Design characteristics

%female clients 98% 57%

‘Internal account’ for emergency loans Yes No

Loan modality Village banks with Solidarity groups, with the

solidarity groups exception of FIE, Caja Los

Andes, most of BancoSol,

and the consumer-credit FFPs

Average loan size($) 134 901

Training services offered? Yes No (except for FIE)

Source: performance indicators and design characteristics from FINRURAL, Microfinanzas, December 2002edition; well-being indicators from preliminary results of impact evaluation studies of microfinanceorganisations conducted by FINRURAL for Ford Foundation.



recipient of financial services. These wider impacts are the familiar ‘externalities’ of

economics, and we have illustrated the fact that ‘integrated’ institutions such as

PROMUJER make a particular effort to create them. But we have so far not mentioned

the most important externality of all, which is that by growing, and creating higher levels

of investment, through the recent recession these institutions—and also FIE and Caja Los

Andes, see Figure 1—have been able to exert a counter-cyclical influence on the

macroeconomy, by contrast with the procyclical influence exercised by other institutions

and especially the consumer-credit FFPs. In Bolivia, unfortunately, this type of micro-

finance institution is in a minority (Table 3) and so the macro-economic counterweight it

has been able to exert has been limited, by contrast with, for example, Indonesia where the

enormous BRI, by analogy with ProMujer and CRECER, grew through the 1997–99

recession and was able to pull the entire macro-economy upwards (Patten et al., 2001).

Nonetheless, Table 3 illustrates the kind of dividend which can be extracted from an

approach to microcredit which concentrates on family-level and community-level rather

than individual-level impacts; and for those impacts to be understood and spread, they

must first be measured, which is what we have sought to achieve here in an introductory

manner.

Figure 1. ‘The sheep’ and ‘the goats’: portfolio, arrears rates and estimated investiment rates,1997–2002



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Documents

Group dynamics, gender and microfinance in Bolivia