Marcie Holloman and Dr. Warner Woodworth, Organizational Leadership and Strategy
Microfinance (or microcredit) is increasingly being recognized as an effective tool for promoting the socio-economic development of impoverished communities. The crisis of poverty is so great in every corner of the world that it is tempting to jump on the bandwagon of the “microcredit solution” and implement new programs modeled after successful programs elsewhere, without due regard to differing cultural and socio-economic contexts and needs. One of the major factors behind the success of the microfinance movement is its highly participatory structural design, yet there is great need for microfinance institutions (MFIs) to be innovative in designing the content and structure of their organizations. The opportunity to test a variety of new organizational models came when a team of mandarin-speaking BYU students was formed under the direction of Professor Warner Woodworth to assist several organizations in western China develop microfinance programs. It was the team’s intent to create in-depth case studies and recommendations for organizational design from their market research at potential project sites, as well as to train leaders of existing programs in participatory social change methods.
Of particular concern at the outset of the project and team training period was the viability of establishing truly non-governmental organizations (NGOs) in a communist country, deemed an essential ingredient for success in the field of microfinance. A second major concern was how much to limit the program to financial services alone, when problems such as illiteracy, insufficient nutrition, sanitation, and health care were widespread and could significantly impact the effectiveness of the program if not addressed. In highly-populated developing countries such as China, where 70 million absolute poor live on an income of less than $1 a day, the need for innovative ways to combat poverty in a cost-effective way, without complete reliance on limited government resources, was an immense challenge. In addition, the majority of targeting population in the project sites were minority nationalities, not speaking Mandarin and residing in mountainous areas isolated from market outlets.
The first step was to examine “successful” Chinese MFIs, such as the Grameen Trust-sponsored Chinese Academy of Social Sciences program in Yixian County, Hebei Province. While the repayment rate was extremely impressive at 98% and had served over 7000 clients, many clients who had actually overcome poverty continued to remain in the program. Thus, the team noted that the organization faced a difficulty most MFIs must face, walking the fine line between maintaining commitment to its mission to target the poor while surviving financially as an institution. It was important for the team to understand this reality, and avoid the common assumption made by many researchers and donors that funding the entrepreneurial activities of the poor will directly result in the reduction of poverty. Numerous impact studies have found that changes in the lives of microentrepreneurs as a result of access to credit are difficult to measure.1 Our research, therefore, became not only how microentrepreneurs’ lives have been changed by the organization but what changes the organization could make to improve the quality of services provided to their clients. This involved participatory research where both leaders and clients (or potential clients) could articulate needs and demands to each other. The team used a methodology they received training in at BYU known as Literacy for Social Change, developed by Lynn Curtis of Laubach Literacy, International.
The team translated Laubach training materials entitled “How to Start and Grow Your Own Business” into Chinese and then implemented them in four project sites. The first was located in the mountainous Yi minority region of Mianning County, Sichuan Province. The team of four used the methodology to conduct a month of participatory action research (PAR) to gain a deeper understanding of 1) the specific manifestations of poverty in the local area and the underlying causes of them, 2) past and current poverty alleviation efforts and their effectiveness, and 3) the potential leaders in the community with the expertise and commitment to running an innovative microcredit program. A report was presented to the county leaders and recommendations made for designing an MFI that can best meet the needs of the local poverty conditions.
The second site was located in Yilong County, Sichuan Province, partnering with an MFI that was truly independent of government influence and had a very functional and highly innovative management. Their vision was to use the existing structure of their microcredit program, comprised of 4 branches, 80 centers, and hundreds of groups of 5-8 borrowers per group to offer participatory training in community development principles. Because it was to be built into the existing structure, it could be provided at low additional cost to the organization. As a new Laubach Literacy partner organization, the cost of training and printing was covered and the team provided training in Social Change methodology for 80 of the organization’s staff. The staff then in turn trained the village leaders in the process, and it was very rewarding for the team to observe the leaders using innovative methods of problem solving in their villages, from issues such as providing sanitary latrines to using more effective fertilizers. The team provided similar training for 20 leaders of an existing Laubach partner organization headquartered in Beijing, desiring to add business training to its already effective literacy and technical assistance program for agricultural women. This organization was able to absorb the methodology very readily and work effectively within its existing structure to expand services to its literacy participants.
The team worked with a completely different organizational structure in Guangxi Province, Mashan County. The Women’s Federation is a quasi-NGO whose staff are government-salaried employees, and microfinance is a small part of their overall workload. Loans are funded through the Agricultural Bank repaid with interest to the bank, rather than revolving for MFI use in expanding the program. The team’s task was to conduct an organizational and market study and make recommendations for change so the program could become an independently functioning MFI and qualify for outside funding. The team found that being a government-supported organization certainly had its pros and cons, while able to make quick decisions and have access to resources, it was less effective in alleviating deep causes of poverty A BYU team plans to return next year to conduct training similar to that conducted in Yilong and Hebei.
This research opportunity provided some very important insights into the need for innovative, participatory solutions by both clients and leaders in MFIs, and established some excellent, longterm relationships with organizations truly dedicated to alleviating poverty in China.
References
- Lee, Nanci. “Client-Based Market Research: The Case of PRODEM”, Calmeadow: 2000.