A lender or a borrower be?

In the course of my voluntary work, I have been to visit some Village Savings & Loans Associations (VSLAs). These are groups of 20-30 people in a particular neighbourhood who come together to save a little money each week and then take out loans from the collective pot, either for personal expenses or to start or improve a business. At the end of the year-long cycle, the savings and profits are shared out among all members in proportion to the amount they saved.

Some of the practicalities are quite surprising – all the funds and record books, for example, are stored in a metal box with three padlocks, and the three keys are held by different members of the group to prevent anyone having unsupervised access. The interest rates on loans are quite high, but this means that the profits are higher when they are shared out among members at the end. The community based trainers who set up and recruit to these associations also provide training to members on procedures, financial literacy and business skills.

When I first read about the VSLA model, the Marxist in me piped up that this is less community development and more capitalist indoctrination, funded by the US Government’s foreign aid programme. The method of saving is the purchase of shares at weekly meetings, and the profit is down to the increase in share value. Although all shares are equal in value, the difference in the number of shares purchased by each individual (with the poorest probably borrowing more and paying more in interest as well) means that, at the end of the cycle, some people’s share will be more equal than others’. Follow-up work is done to link members with mainstream financial services once they are acquainted with the technicalities of saving and borrowing, and some of the same big players are present in Uganda as are present on British high streets.

However, when I attended the meetings I was genuinely impressed. Most people in these groups are excluded from mainstream finance either by poverty or lack of local infrastructure, and this sort of financial cooperation is opening up opportunities that simply would not normally be available to them. Saving and managing access to funds is very difficult to do as an individual or small family, but the idea of pooling resources is pleasingly collectivist. One of the groups I visited was composed entirely of women – largely by accident, rather than design – and it was fascinating to hear some of the stories of how an independent income had transformed their lives. Furthermore, the meetings were some of the most calm, friendly, efficient and orderly that I have attended. (In the UK, I have participated in many political and community meetings that had none of those characteristics.) They are well-attended, too, with very few people dropping out before the end of a fixed cycle.

The thing that struck me as I watched the members calculate balances and fill out their passbooks was that these aren’t the people who are supposed to make money out of this global economic system. They look like they are taking on the world at its own game and, if not winning, certainly giving it a run for its money. I want to learn more about these groups before I pass final judgement, and part of my role is to conduct an evaluation exercise, but my experience so far has really got me wondering: can capitalism be subversive?

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3 Responses to A lender or a borrower be?

  1. tishela says:

    Wow, great ending! I can’t wait to read your answer.

  2. David W says:

    I, too, learnt about micro-finance during economics lessons/lectures, and from what I recall it is universally seen as a good thing, rather than yet another economic model with significant limitations. I think your comment that “these aren’t the people who are supposed to make money out of this global economic system” is somewhat wide of the mark – indeed, advances in communications and productive technology (which has created a great surplus of labour) combined with the lowering of barriers to trade inherent to globalization have not only created a disenfranchised lower class of people in Western countries, they have also created a great deal of wealth in developing economies through better access to rich western markets.
    Of course, we have also seen that this in turn leads to monster global markets and accompanying hierarchies at multinational behemoths, with executives claiming ever-higher compensation for their heightened responsibilities, and wealth, rather like cream, rising to the top to satiate the ravenous appetite of these Cheshire cats.
    This is what, for example, the students campaigning for “alternative” economics courses at UK universities seem to ignore: that economics is no more than a series of models based on stringent assumptions with limited verisimilitude to the real world, and that what many term “capitalism” and see as a *very bad thing indeed* could actually, more accurately, be termed “corporatism” (especially in the UK and “socialist” France…) or “oligarchy” – even “monopoly” in certain markets.
    Conversely, the micro-finance you describe, and perhaps recoil from due to its profit- and loss-making, is more akin to “perfect competition” which is at the other end of the scale, where a large number of similar-sized stakeholders operate and are perfectly informed in a transparent market. It works because it is “capitalism” at its best, rather than its worst…
    You could also compare and contrast with the mutual-based British building society model, which I suppose in crude terms of at least scale could be seen, at least in their earlier history *Before Fred Goodwin*, as a halfway house between micro-finance and the oligarchs of high-street banking. Indeed, while we were on holiday (and steadfastly not reading your blog!) we passed through Halifax, Bingley etc. and literally drove past the headquarters of what were once similarly local organizations, before idiot financiers embarked on mega-mergers (Halifax, BoS, a Dutch bank, etc. etc.) and created financial entities with liabilities larger the entire GDP of the UK. As John Lanchester put it: “Whoops!”
    So capitalism can be “subversive” as you put it; or rather somewhat more efficient in terms of outcome for society, if only markets were more regulated, proper competition was assured, and wealth-sucking oligarchies were broken up, fragmenting markets and leading us back towards a time when a middle class actually existed and a greater number of chief execs only earned 20 times than average salary and re-spent much of this money locally rather than stashing it away in the Cayman Islands…

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