Posted at 10.05.2018
Microfinance is different from other financial services. As its record, microfinance is definitely double bottom line. The loftier goal of the financial innovation is not only based on the financial aim but also related to with the social goal. Nowadays, microfinance has been growing and moving to reach a fine tune position either in financial industry landscaping or in its role as community development tools. To achieve such position, there are some proportions that microfinance handles, ranging from economic, social and ethnic to political aspects. Each one of these things, at the optimal level should be well been able.
Cultural aspects is one of the important dimensions that microfinance organization (MFI) should be studied into account in its operation. The importance of giving a lot more focus on this matter because it might be known by many that in order to broaden both financial services and non financial services which range from poor people to unserved businesses, on the whole microfinance organization has been centering mainly in the marginalized region, in rural area or remote area with the opportunity of facing different types of culture one another. Indeed this situation sometimes has pressed many establishments who involved with microfinance activities to study about local culture -in depth in such places before offering financial services.
Yet, several studies have been conducted in some countries with the purpose to know the importance of ethnical understanding in managing MFIs. A study done by Phlong (2009) on casual credit system indicates that the knowledge of local culture is the primary reason of the effectiveness of microfinance in a world in Cambodia. Deubel (2003) shows how ethnical aspects can be included in expanding of microcredit in Mali. The similar thing also is backed by Rana (2008) in Bangladesh that confirms the need to understand cultural orientation in controlling microfinance. Varghese (2001), argues that the success of Grameen Loan company in Bangladesh is brought on by the bank's understanding of ethnical aspect embodied in women as their main client. In Indonesia, the success storyline of Bank or investment company Rakyat Indonesia (BRI) is a lot contributed incidentally of this loan provider using cultural strategy in its microfinance program such as BKD (Lender Kredit Desa/Community Credit Loan provider), P4K (Program Peningkatan Pendapatan Petani dan Nelayan Kecil/ Fishery and Farmers Income Generating Project) and BRI Device Desa (Rudjito, 2003).
All those facts above confirmed that by understanding cultural aspects, especially the culture where a microfinance establishment located, will contribute to the success of microfinance methods. Then the question raised within more theoretically is, where ways do civilizations have an impact on to microfinance practice?. Since culture is a broad subject with all elements and ways, therefore in this newspaper, the answer of this question is only going to be discussed by taking a look in a few perspectives that associated with microfinance practice. They are regarding with recruiting, institutional culture, product and service design, gender targeting, services environment and loan repayment.
To get started with, it is important to elaborate this is of culture and microfinance. In essence, culture is a term that has many meanings since anthropologists and communal scientists defining it on the perspective and interest. That is why like Williams (1983) argues that culture can be one of two or three most complicated words in British words. Culture means shared beliefs and beliefs of the group, comprising the beliefs, traditions, practices, and cultural habit of particular nation or people (MSN Encarta, 2010). Hoecklin (1995) emphasizes that culture is something that brings pervasive, deeply placed and implicit beliefs and worth. Other classification, Matsumoto and Juang (2007) opine that culture is really as a couple of energetic system of guidelines which is explicitly and implicitly founded by communities for ensuring their success, covering beliefs, prices, norms, actions and attitudes that shared by an organization and communicated across decades. Matching to them, this group of guidelines is relatively secure but potentially to improve in line with the civilization development across time. Used, culture is often manifested in the daily life activities including the way we have been speaking, eating, considering, learning, operating, socializing based on the attitude, principles and norms that all defined in the culture.
Meanwhile, microfinance relating to Consultative Group to Assist The Poor (2010), is broadly defined as financial services for poor and low-income clients. The term is often used more narrowly to refer to lending options and other services from providers that identify themselves as "microfinance institutions". Many microfinance corporations building as multilateral organizations, Non Government Organizations (NGOs), finance institutions, cooperatives etc use microfinance either as programs or as products with two times bottom line aims. Microfinance, especially in the producing countries, can be utilized as a musical instrument to achieve the reason for development with this double important thing both financial advantage and social results. Innovative microfinance establishments can attain aims of financial sustainability and broadened outreach, if indeed they flourish in embedding financial businesses with prevailing culture rules and networks (Bastiaensen and D'Exelle, 2002).
Effect of culture on microfinance institution's human resources practice mainly can be occured when MFIs do recruitment of their staff. Many of microfinance institutions make an effort to hire their employees from neighborhood. This preferential hiring is dependant on the reason that local staffs from local community are aware of cultures where in fact the MFI located. Local staffs have a tendency to instill self confidence in clients and make it easier for them to talk to the MFI (Legderwood, 1998). Consequently, often seen that MFIs accept the prospects, for example, if they are able to speak in the neighborhood language, understand the neighborhood custom and customs as well as have good social skills to carry out the marketing well and effective. Otherwise MFIs will fail to communicate their programs or products. Non local people may be able to be employed in this purpose but it is costly and may well not be such effective. As Woller and Parson (2002) dispute that employing local personnel, who are more likely to spend in the local community, in a few extent will improve the financial impact of microfinance. In this case, culture influences MFI's hiring decision making.
It is already known that the mark market of microfinance is unserved or underserved enterprises and low income homeowners, ranging from the microenterprises to small growing corporations that provide career in their neighborhoods. Sometimes also found that a number of microfinance companies provide financial services to "inadequate people" surviving in poverty with all natural challenges in handling such focus on, for illustration physical barriers, monetary barriers, cultural hurdle barriers (self selection and personal exclusion ) (Maes and Foose, 2006). Regarding to Goode and Eames (1996), contend that culture is influential factor in the living of poverty. Lewis (1998), says that the people with a culture of poverty is characterized by a strong feeling of marginality, of helplessness, of dependency, of not belonging.
All these facts constitute the distinctions between microfinance establishments with other formal financial institutions, such as banking companies. Here, similarly MFI seeks to accomplish something extremely difficult to provide ecological financial services to the poor. Alternatively, MFI has to deal with problems working condition where maintaining for a higher staff production, low staff start, and even in low salary expenditures (Craig and Frankerwiz, 2006). Consequently, these unique problems of MFI frequently have direct implication on the microfinance institutional culture creation. Institutional culture or organizational culture is something that related to a system of shared meaning organised by the associates inside establishment which affect just how of people carry out their work, how people interact with one another in their work, and in the end how people feel about their work (Ledgerwood and White, 2006). When a MFI can create an effective institutional culture, it can be a powerful tool for coordinating the inherent social characteristics of providing financial services to the target market with the troubles to create a nice working environment where to have and maintain the employees feel comfortable, valuable and well known to achieve best performance.
it is very important to microfinance institutions to asses the characteristics of marketplace, if indeed they want to create and provide products and services. It is required because the product or service offered must react to the customers needs and anticipations. In cases like this, target market segments assesment can be done by knowing and analysing some cultural characteristics of the clients, such as custom and traditions, religion, ethnicity, languages, illiterate or literate, collectivism vs individualism, etc. As D'Exelle et al (2004) claim that microfinance corporations should become familiar with about the prevailing local civilizations or "rules of the game" of the modern culture to be able to tailor financial products to the necessity of the prospective as well concerning safeguard the financial results.
For example, In Indonesia, microfinance institution should take into account the custom and customs of farmer dan fisherman pertaining to with the offer of loan product. A farmer can only work and produce in his farming after 3 months of the initial planting and the fishermen's decision to look sailing would also be very much depending on weather condition. However, some Indonesia's microfinance institutions often provide loan product with rigidity in repayment time. It could be thought that the farmer and fisherman will face difficult situation if indeed they have such loan, that is, inflexibility of repayment time. At the end, it will lead to non performing loan. This example might be derived from the MFI's insufficient understanding in the custom and traditions as well as problems experienced by your client. The farther impact, the uncompatible microfinance service with the living patterns of the poor, whose financial activities have advanced vulnerability, will cause the indegent still surviving in the marginal life (Matin et al, 1999).
There are also circumstances in which a certain group in just a community can not or won't be a part of a financial services scheduled to religion, cultural, or other ethnic influences. It's important to understand each one of these restrictions when determining a marketplace, so that products and services can be developed that take into account the constraints on some communities (Ledgerwood, 1998). For instance, in countries where in fact the majority of the populace is constituted by Muslims, classic microfinance products often disregard Muslim spiritual sensitivities. The reason why corresponding to Khayat (1996) is the fact Islamic finance is based on sharia (Islamic legislation and council of advisers), which determine the products and services that are Islamically appropriate. With sharia, the money cannot be cured as a commodity. Money can be used productively (like labor and land), with the return based only on actual profit or loss not on interest (riba). Meaning that the financial specialist and your client share the risk on a job. Of course, there is need for a proper model rooted in Islamic values and civilizations if microfinance want to achieve the success in such Muslim societies (Obaidullah, 2008).
Different ethnic groupings have very differing experience and objectives in a variety of factors, including financial services. Microfinance product can change their products and/or services as well as their advertising information to the specific characteristics and needs of ethnic or ethnic organizations. Regarding to Romer in Koeman, et al (2009), this is exactly what called as Etnomarketing. For example, PRODEM FFP, a microfinance institution in Bolivia has considered the client's ethnicity aspect in producing multilingual SMART ATM microfinance to focus on a significant amount of rural villagers speak only the indigenous dialects of Quechua and Aymara. A traditional ATM that uses on-screen text as its primary communication mechanism was not a realistic methodology (Hernandez and Mugica, 2003)
Setting up microfinance products is often quite difficult if nearly all of the clients are uneducated and illiterate. These types of clients have required microfinance to find solution. However, because of technology solutions, microfinance nowadays can provide the services to them, for example by using biometrics technology. Rosenberg (2007), records NCR, an internationally company of ATM supplier, has tried out to creatae an ATM's inovation to focus on illiterate people in the rural India. With thumbprint and tone of voice assistance in NCR's ATM, illiterate or scarcely illiterate clients are able to get the power from financial product using biometrics to a considerable extent.
Another problems in creating microfinance products is pertaining to with individualistic and collectivist civilizations. In microfinance practice, these characteristics have influence on the lending technique and finally to the merchandise and services that microfinance offered. They are simply individual financing product or group loaning product. In the countries where collectivist ethnicities are much placed in their life, microfinance corporations have possibilty to succeed in presenting group loan product. Relating to Burger (2008) countries such as in Asian, African, Central America and South North american fit the collectivist culture. People in these countries are easy to be obtained since they are happy about owed in a group. They tend to balance their life in community and give contribution within group. On the other hand, in most Northern European countries and the United States, individualistics culture has penetrated in their life since people in these ethnicities are more impartial and a great focus on individual accomplishment. The implication on microfinance so far can be witnessed that the products of group loaning, in many cases perceived as the effectiveness of microfinance, are spreading in the countries where the tale of microfinance world began, that is, from Bangladesh to Bolivia.
A great of majority microfinance programmes is intended to women as the mark client. The reason, relating to Food and Agricultural Business (2002), was because the women have a tendency to be timelier payers than men, especially in the poor community. Furthermore, in many cases women can be more trusted and dedicated more to their families' well-being. However, regarding this gender targeting, a microfinance should be carefully discovered, since gender assignments in a certain modern culture is a difficult issue. In some countries, gender role is much afflicted by the culture. For instance, in men lead modern culture, a father are the owners of wealth. This reality brings an outcome that he is able to dominate in the family, like the decision to take a loan/credit from a lender. Women often are positioned in the second-rate position, and even many studies discovered about it. Conversely, in some places, mothers get excited about the family's decision as their choice. Within this modern culture, generally women have income generated business activities to aid family.
The aftereffect of culture on microfinance practice isn't just seen in all aspects earlier mentioned, but also indirectly in the issue of microfinance's services environment. In general, it is assumed that culture can contribute to strengthening communal ties one of the customers of community. Predicated on this opinion, for example, many companies attempt to customise their activity by implementing the form of creating, the color, or the neighborhood material life-related culture in order to be accepted by the city. It is something peculiar, but sometimes it can work well. The true example is BRI/ Loan provider Rakyat Indonesia (Rudjito, 2003). BRI unit's structures spreading across remote area in Indonesia are rented or built in the folksy style. Sometimes any office complexes of BRI unit contain the similarity with the neighborhood people's properties, with the signal board as differentiator. By this way, local community feel eager and comfortable to come quickly to the bank, because the building model is not "frightening" them.
Another customization in the practice of microfinance, matching to Ledgerwood and White (2007) relates to front side office management and working time. A typical front-office environment, specifically in a rural or semiurban microfinance office, has pretty irregular levels of activity-at some times of the day, week, or month, bank halls can be loaded to capacity, while at other times they are empty. The situation can also differ from one MFI's office to others, depending on local market and environment. Handling microfinance office or branch is particularly important in providing financial services for low-income clients, because orders tend to be in small amounts and of higher occurrence. Therefore, an MFI's potential to manage top loads in leading office is an integral determinant of its service quality to the clients. Extended working hours are also extremely good for clients who would in any other case have to devote some time from their business activities to execute financial orders. However, the power of an microfinance institution to extend its business hours depends on the length of time end-of-day processing takes, and in some countries, it is regulated
Do civilizations really influence on loan repayment? Actually oftentimes, the success of loan repayment is exactly associated with culture. In cases like this, some cultural principles or attributes that are still maintained by the community often adding to the high repayment rate. Thus microfinance may take the benefit fro the inherent cultural values, like the explanation in the countries below.
In Philipines, there are two social traits which popular by most Filipino, Pakikisama and Sakop. Gorospe in Gripaldo (2005), identifies Pakikisama as a kind of sense of owed and devotion to an organization and more especially possessed by Filipino. Generally, this characteristic is manifested by "getting along well with people". However, this Filipino's trait plays dominant enough role in creating harmonious connection among the member of community from the level of nation to small group. Corresponding to Hariharan (2010), this characteristic also permeates atlanta divorce attorneys aspects of Filipino's life, ranging from political, communal and financial activities, like the microloan practice. In Philipine's small group, called barangay, which consisting of 50-100 households, the same pakikisama habit pattern among participants much probable to help financial problem confronted by one family. For example, if one family has a financial problems or loan repayment problem, then this can be distributed between community people to discover a solution. Naturally, so contributes on the success of the microfinance program for the reason that society.
The second trait is sakop. This term is strongly related to ''inclusion" which means one is included in an organization. In practice, the impication is one has to look after family, share pleasure and sacrifice at any given condition either stand or fall season always with them. Also pakikisama, the nature of this characteristic takes on important role in the Filipino's community. Again Hariharan (2010) notes that when there is a drought in Nothern Phillipines induced by El nino, and helped bring so much destruction, the members of barangays united and helped one another during the hard time. For all those whose problem loan repayment therefore from that catastrophe, through sakop spirit, can be defeat. Att least the repayment rate was still high.
Another ethnic value which still usually strongly held in some countries where most population carry hinduism and budhism as their main spiritual practice is recognized as karma. As cited at Freedictionary (2010), from the perspectives of Hinduism and Buddhism, karma is defined as the total aftereffect of a person's activities and conduct during the successive stages of the individuals existence, thought to be determining the person's destiny. In simply meaning, what you sow is what you reap, should you choose positive thing you will harvest a very important thing as well and vice versa.
In Cambodia, as Phlong (2009), notes that the idea in karma becomes the principle guiding one's habit in everyday routine, including credit techniques. For samples villagers strongly believe "one should not steal or take what is not given" because it is a significant demeritorious action (bab), that will generate bad karma for the credit seekers in their next lives; thus when one borrows items or money, he/she needs to pay back it back
All facts described above clearly can be figured the inherent social beliefs often help the microfinance practice, especially for financing activity.
To conclude, microfinance undoubtedly has a effect to interact with many dimensions. Among dimensions is involving with ethnic aspect especially for those MFIs who want to expand their operation in the marginalized region, in rural area or remote control area with the likelihood of facing different kinds of local culture.
Knowing effects of culture on microfinance practice is crucial for MFIs to be able to achieve achieving double important thing, both financial services and non financial services for the low income clients. Civilizations impact to microfinance practice in a few perspectives. They are really from recruiting practice when MFIs seek the services of personnel, institutional culture creation, products and services design, gender targeting, services environment development and loan repayment.
Indeed, if MFIs can integrate between their goals with social aspects that are from the life of community, it could bring positive effects on the procedure sustainability of MFIs for very long time.