Much of the dialogue around microfinance suggests that the poor are universally credit constrained and that cash shortages drive a monolithic demand for credit. As such, microfinance is often treated as a technical, rational and linear process that is characterized by an “if-you-build-it-they-will-come” mindset. Too often overlooked are the contextually specific and nuanced processes that influence consumers’ demand for microcredit in a variety of social, moral, cultural, and political contexts.
A fascinating new paper, “Explaining Participation and Repayment in Microcredit Schemes in Rural Morocco: the Role of Social Norms and Actors,” from the Institute of Research for Development at the Sorbonne University explores exactly these dimensions of microfinance. Drawing upon evidence collected from rural Morocco, the team of authors explores the socio-cultural factors that influence a household’s use of microcredit services.
As their departure point, the authors draw upon findings from a 2008 randomized control trial conducted by the Abdul Latif Jameel Poverty Action Lab (J-PAL). J-PAL’s study assessed of the impact of microcredit services offered by Al Amana, one of Morocco’s largest microcredit providers. One of the challenges of that study was highly variable take-up of credit in villages where it was offered; take-up was especially low in rural villages. Overall take-up varied between 0 and 80 percent. This new paper, “Explaining Participation and Repayment in Microcredit Schemes in Rural Morocco” follows up on those results in an attempt to understand why demand for microcredit was so low and heterogeneous in the original study.
One factor likely influencing attitudes toward credit is religion. In Morocco, most people are practicing Muslims and sharia, Muslim law, condemns the paying of interest and the state of being in debt. Beyond religious obligations, however, debt also has a social and class dimension: taking on debt is frequently seen as a disgrace and loss of dignity.
There are also likely specific cultural influences. In Algeria in the 1950s, Pierre Bourdieu observed households resistance to debt and argued that indebtedness implied that the head of a household had failed to meet his family’s material needs (Bourdieu, 1977). These sentiments were echoed in the interviews conducted by the Sorbonne researchers. One Moroccan villager explained, “My pride will not let me go into debt” and another, whose son is an Al Amana client stated, “If you were a man, you would not take out a loan.” The researchers also observed this dynamic play out in the informal lending sector. Women predominately borrow credit from shopkeepers (one of the most common sources of informal lending), while men are responsible for repayment. This gendered dynamic serves to preserve the men’s sense of honor.
Through their interviews and observations, the researchers from the Sorbonne identified three additional factors that can help explain take-up and repayment behaviors in Al Amana’s microcredit program: agro-ecological conditions, perceptions of sanctions for defaulting, and the embeddedness of microcredit in local social networks.
- Agro-ecological conditions
Agro-ecological conditions refer to the landscape, livelihood opportunities, and remoteness of an area, and can partially explain the diversity in take-up rates between villages. The authors establish three broad types of areas—mountain areas, peri-urban areas, and extensive farming areas. In mountain areas, males predominately migrate to the city for work and local markets are extremely limited, so demand for credit is low. In peri-urban villages that are located close to a city, town, industrial, or artisanal area, demand for credit is higher on average because households have more regular earnings and greater needs such as daily consumption, housing, and business investment. In farming areas that are characterized by mechanized farming operations, demand for credit is high because the relative flatness of the land is well suited for mechanized farm operations—a capital-intensive activity. However, Al Amana’s loan offerings are generally too small to meet the capital needs of mechanized farming. Further, the requirement of regular payments when income is seasonal means that overall take-up is low.
- Perceptions of sanctions for defaulting
The perception of sanctions as a deterrent to borrowing has been well documented in microfinance literature. In rural Morocco, these perceptions are shaped by how strongly borrowers associate Al Amana with the central state authority, the Maghzen, and how they perceive the Maghzen itself. On a relative basis, Al Amana is more closely associated with the Maghzen than other microfinance institutions, because Al Amana received strong government backing from its inception. Borrowers’ attitudes towards Al Amana are therefore strongly influenced by their attitudes towards the Maghzen.
In general, the Maghzen is associated with many negative aspects of an authoritarian government, including arbitrary violence, corruption, and despotic authority. These perceptions of the State either engender feelings of intense fear towards the government or utter disdain, because many consider the Maghzen to be illegitimate and ineffective. For borrowers who fear the Maghzen, their feelings may manifest themselves as a fear of Al Amana, which may cause low demand and take-up of Al Amana’s services—the perceived possible sanctions for default are not just loss of access to credit but possible imprisonment, confiscation of property, etc. Borrowers who disdain the Maghzen may have strong feelings of impunity toward Al Amana because they perceive Al Amana as an illegitimate institution as well. These feelings can translate into low repayment rates, but may also contribute to high demand because some clients view the borrowing and non-repayment of a loan as a way to receive compensation for the abusive practices of the State.
- Embeddedness of microcredit in local social networks
Variation in microcredit uptake can also be explained by the embeddness of such services in local social networks, specifically with regard to credit officers and local leaders. Credit officers who originate from the area in which they work are able to understand local issues, assess the reliability of potential clients, and know how to persuade villagers to take out loans or incite them to repay. Similarly, local leadership can play a role in influencing borrowing behavior, either positively or negatively. Local leaders who borrow and publicly default on their loans set an example for villagers to follow and promote the “impunity” narrative discussed above. Conversely, local leaders who encourage clients to repay can be instrumental in reducing default rates.
While all these factors are important, they are not stand-alone influences, but rather interrelate and interact with one another to create complex and textured dynamics that shape clients attitudes and behaviors toward microcredit. (Read more about these dynamics and the authors’ conclusions).
Overall, the paper sheds valuable light on the myriad social, moral, cultural, and political factors that affect people’s perceptions of debt and attitudes towards borrowing. Rather than assume a universal demand for microcredit amongst the world’s poor, we must take a step back and recognize that microfinance is a complex institution that is uniquely appropriated by people as a result of the socio-cultural milieu in which they live.