By Bernadette Grosheny
Microfinance Focus, March 30, 2010: For over 30 years, U.S. commercial banks subject to CRA (Community Reinvestment Act) have innovated in terms of products, systems and methods in order to produce more than 1400 billion dollars in investments and loans to businesses and individuals poorly covered by the traditional banking market [K. HUDSON]. They have done this cost effectively, without generating excessive subprime and debt. The partnerships they have forged with associations, social enterprises and local officials allowed them to obtain profits by “reinvesting” local savings where they were obtained. With a leverage factor of public support for economic profit of 20, the CRA has helped in many cases to substitute bank capital for grants. By linking financial innovation and consumer protection to generate profits and create wealth in the territories, it reconciles the two approaches, one focused on financial sustainability [Zeller, Meyer, 2002] and the other emphasizing on its social sustainability [Morduch, 2000, Balkenhol, 2009] that has generated much debate concerning the analysis of the impact of microfinance. Without the support of a similar legal framework, the specificity of microfinance institutions as a tool for inclusion of people excluded from formal financial system, is based on two social ties: solidarity and participation of a marginalized population and proximity to the institution microfinance institutions (MFIs) and clients (geographical proximity, social, cultural) [F. KERN, G. BISSIRIOU, 2009]. This proximity creates links in one place [VELTZ P., 2002] across a territory.
More than the financial aspect, the proximity and accompanying persons constitute a value added, a “blue ocean” [C. Kim, R. Mauborgne, 2008] for microfinance, provide capacity-building capabilities within the meaning of A. SEN providing real possibilities [A. SEN, 2010] and is no longer in direct competition with the traditional banking system that does not meet the demand of the population in developing countries.
Yet microfinance environment becomes increasingly competitive [0. MARTINEZ, 2007, D. ACCLASSATO, 2009], mainly in cities in developing countries. Therefore, the ability to create new space becomes a distinct managerial function. While some clients of MFIs (including urban areas) have access to a sometimes excessive range of services, competition and sources of over-indebtedness [Guerin et al., 2009], several market segments critical for endogenous and sustainable development are still poorly covered. These include, among others, remote rural areas with lower density, and very small businesses and employees in urban areas.
Through listening to client feedback, seeking to understand the cognitive structures [M. Vigezzi, 2005] the beneficiary, by the commitment and sense of belonging to the territory, in meeting the expectations of new applications often still unidentified, seeking to exploit territorial resources, that is to say a strong territorial base, it seems that “the social benefit of microcredit and microfinance could become greater than its financial cost” [JM, Servet, 2009, Collins D., Morduch J, S. RUTHERFORD, RUTHVEN W., 2009 ]. For territorial anchoring, microfinance institutions seek to build trust based on social capital [T. BAUDAIS, T. MONTALIEU, 2005].
The territorial anchoring of microfinance is reflected by taking into account the reality of local social, historical, cultural, social and material resources, as well as knowledge and skills that are not transferable to other areas. The IMF then enters a territorial specific project to enhance the value of the existing, for instance, the shea butter in Burkina Faso, organic cotton and sesame in Mali, the production of gari in Benin …. Developing countries abound in local expertise, knowledge disseminated widely within local communities. There is a specific relationship between local knowledge, wealth and innovation that often is extremely responsive to the aid of financial funding. Microfinance plays a key role for the valuing of territorial resources skills and knowledge that can generate a multiplier effect in revenues [JACQUET P. 2010], to increase performance without micro-activity without competing with imported products and to provide microfinance institution a Return on its Investment. This enables the local microenterprises to resist financial crisis of and strengthen their ability to repay loans. They respond to both local needs but also international demand (such as shea butter) and are an asset to the growth and development locally.
The territorial anchoring of the MFI is expressed mainly by its willingness to participate in a shared project. In its role as “banker developer” [C. GUIMOND, 2004], the IMF plays both the role of banker and adviser. By its proximity, the MFI gives importance to people, to specific resources, and it enhances the specificity of the territory. It participates in growth by supporting projects which are economically viable. Small local contractors play a vital role to ensure that these territorial resources are used. The IMF by linking local actors, mobilizing savings for projects conceived at the grassroots, supports the implementation of projects involved in this territory. This mobilization of actors within a territory and its resources is a challenge that the IMF in connection with the government is likely to take up through quality work.
The quality of relationships resulting from strong territorial roots can develop mutual trust that can allow the entire microfinance institution to work effectively. It is the territorial anchoring which ensures a good knowledge of the territory, people and resources. It is by the actors of the MFI than a MFI is rooted territorially. They are employees of the MFI, which by their human qualities and professional skills will establish roots in a territory to ensure its sustainability.
N.B. This paper was first presented at the CEREN-CERMI research seminar on March 18, 2010 at the Burgundy School of Business.
