Big Mouth, Big Appetite

I was reminded again just this morning of the power of speaking loud. A colleague told me he had held focus groups with Savings Groups and that "the members need more credit". 

I praised him for doing field research, but questioned his result. I have visited many groups in which a group chairperson - often a man - stood up and, saying that he spoke for all the members, asserted that the number one need they had was more cash. Meanwhile, the other members, usually women, sat silently and showed no expression or emotion. 

The trouble is that those results from focus groups don't correspond with what the members say when they are interviewed separately. When you talk to members in private, they show a clear savings preference. Of course, there are some who say they need to borrow more, but that is the exception. 

“She stands aside out of politeness and culture while her chairperson misrepresents her. ”

Why the discrepancy? Well, "Big Mouth, Big Appetite". The people who become spokespeople for groups are often self-promotors with lots of ideas about how to invest loans, especially if they can borrow and have their loans guaranteed by other members, including the Grandma-sitting-in-the-corner, the fictitious member I often refer to, the old lady who is there to save for her remaining years so she can leave something to her grand children and maybe have a nice funeral. She has no desire to go into debt, but she stands aside out of politeness and culture while her chairperson misrepresents her. 

I'm sure there are groups where every member wants to borrow, but those are rare. Financial service providers who assume that everyone in a group wants to borrow are simply wrong. And if they make group loans anyway, they will stress the groups, Grandma-sitting-in-the-corner will be worried, members will leave, while others will be obliged to take more and more credit to pay back previous loans, until they crash and burn, taking the lender with them. 

To me, the solution is simple: Don't lend to groups, and don't ask the groups to guarantee loans to individual members. This might possibly reduce the profit of the lender, but only in the short run: group credit has proven to be a troublesome product for lenders in the long run.

Don't assume the guy doing all the talking knows what he is talking about.