The Social Performance of Microfinance Institutions in Rural Bangladesh A thesis submitted to the University of Manchester for the degree of Doctor of Philosophy in the Faculty of Humanities Mathilde Maitrot 2014 School of Environment and Development The University of Manchester 1 TABLE OF CONTENT LIST OF TABLES 9 LIST OF FIGURES 10 ABSTRACT 11 DECLARATION 13 COPYRIGHT STATEMENT 14 LIST OF ABBREVIATIONS 15 GLOSSARY 17 ACKNOWLEDGMENTS 19 1. INTRODUCTION ........................................................................................ 20 1.1 INTRODUCTION .................................................................................................... 20 1.2 OBJECTIVES AND SCOPE OF THE STUDY ............................................................. 22 1.3 MAIN ARGUMENTS AND STRUCTURE OF THE THESIS ........................................ 24 1.4 STRUCTURE OF THE THESIS ................................................................................ 25 2. MICROFINANCE: EVIDENCE OF IMPACTS....................................... 27 2.1 MICROFINANCE AND POVERTY REDUCTION : WHAT DO WE KNOW ? ................ 27 2.1.1 REVIEWING THE IMPACT OF MICROFINANCE ON POVERTY 28 2.1.1.1. What is expected from microfinance? .............................................. 29 2.1.1.2. Reported positive impacts on poverty and empowerment ............... 30 2.1.1.3. Inconclusive and contested evidence ............................................... 32 2.1.2 IMPACT STUDIES : CONCEPTS AND LIMITATIONS 36 2.1.2.1 Quantitative indicators ..................................................................... 37 2.1.2.2 Nature and level of impact ............................................................... 37 2.1.2.3 Substantiating causation ................................................................... 39 2.2 THEORETICAL AND PRACTICAL CHALLENGES TO MANAGING MICROFINANCE ........................................................................................................... 40 2.2.1 SOCIO -FINANCIAL TRADE -OFF MANAGEMENT 40 2.2.1.1 Microfinance schism and social enterprise ...................................... 40 2.2.1.2 The governance of commercial microfinance .................................. 44 2.2.1.3 The risks of mission drift .................................................................. 47 2.2.2 GROUP -LENDING : A DOUBLE -EDGED SWORD ? 48 2.2.2.1 Social capital and poverty ................................................................ 49 2 2.2.2.2 Social capital in group-lending ........................................................ 50 2.3 SOCIAL PERFORMANCE FOR MFI S ..................................................................... 54 2.3.1 SOCIAL PERFORMANCE IN THE BUSINESS LITERATURE 55 2.3.1.1 Corporate social responsibility ......................................................... 55 2.3.1.2 Corporate social responsibility: challenges and pitfalls ................... 56 2.3.2 A FRAMEWORK FOR CONCEPTUALISING MFI S’ SOCIAL PERFORMANCE 58 2.3.2.1 What is at stake? .............................................................................. 59 2.3.2.2 Main approaches to social performance assessments ...................... 60 2.3.2.3 Conceptual framework for social performance in microfinance ...... 65 3. MICROFINANCE IN BANGLADESH: CONTEXT AND DEVELOPMENTS .............................................................................................. 69 3.1 BANGLADESH : ECONOMIC , SOCIAL AND POLITICAL OVERVIEW ..................... 69 3.1.1 POLITICAL HISTORY AND CULTURE 70 3.1.1.1 Industrial development and economic growth ................................. 71 3.1.1.2 Economic growth and poverty reduction ......................................... 72 3.1.2 RURAL LIVELIHOODS AND POVERTY 79 3.1.2.1 Natural capital .................................................................................. 79 3.1.2.2 Human capital .................................................................................. 80 3.1.2.3 Physical capital ................................................................................ 80 3.1.2.4 Social capital .................................................................................... 81 3.1.2.5 Financial capital ............................................................................... 85 3.2 MICROFINANCE IN BANGLADESH ...................................................................... 86 3.2.1 THE EMERGENCE OF MICROFINANCE 86 3.2.1.1 National motivations ........................................................................ 86 3.2.1.2 Regional pressures ........................................................................... 87 3.2.1.3 Local politics .................................................................................... 88 3.2.2 THE STATE OF MICROFINANCE 89 3.2.2.1 The growth of the sector .................................................................. 89 3.2.2.2 A segmented sector .......................................................................... 90 3.2.2.3 Implications of the sector’s expansion ............................................. 93 3.3 CONCLUSION ......................................................................................................... 96 4. THE RESEARCH METHODOLOGY, TOOLS AND THEORY BUILDING ........................................................................................................... 98 4.1 THE RESEARCH STRATEGY ................................................................................. 98 3 4.1.1 RATIONALE 98 4.1.2 RESEARCH DESIGN 99 4.1.3 MIXED -METHODS RESEARCH 100 4.2 PHASE I: COMMUNITY STUDY ........................................................................... 101 4.2.1 CASE -STUDY SELECTION 101 4.2.2 THE COMMUNITY SURVEY 104 4.2.2.1 households’ selection ..................................................................... 105 4.2.2.2 Questions ........................................................................................ 105 4.2.2.3 Answers .......................................................................................... 107 4.2.3 QUALITATIVE TOOLS 109 4.2.3.1 Respondents’ selection ................................................................... 109 4.2.3.2 In-depth semi-structured interviews with former-clients ............... 110 4.2.3.3 Focus groups with current-clients .................................................. 111 4.2.3.4 Key informant interviews ............................................................... 112 4.3 PHASE II: MFI ETHNOGRAPHIES ..................................................................... 113 4.3.1 THE CREDIT OFFICERS ’ SURVEY 114 4.3.1.1 Accessing credit officers ................................................................ 114 4.3.2 QUALITATIVE TOOLS 116 4.3.2.1 Observation .................................................................................... 116 4.3.2.2 Semi-structured interviews ............................................................. 117 4.3.2.3 Secondary data ............................................................................... 118 4.4 ROAD MAP TO THEORY BUILDING .................................................................... 119 4.4.1 MANAGING CASE STUDY DATA 119 4.4.2 PHASE III: THEORIZING MFI MANAGEMENT 121 4.5 FIELDWORK ETHICS AND CHALLENGES AND DATA ANALYSIS ....................... 123 4.5.1 ETHICS AND CHALLENGES OF THE FIELDWORK 123 4.5.1.1 Ethics .............................................................................................. 123 4.5.1.2 Personal challenges ........................................................................ 124 4.5.1.3 Data confidentiality and anonymisation ......................................... 126 4.5.2 DATA COLLECTION AND ANALYSIS 127 5. LIVELIHOODS OF MODHUPUR .......................................................... 130 5.1 RURAL POVERTY ............................................................................................... 130 5.1.1 THE STUDIED POPULATION 130 5.1.2 DEFINING POVERTY 137 4 5.1.2.1 Assets for resilience ....................................................................... 138 5.1.2.2 Education for power ....................................................................... 140 5.1.3 SOCIAL STRUCTURES AND LIVELIHOODS IN RURAL BANGLADESH 145 5.1.3.1 Households ..................................................................................... 145 5.1.3.2 Gender and age ............................................................................... 146 5.1.3.3 Migration and households’ structure and dynamics ....................... 148 5.2 VULNERABILITIES , FINANCIAL CONCERNS , AND COPING TACTICS ................ 149 5.2.1 FINANCIAL CONCERNS 149 5.2.1.1 The “ rudiments ” ............................................................................. 151 5.2.1.2 The “ predictables ” ......................................................................... 152 5.2.1.3 The “ unexpected ” ........................................................................... 158 5.2.2 COPING TACTICS 161 5.2.2.1 Extra work ...................................................................................... 162 5.2.2.2 Selling assets .................................................................................. 163 5.2.2.3 Informal borrowing ........................................................................ 163 5.2.3 RISKS AND LIMITATIONS OF INFORMAL NETWORKS 164 5.2.3.1 Financial limitations and risks ....................................................... 165 5.2.3.2 Social limitations and risks ...........................................................