Greenwich Academic Literature Archive (GALA) – the University of Greenwich open access repository http://gala.gre.ac.uk __________________________________________________________________________________________ Citation: Jackson, Cornell Alexander (2012) Strength of weak ties in microfinance. PhD thesis, University of Greenwich. __________________________________________________________________________________________ Please note that the full text version provided on GALA is the final published version awarded by the university. “I certify that this work has not been accepted in substance for any degree, and is not concurrently being submitted for any degree other than that of (name of research degree) being studied at the University of Greenwich. I also declare that this work is the result of my own investigations except where otherwise identified by references and that I have not plagiarised the work of others”. Jackson, Cornell Alexander (2012) Strength of weak ties in microfinance. ##thesis _type## , ##institution## Available at: http://gala.gre.ac.uk/9151/ __________________________________________________________________________________________ Contact: [email protected] Strength of Weak Ties in Microfinance Cornell Alexander Jackson For the degree of Doctor of Philosophy Awarded by the University of Greenwich Thesis submitted in partial fulfilment of its requirements June 2012 1 DECLARATION I certify that this work has not been accepted in substance for any degree, and is not concurrently being submitted for any degree other than that of PhD being studied at the University of Greenwich. I also declare that this work is the result of my own investigations except where otherwise identified by references and that I have not plagiarised another’s work. Signed: Student Date Supervisor Date 2 ACKNOWLEDGEMENTS While a lot of work went in to this PhD research, I also received a tremendous amount of help throughout. I first want to thank my supervisors Dr. Ana Marr, Dr. Miltos Petridis and Professor Martin Everett. Not only did they provide wisdom and knowledge on research, microfinance and social network analysis, they made sure I would make a real original contribution to knowledge. I also want to thank both the Bullock Cart Workers Development Association (BWDA) and BWDA Finance Limited without whose incredible generosity in people and time, I would not have been able to complete this research. Special thanks go to the managing director Dr. C. Joslin Thambi for his leadership. I also want to staff at BWDA’s head office and at the staff of the Cuddalore, Madagadipet, Mattapattu, Pondicherry, Tindivanam and Villupuram branches. It was they who organised all of the interviews and travel. Without them the field work would not have been possible. I want to thank my translators, Sebastian Packiam, Joshy Koshy and John Britto, who not only translated between Tamil and English but also transmitted the Tamil culture to me. I finally want to thank the 132 sari sellers and 178 self-help group members who took part in this research. The purpose of this research was to not just to make a original contribution to knowledge but to contribute, in at least a small way, to help reduce the poverty of these people. Finally, I would like to thank the Leverhulme Trust for providing a grant for this research. I am profoundly grateful for them for financing this research. 3 ABSTRACT This research makes a contribution to knowledge by testing Granovetter’s (1973) theory of the strength of weak ties in microfinance based on an empirical study in India. Specifically, it looks to test if the addition of weak bridging ties to the networks of microfinance clients who own businesses will improve their businesses and help to reduce their poverty. This research also investigates Burt’s theories on structural holes (1992), brokerage and closure (2005) and network spillover (2010) can assist with the building of weak bridging ties. Microfinance is the delivery of financial services to the poor which includes credit, savings, insurance and remittances. The original goal of microfinance is to do financially sustainable poverty reduction. The key issue for microfinance is that it has not achieved levels of poverty reduction envisioned when the modern microfinance started. One reason for this is that microfinance clients start businesses with low barriers to entry which makes them very susceptible to competition. Also, the poor tend to inhabit fragmented social networks with few ties outside it that would bring needed information on markets, finance, suppliers, customers and the competition that would help to improve their businesses. Network analysis provides, with theory of the strength of weak ties, an approach that will give poor people access to information need by them to improve their businesses. India is one of the largest microfinance markets in the world which also has a unique form of microfinance. In addition to individual lending and joint liability groups, India has self-help groups which are essentially microbanks owned and operated by its members. Sari sellers, who happen to be members of self-help groups, are good example of a low barrier to entry business. Using a variation of the method developed by Kahn and Antonucci (1980), sari sellers were asked to identify the people they were connected to for supplies, finance, market information and customers. These are placed on a target diagram indicating how close these are to the sari seller who is at the centre of the target. 4 Lines connecting the alters who know each other are drawn. In addition, a network intervention was conducted in attempt to introduce weak bridging ties into the social networks of the sari sellers. A simple method of providing sari sellers in the treatment group a list of other sari sellers they could contact for help while those in the control group did not receive the list. Several interesting findings came out of this research. Analysis of the sari sellers’ ego networks shows that there is a reliance on strong ties which confirms Granovetter’s (1983) argument. The analysis of the ego networks also show the sari sellers do have access to structural holes but do not take advantage of these. When the ego networks are combined using their contacts with the microfinance institution’s staff, analysis shows that the resulting network has a parent-subsidiary structure which reflects the hierarchical nature of Indian society. Finally, the analysis also shows that this network is fragmentary and fragile. Weak bridging ties would make the full network less fragile and allow the sari sellers to take advantage of the structural holes they find. This is what the intervention is attempting to do. While the intervention did not go as planned, evidence was found to support the hypothesis that addition of weak bridging ties to the social networks of sari sellers improved their businesses. A group of 15 disparate sari sellers created weak bridging ties to take advantage of one of the sari seller’s contacts to buy saris in bulk. Another sari seller saw a significant increase in sales for Diwali 2011 because a new member of her social network created a weak bridging tie which introduced her to many new customers. 5 CONTENTS Table of Contents List of Tables and Figures......................................................................................... 11 1 Chapter One – Introduction ............................................................................... 17 1.1 Chapter Summary ................................................................................................. 17 1.2 Background .......................................................................................................... 17 1.3 Thesis Outline ...................................................................................................... 21 1.4 Chapter Conclusion .............................................................................................. 28 2 Chapter Two - Microfinance ............................................................................. 30 2.1 Chapter Summary ................................................................................................. 30 2.2 Definition of microfinance ................................................................................... 30 2.3 The Reach of Microfinance Today ....................................................................... 31 2.4 Microfinance Background .................................................................................... 32 2.5 Approaches to Microfinance ................................................................................ 34 2.6 Bangladeshi Microfinance Model ........................................................................ 35 2.7 Poverty and Poverty Reduction ............................................................................ 42 2.8 Microfinance Impact ............................................................................................ 44 2.9 Strength and weaknesses of microfinance............................................................ 52 2.10 Trying to get clients beyond subsistence jobs ...................................................... 56 2.11 Chapter Conclusion .............................................................................................. 60 3 Chapter Three – India and Indian Microfinance ............................................... 61 3.1 Chapter Summary ................................................................................................