I attended a one-day conference on Microfinance at SPU where they had a nice recommended reading list I picked up a book called “What’s Wrong with Microfinance?” This has turned out to be a fascinating and inspiring book – even though it’s ostensibly about international microfinance, many of the issues and lessons resonate with my own ponderings. It’s a series of essays by folks with 10-30 years of experience each in the field. The first essay, by Thomas Dichter, opens the discussion by reminding us that while microfinance is a fancy term what we’re mostly talking about is debt. Debt involves all kinds of symbolic social and moral perceptions that affect not just how the parties feel about themselves and each other but how obligated they feel to perform. The essay notes this is particularly important in countries with poor contract enforcement, but I found myself thinking about P2P lending models like Prosper.
He thrills me with his closing by naming (ah, in German!) a cultural split that I have observed most strongly in economic class differentiation, and that he observes with the spread of microfinance – a shift from gemeinschaft to gesellschaft. Those terms come from sociology and are apparently so classic that not just Wikipedia but Encyclopedia Britannica explains them! For Dichter, gemeinschaft represents a community built on reciprocity, exchange and mutual trust, whereas gesellschaft represents a community based on formal contractual relationships. He sees the spread of microcredit possibly hastening a transition from one to the other, and he particularly draws a distinction between the impact of credit used for consumption (to which he attributes the majority of microcredit) vs credit used for investment.
At BGI we talked about the gift economy vs the financially intermediated economy. I found myself thinking about that recently after a visit to Casa Latina. They’re a non-profit (scratch that, Leno Rose-Avila of Social Justice Fund inspired me to start calling them Social Profits) finding economic opportunity for Latino immigrants. They occupy a socially complex space between the gift economics of a social profit: using volunteers and giving services for free, and the financial economics of a for profit by coordinating marketing and distribution for paid employment services. Like all social-profits they’re under pressure to look for earned revenue opportunities and match revenues to costs.
With their women’s group they have an elegant example of blending the two economies: there’s an internal snack shop they run basically at cost, to provide low-cost snacks for workers. Since its run to be low-cost, it’s run by volunteers. Women from the women’s group staff it, but they get points for volunteering, which combine with other ways they can earn points, all of which move them towards the head of the queue for the next job referral, which rewards them personally with a paying job opportunity. This system has worked and is an interesting interplay between the individual and the community in a combination of non-financial and (ultimately) financial exchange.