Sociocultural Practices that Make Microfinance Work

Abstract

Microfinance is an inherently social process. Over the years, it has emerged as an essential means for providing financial services to the "underbanked" population in developing countries. This paper presents a qualitative study focused on understanding existing cooperative practices associated with microfinance in rural Sri Lanka. Through semi-structured interviews, group discussions and visits to microfinance centres, we found that microfinancing involves much more than financial transactions, rather it is strongly habituated in the sociocultural fabric of communities. Our findings show that three factors affect the cooperative process of microfinancing: trust and credibility, community support, and familial assistance. Using examples from the field, this paper discusses the importance of these factors in microfinance activities and contributes an elaborated account of cooperative practices that support microfinance processes. We also highlight how the local sociocultural structures and practices shape the way microfinance processes are being handled. We contribute towards an in-depth understanding of such practices that can be useful for microfinance institutions (MFIs) and technology designers. Consequently, we advocate for an intermediary path for technology interventions where technology and people work together rather than technology replacing people.

Dhana Labha: A Financial Management Application to Underbanked Communities in Rural Sri Lanka

“…They report that mobile money applications alone would not be sufficiently successful, and any such technologies should be embedded into the broader loan repayment ecosystem. Complementing this work, Halloluwa et al, [20] have explored the broader loan repayment ecosystems of a rural Sri Lankan community. They report that sociocultural aspects such as trust, credibility, community engagement and familial support are central to the success of microfinance.…”

“…Due to the prominence of microfinance within the financial affairs of the poor, HCI community has recently started showing greater interest in microfinance workflows (e.g., [1,15,20,51]). Notably, studies have been conducted to investigate ways to enhance these workflows.…”

“…Plogmann et al, [53] claim that lack of technological infrastructure as well as the distance (geographical as well as cultural) between MFI clients and technical experts is one of the significant barriers for introducing technological solutions to this community. It is evident that most current technological interventions to the underbanked community have been introduced focusing on the procedural and transactional aspects of microfinance [20]. However, Barton et al, [6] suggest that by expanding that focus onto microfinance clients and not entirely on MFIs, the designers will be able to develop a different perspective towards microfinance which can lead to more efficient, and sustainable solutions to current issues in microfinance.…”

“…Yet, over the years, studies have shown that various social and cultural practices are at the root of the success of microfinance (e.g. [15,20,51]). In this paper, we report on the experiences of deployment of a mobile phone based financial management application that was designed to support the collaborative work associated with microfinance workflows in rural Sri Lanka.…”

“…The design and specific functionalities of the application, Dhana Labha, was informed from ethnographic work (e.g. [20,38,61]) conducted in similar contexts. Dhana Labha enables people to manage their finances and oversee microfinance loans.…”