Scratching Where it Itches

What Bolivian Microlending Programs can Learn
about Rural Household Strategies from Participants

Project Year: 1995/96
Country: Bolivia
Sector: Rural Finance
MSc Thesis. School of Rural Planning and Development. University of Guelph. Guelph, Ontario, Canada.
Author: Nanci Lee -

Many private development organizations involved with microlending are concerned with the impact of their programming on the "quality of life" of their participants. However, most programs use the "microenterprise" as their main unit of analysis using largely financial indicators. This focus does not provide insight intorelated household information regarding household livelihood strategies, gender roles and the changing and heterogenous nature of rural cash flows tied to these decisions. This study uses Bolivian case-studies to show that this information is even more important in rural where activities and decisions are more integrated and interrelated than in urban areas. Two microlending programs, women's village banking technology and solidarity group lending, are examined with participants. The paper develops the view that part of the challenge posed to microlending organizations is an epistemological one. Economic rationality can often supersede attention to context. A monitoring system based on "participatory" livelihood analyses is explored and presented as a responsive and time/cost efficient alternative to economically focused "snapshot" impact studies.


  1. To understand and identify a variety of household livelihood strategies and the differing role of microcredit within these strategies
  2. To understand how participants use different programs to meet their household livelihood needs
  3. To understand to what extent different programs (village banking and solidarity group lending) are and can be designed to meet the livelihood needs of participants
  4. To develop a conceptual framework and explore methodological tools for household livelihood analysis


The conceptual methodological framework is shaped by Peter Checkland's Soft-Systems Methodology and Jurgen Habermas' concept of Democratic Communication. It draws from disciplinary roots in economic anthropology, gender and development literature, participatory development, rural finance theory and microfinance literature.


Both qualitative and quantitative methods were used across a six month period. Following participant observation, direct observation, key-informant interviewing and participant file review, 40 participants in three communities in the Cochabamba Valley, Bolivia were selected for in-depth interviews. Adapted participatory rapid appraisal techniques were used as the primary tool in the interviews in order to examine, with participants, a wide variety of household livelihood strategies based on several characteristics. These characteristics included livelihood activities, socioeconomic status, level of diversification, nature of credit programming, location/rurality, household goals, age and gender. Next, representative samples of participant informationand loan data was examined to verify the trends identified in the household interviews. Two microlending organizations were involved: PRODEM (Solidarity Group Lending) and CRECER (Village Banking). Decision-tree modelling was used to show why participants chose one program over another. Finally, a reflective journal documenting the process throughout the study was also incorporated into the final reports.


  1. Many organizations do not believe that it is important to understand why and how their credit is used by participants because they have confidence in their participants' abilities. However, knowledge of the relative role of credit within livelihoods is important for determining effective an appropriate lending methodology and credit product. Depending on why participants are using the credit, the credit program may or may not be lending in a way that allows them to take advantage of their programming.
  2. The role of credit varies with many factors, including time/season, the composition of activities, their long-termhousehold goals and the lending methodology that they are using. Some roles of credit included a) to reduce risk or restock after emergencies; b) to even out lumpy income flows for householdpurchases; c) to diversify activities; d) to store wealth; e) to invest in capital; f) to add-value to a product by producing it at a different time. Credit use is fungible, and generally moves freely within the household according to needs.
  3. Different lending methodologies benefit particular livelihood systems over others. For example, producers of corn beer andagriculture tend to be able to better take advantage of the solidarity group lending methodology than village banking technology. Preferences for one microlending program over another tend to have more to do with the flexibility of repayment schedule,social considerations and location, than with interest rates.
  4. Participants find interesting ways to take advantage of programs in accordance with their needs, especially when more than one program is available. However, microlending programs often underestimate participants' ability to alter their livelihood strategies to fulfill program requirements. For example, one of the assumptions behind village banking is that its weekly payment requirements encourage households to diversify. Often this is not feasible or desirable.
  5. Several conditions needed to be present for a community or household to be able to fully take advantage of both solidarity group lending and village banking in their present form. In rural communities, where activities were largely agricultural, without potable water/irrigation, reasonable access to the local market, and market potential for some diversification, existing lending methodologies are not flexible enough to allow this population access.
  6. However, both PRODEM and CRECER are experimenting with adaptations to their rural lending methodologies, with successful results. PRODEM, for example, is using what is called "differential quotas," which simply means that each solidarity group can tailor their repayment schedule appropriate to their cash flows. They can choose weekly, bimonthly or monthly payments. As well they can decide which payments will be interest alone and which will be interest combined with capital. I have seen, in particularly agricultural areas, a 12 month loan term, paying interest each month for 11 months and the outstanding capital and interest in the 12 month with the harvest. What is interesting, however, is that most choose to may early payments to lower their (real) interest rate which is a 4% of the outstanding balance.
  7. While credit use is fungible, control of resources and purchasing decisions are often less flexible. In rural areas, even where the women are accessing the loans, managing the money, and purchasing, if a male spouse is present he will still make the decisions around agricultural purchases. Particularly in this region, women already handle the money in the household. Exposure to women's banking circles appears to have a limited effect on intra-household bargaining power.
  8. The role and use of credit often had less to do with gender,than it did with a microentrepreneur's activities. It is often assumed that women are largely in commercial or service activities. While this is certainly true, there was also a large number of producer in the Cochabamba Valley, particularly in wholesale chicha production. In this case, a female chicha producer has more in common, in terms of credit needs, with a farmer than a streetvendor. Programming based on the assumption that women can pay weekly because they are in commercial activities, disadvantage this large population of women.
  9. Non-financial decisions and activities affect financial management. While participants are told explicitly that loans arefor "productive" uses, they still use loans according to theirimmediate needs. In Bolivia, various times of year, there is a great deal of spending on traditional/religious events. To denythat these expenditures occur is ridiculous and culturally insensitive. What is more important is to understand periods of financial stress and be able to design flexible schedule payments which account for them.
  10. Many of the previous findings are not new. However, programs continue to design methodologies without considering these points. Many organizations are aware that this type of participant information is important, but lack the time and resources to develop methodologies for tracking. Existing impactand diagnostic methods often leave out information on households, particularly qualitative data regarding decision-making over time. The dynamism and fungibility of credit use is not captured. This study suggests but they also allow participants to be moreactively engaged in the microlending programming.
  11. Finally, effective participation, empowerment, poverty alleviation and impact depend on the context and the participant'sunderstanding of these concepts. For example, targeting women can,in various circumstances, be disempowering because it limits the household's ability to mobilize resources in accordance with theirneeds. However, that is not to argue either that gender targeting is ineffective or unnecessary. In certain areas, due to the intrahousehold gender dynamics, microcredit left untargeted is used for agricultural activities where most of the decision-makingcontrol is left to the men. The context should define the adaptations necessary in the lending methodologies.


The importance of livelihood analysis is shown through the practice and presentation of livelihood analysis in rural Cochabamba, Bolivia. It is argued that for effective program design and impact monitoring, microlending programs require an understanding of how households operate as systems in order to determine how credit and credit-related decisions play a role within that system. This requires continual examination of how participants use and take advantage of differing credit programs to meet household livelihood needs. It is suggested that a soft-systems livelihood approach to information systems is one method which monitors while allowing participants to share in the analysis and examination of their strategies and options. Microlending organizations often keep limited information on household livelihoods under the assumption that participants know best how to use their microloans. However, more qualitative, context-flexible methodological approaches to information on households is necessary be fore programming can be responsive to the resourceful strategies of participants.

Contact address:
Nanci Lee
International Rural Development Planning
University of Guelph, Guelph, Ontario, Canada
Tel: (519) 836-1408

Hari Srinivas -
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