Solidarity Lending - Criticisms

Criticisms

Solidarity lending has clearly had a positive impact on many borrowers. Without it, many would not have borrowed at all, or would have been forced to rely on loan sharks. However, it has been the subject of much criticism. A recent survey of the empirical research concludes that the search for alternative approaches must continue, and highlights problems such as “borrowers growing frustrated at the cost of attending regular meetings, loan officers refusing to sanction good borrowers who happen to be in ‘bad’ groups, and constraints imposed by the diverging ambitions of group members."

Efforts to ensure that all members of solidarity groups are equally poor may not always improve group performance. Greater socio-economic diversity "means that group members' incomes are less likely to vary together, and thus group members' ability to insure each other increases". The solidarity lending approach, which excludes less-poor borrowers, was adopted in large part because of a view that the more inclusive cooperative 'bond of association' had failed in Bangladesh (see the Comilla Model). But the founder of Bangladesh's credit cooperatives, Akhter Hameed Khan documented that the Model's practices contravened two fundamental credit union operating principles: independence from government intervention, and local financial self-reliance. The case that the 'inclusive' approach to organizational development used by the Comilla Model accounts for its failure has not been made.

While poverty-targeting has had many successes, social solidarity is not solely a tool for the lending institution – it can also be used by borrowers. A loan ‘strike’, if it gains the sympathy of a large number of borrowers, can lead to a rapid and highly unstabilizing escalation in delinquencies. It was this type of circumstance that led in 1998, to the rapid escalation of delinquency at Grameen Bank that resulted in the redesign dubbed ‘Grameen II’.

The photo above—of a group of women seated in rows on the ground before a male NGO-officer who sits in a chair processing their payments—encapsulates another common critique. Solidarity groups may be composed entirely of women, but the staff who decide when and if they receive financial services are often dominated by males.