roviders of all sizes, the level of trust clients p have, as well as the norms regarding repayment of loans, is critical in determining the incentives for increased financial inclusion. For example, historical experience such as conflict or disaster can create social dynamics that persist for generations, such as a lingering lack of trust, a lack of available resources, infrastructure, and opportunities, and overall difficulty in establishing relationships and creating solidarity in the community. Communities marked by significant ethnic conflict may be less receptive initially to peer-based group lending models that have historically worked very well in microfinance. Alternatively, a community where cash is less prevalent than in-kind assets potentially requires unique financial services outside traditional credit and savings products. While some informal rules may appear unproductive, they serve an important purpose, such as providing a social safety net. These rules might include shared access to income, common understanding of property, and rigid social structures, as discussed earlier. However, social
institutions do change and evolve in response to new technologies or interaction with new cultures. For example, mobile money may make it easier to transfer money from urban to rural areas, thus resulting in less reliance on community solidarity to manage risks and deal with emergencies.11 Understanding informal rules provides insight into what will work within a particular community (see box 1.13). Supporting Functions Supporting functions provide the resources, information, and services that shape financial market behavior and enable markets to grow, adapt, and succeed in changing circumstances. Weak supporting functions (and inappropriate rules) leave markets vulnerable, lacking the necessary depth to be sustainable and fit into a changing world. The composition and nature of supporting functions, and who provides them, vary from one context to another but are concerned generally with information and communication, capacity building, coordination, resource development, and innovation. All of these support
Box 1.13 Understanding Informal Rules through Financial Landscapes The methodology (and metaphor) of financial landscapes seeks to examine the path through which the poor access services in relation to the world around them, including, for example: • Spatial. How distance and ease of travel in locating providers affect access to services, taking into account settlement patterns and physical infrastructure • Historical. How past policies and approaches have shaped existing service provision and attitudes • Sociocultural. How social and personal networks develop in response to limited access • Economic. How patterns of income and expenditure shape the demand for services. This type of research seeks not only to throw light on the specific situations of households but also to examine how this affects financial service provision and access. In doing so, a more complete picture should emerge of both the core and the “informal rules” that have shaped its development. Source: Bouman and Hospes 1994.
The Evolving Financial Landscape
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