Models of Microcredit Delivery and Social Norm

Models of microcredit delivery have evolved considerably in Bangladesh since their inception in the mid-1970s. An important feature of this evolution is the gradual dilution of the disciplinary devices as well as incentive mechanisms that the MFIs used to employ in order to ensure regular repayment. An interesting conundrum of the current scenario is that despite the dilution of the erstwhile regime, repayment performance remains as strong as ever. This paper tries to investigate this conundrum, using borrowers’ own perception of the evolving system, solicited through specially designed household surveys. Our findings suggest that the repayment performance has remained high mainly as a result of the emergence of a social norm in which people have come to accept that loans are meant to be repaid. This is a complete reversal of the earlier perception that loans, especially government loans, did not have to be repaid because eventually such loans would be written off. It can be argued, however, that this metamorphosis of social norm is by no means serendipitous; rather it owes itself to the sustained use of the disciplinary as well as incentive devices employed by the MFIs over the years. It is precisely because of the sustained use of these devices over many years that poor people have gradually formed the habit of regular repayment; and once a sufficiently large number of people acquired this habit, the erstwhile social norm of non-repayment was quickly replaced by the norm of repayment. With the emergence of the new norm, many of the devices traditionally employed by the MFIs to ensure regular repayment are becoming increasingly redundant, having served their historical purpose