Cultural Aspects of Credit Institutions: Transplanting the Grameen Bank Credit Group
Structure to the Pine Ridge Indian Reservation
Author(s): Kathleen Pickering and David W. Mushinski
Source: Journal of Economic Issues, Vol. 35, No. 2 (Jun., 2001), pp. 459-467
Published by: Association for Evolutionary Economics
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J
eI
JOURNALOF ECONOMIC
ISSUES
Vol. XXXV
No. 2
June 2001
Cultural Aspects of Credit Institutions: Transplanting
the Grameen Bank Credit Group Structure to the Pine
Ridge Indian Reservation
Kathleen Pickering
and
David W.Mushinski
In recentdecades,individualsinvolved in economic developmenthave propoundedthe
virtuesof povertyalleviationthroughdevelopmentof micro-enterprises.Increasingthe
access to credit of micro-entrepreneurshas been prominentin this "micro-enterprise
revolution."Economistshave generallyfocused on the marketfailures,like asymmetric information,that produce rationingof micro-entrepreneursin credit marketsand
inhibitmicro-enterprisegrowth(e.g., Stiglitz andWeiss 1981;Carter1988). They have
also analyzedhow variousnon-marketcreditinstitutionsalleviatethe rationingarising
from marketfailures(Besley 1995; Mushinski 1999).
The credit-groupstructuredeveloped by the GrameenBank in Bangladesh has
been a popularnon-marketinstitutionalform because of its high repaymentrates. In
light of its apparentsuccess, it has been replicated throughoutthe world (Thomas
1995). The economics literaturehas generally sought to explain the success of the
structureby analyzinghow the variouseconomic incentives createdby it ease the market failures which produce credit rationing (e.g., Varian 1990; Stiglitz 1990; Besley
and Coate 1995; and Conlin 1999). The early theoreticalanalyses seeking to explain
the success of the structurehave changed to a more critical analysis of its efficacy
(e.g., Morduch 1999; Conning 1999). Concerns are also being raised that these loan
Theauthorsare AssistantProfessor ofAnthropologyandAssistantProfessor of Economics, ColoradoState
University, USA. This research was supported by a Colorado State UniversityFaculty Research Grant,
National Science Foundation Dissertation Improvement Grant no. SBR-9221383, and Wenner-Gren
Predoctoral Small Grantno. 5473. Thispaper was presented at the annual meeting of the Associationfor
EvolutionaryEconomics,New Orleans,La., USA,January 5-7, 2001.
459
460
KathleenPickering and David W.Mushinski
funds do not resultin any long-termchange and thatthey do not work in the context of
advancedindustrializednations (Singh and Wysham 1997).
The impactof the social and culturalenvironmentinto which the creditgroupsare
introducedon the success of the groups has not generally been consideredby economists. The writings of J. R. Stanfield(1986) and Anne Mayhew (1987), among others,
on the impact of culture on economic outcomes suggest that culture is importantto
whetherthese groups succeed. TimothyW. Guinnane(1994) noted the importanceof
social factors when analyzing a credit co-operative institutionaltransplant.Further,
the focus of Alexandra Bernasek and James Ronald Stanfield (1997) on the
credit-groupstructureas a vehicle of social change suggests that these groups may
have broaderimpacts than simply access to credit.
The Lakota Fund on the Pine Ridge Indian Reservation in South Dakota is an
example of an adoption of the GrameenBank credit group structurethat produced
mixed results. The LakotaFundhoped to foster micro-enterpriseson Pine Ridge with
GrameenBank credit groups.Initially, a numberof credit groupsformedand the economic incentives created by the structureappearedto be working (Mushinski and
Pickering 1996). However, the Lakota Fund ultimately decided to terminate its
credit-groupprogramin favor of small, collateralizedindividualloans.
This paper analyzes the causes of the failure of the GrameenBank credit-group
structureto take hold in Pine Ridge.' The Lakota Fund experience suggests that a
focus on the incentives createdby an institutionalform alone is not sufficient in determining whether an institutionaltransplantwill be successful. While those incentives
may work, the social and culturalenvironmentinto which an institutionis introduced
must also be considered. In the case of Pine Ridge, the impact of Lakotafamily ties,
rules of behavior,and social organizationgenerallyposed serious challenges to credit
groups deliberatelystructuredto cross family lines.
The World-WideFocus on Micro-Creditand the Pine Ridge Indian Reservation
In the 1980s individualsinvolved in economic developmentworld-wide focused
on fostering micro-enterpriseactivities by making credit available to micro-entrepreneurs. The prominenceof micro-enterpriselending in developmentis reflected in the
MicrocreditSummitin Washington,D.C. in 1997 which was attendedby leadersfrom
aroundthe world. The statedgoal of the Summitwas to ensurethat 100 million of the
world's poorest families receive micro-creditloans by the year 2005 (ChristianScience Monitor 1997).
The credit-groupstructuredeveloped by the GrameenBank was prominentin this
focus on lending to the poor. The structurecontaineda variety of characteristicsrelevant to repaymentrates, such as not imposing collateralrequirementson participants.2
The economic incentives createdby the credit groups includedjoint liability among
group members, peer pressure, loan disbursementdepending on repayment of all
CulturalAspects of CreditInstitutions:ThePine Ridge Indian Reservation 461
members and sequential lending so that not all members received loans simultaneously. Otherpertinentcharacteristicswere all group membersbeing from the same
community and group membersnot being relatives.
The LakotaFundwas createdin 1986 to assist the micro-entrepreneurswho were
prevalenton the Pine Ridge Reservation(the Reservation).The Reservationis located
in a pocket of persistentpoverty within the southwesternedge of South Dakota. The
Reservationhas consistently high unemploymentrates,rangingfrom 70 to 85 percent
over the last fifteen years. As a result of early governmentalpolicies, fewer than 5 percent of households in Pine Ridge engage in agriculturalproduction.Attemptsto bring
factorywork to the Reservationhave also been unsuccessful (DeMallie 1978). Almost
50 percent of households receive some form of public assistance (Pickering 2000b).
The level of cash activity on the Reservationis also low, with a per capita income in
1989 of $3,115 (US Census 1993).
As a result of the weaknesses in the formal economy on Pine Ridge, households
have engaged in a variety of micro-enterpriseactivities (Pickering 2000a, 46-57). It
has been estimated that 83 percent of the households in Pine Ridge undertakesuch
activities (Sherman 1988). In general, access to formal credit on the Reservationhas
been limited (Mushinskiand Pickering 1996). There areno banks on the Reservation.
Furthermore,despite the fact that most Reservation residents own plots of allotted
land, banks are reluctantto accept those lands as collateralbecause the lands are held
in trustby the federal government.
Initially, the Lakota Fund made small, uncollateralizedloans. It terminatedthat
loan programbecause of low repaymentrates. In 1988, a staff and board memberof
the Lakota Fund traveled to Bangladesh to observe the GrameenBank. The Lakota
Fundsubsequentlyimplementedits Circle BankingProject,which virtuallyreplicated
the characteristicsof the GrameenBank credit group structure.Figure 1 identifies the
numberof creditcircles formedover the existence of the project.After a slow start,the
Circle Banking Project peaked around 1993, with eleven active circles in place, and
then graduallydeclined until the projectwas terminatedin 1998.
Over the course of time, the LakotaFundalteredits initial groupstructureto meet
local needs. After participantscomplainedthatthe exclusion of family membersfrom
circles contradictedlocal concepts of families working together, in 1994 the Lakota
Fund allowed some, but not all, groupmembersto be relatives. Initially, groupmembers had to meet every otherweek. Because these meetings were viewed as onerousby
many circle participants,the policy was changed in 1994 to allow circles to meet
monthly afterone year of successful repayment.The credit-groupstructureeffectively
ended in 1996 when, because of discomfort with the notion of joint liability, the
LakotaFund allowed groupsto form where each memberpledged collateralto secure
their own loan, without liability for the loans of other members.
Interviews of credit group members in 1992 suggested that the economic incentives created by the credit-groupstructurewere working (Mushinski and Pickering
1996). Further,many group members indicated then and still say that they liked the
462
KathleenPickering and David W.Mushinski
Figure1. Numberof CreditCirclesover Time,CircleBankingProject
46.
creditgroupsbecausethe groupsallowedthemto becomefamiliarwith individuals
outsideof theirfamily.Despitethesechangesto andpositiveattributesof the Circle
circlesled to formalterBankingProject,thedifficultiesof formingandmaintaining
minationof theprojectin 1998.
Cultural and Socio-Economic Factors Affecting the Circle Banking Project
Theculturalhistoryof theLakotapeopleon PineRidgemayexplainwhy Circle
Lakotasocietyreflectsa complexblending
Bankingfailedto takehold.Contemporary
institutionsimposed
and
Lakota
of traditional
concepts practiceswithinmainstream
and
broader
the
federal
society
(Pickering2000a).
on theReservationby
government
orextendedfamwas
built
around
the
idea
of
tiyospayes,
Lakota
society
Traditionally,
and
social
structurefor
the
economic,
religious,
that
functioned
as
political,
ily units
armed
a
of
treaty
negotiation,
eachcommunity(Walker1982,3-8). Through process
was
the
Band
of
the
Lakota
Nation
ultimately
and
acts, Oglala
conflict, Congressional
policies historicallywere
settledon the currentReservation.Federalgovernmental
Lakota
communalism
of
societywithindividualisdirectedatreplacingthetraditional
CulturalAspects of CreditInstitutions:ThePine Ridge Indian Reservation 463
tic nuclear families. Despite those policies, many communities on the Reservation
were settled by the membersof traditionaltiyospayes.3
The role of the family in Lakota culture has several implications for providing
credit throughGrameenBank groups. In contrastto the GrameenBank requirement
that groupsbe composed of unrelatedmembers,traditionalLakotaconcepts of family
made groups composed of family members more likely to be effective in providing
creditthroughgroups.Despite attemptsto assimilatethe Lakotainto Americanmodes
of thought,Lakotaconcepts of family continue to permeatedaily life and continueto
be the naturalorganizingprinciple for many households in Pine Ridge. In relationto
economic enterprises,people express the desire to work together with family members. Further,througha series of historic abuses from federal and tribalgovernments
and the burdenof strugglingunder conditions of extreme poverty, many people discuss the difficulty of trustingpeople at all, but particularlythose who are outside of
one's family.
TraditionalLakota concepts of family would be expected to strengthenthe economic incentives createdby credit groups. Within the family, elders instructyounger
individuals on the proper rules of conduct and reprimandthem for breaches of etiquette.These traditionalfamily relationshipsmake loan repaymentmore likely among
family members. Further,in the event that a family member defaults, it is easier to
repay for a family memberwithin the broaderenvironmentof generalizedreciprocity
and obligations of mutualsupportfoundwithin a family. Finally, the strengthof families makes it harderfor a defaultingmemberto avoid relatives in the case of default.
The insularity of families also makes it easier for unrelatedmembers to avoid each
other, making repaymentmore difficult in the event of default.
Every culture has unspoken rules about what constitutes acceptable behavior
within the society. Outside the family, the strong Lakota respect for individualism
means it is bad form to tell anotherperson what to do or to confrontthem publicly for
perceived wrongdoing. These prohibitionsagainst confrontationswith non-relatives
had several implicationsfor Circle Banking. In the orientationsessions and meetings,
individualswere often forced to shareextremelypersonalinformation,not only about
their business but about their family life as well.
The type of self-promotionand oral aggressive behavior that is associated with
marketingin the mainstreamsociety is problematicfor many Lakotapeople.4Because
of the value placed on self-reliance and avoiding confrontation,the typical Lakota
response to having business problems was to avoid group members until a solution
could be reached. This ran directly counter to the purpose of bi-weekly meetings at
which business problems and loan repaymentwere to be discussed. Given the intense
negative feelings associated with admittingshortcomingsin public in front of people
outside your family, one could argue that the peer pressureamong non-family members in Pine Ridge was actually too strongto make Circle Banking work.
The informationpossessed by family members about each other may also affect
the impact of peer pressure on the functioning of groups. Because family members
464
KathleenPickering and David W.Mushinski
have better informationabout each other's circumstances,they arguablycould better
assess when a given family memberhas achieved a bad economic outcome throughno
fault of her own and adjustthe amountof peer pressureimposed accordingly.In contrast,non-family membersmay impose the same sanction for all bad outcomes since
they possess limited informationon the underlyingcause of non-payment.
One of the ongoing difficulties for the Circle Banking Projectwas the continuation of circles. Distrustwas regularlymentioned as a barrierto acceptingjoint liability. Once a group made it throughthe intensive orientationprocess, however, group
members often created a bond that resulted in a positive working relationship.This
process may have been a surrogatefor the hunkaritual,by which outsidersare ceremonially adopted into the family and take on the rights and obligations of a relative
(Walker 1982, 63). After the successful bonding of a circle, groupmembersovercame
traditionaldistrustof outsiders and functioned in the way the GrameenBank model
anticipated.Thus, the credit groups appearedto be acting as vehicles of social change
(Bernasekand Stanfield 1997).
Because of the difficulty in bonding with unrelatedgroupmembers,it was generally devastatingto a groupto have a groupmemberleave. A variety of factorsassociatedwith conditionsof povertymade losing a groupmemberlikely, however. Because
of the lack of local wage work opportunities,there is high mobility in Pine Ridge as
people move to cities for work (Pickering 2000b). Furthermore,people engage in a
flexible mixture of income-producingactivities, to which micro-enterpriseis generally supplemental. When members are able to get local wage work or need more
income than the micro-enterpriseis providing, they leave their micro-enterpriseand
concentrateon other areas of economic activity. The economic vulnerabilityof the
entire community also often forces people to leave their micro-enterpriseactivity to
help with child care, elder care, or ritualand social obligations of the family.
While cultural considerations are critical in understanding how the Circle
Banking Project functioned in Pine Ridge, other socio-economic conditions on the
Reservation inevitably played a role in the success of the project. For example, the
high percentageof households relying on some form of public assistance raised concerns among circle members that they would lose benefits if their micro-enterprise
activity was discovered or became so large that they lost their eligibility for public
assistance.Further,the simple logistics of engaging in micro-enterpriseactivity in this
extremely isolated ruralarea (like transportation,finding a market,or locating supplies) were complicated.
Finally, the peak of Circle Banking may have coincided with the beginning of a
new source of credit for low income households on the Reservation.In 1996, the federal governmentpassed legislation directing that all forms of federal payments that
were currentlybeing made by paperchecks be changedto electronicfundstransfersby
January 1, 1999 (Adamson 1997). As a result, recipients of SupplementalSecurity
Income (SSI) and Social Security checks had to have a bank account into which their
CulturalAspects of CreditInstitutions:ThePine Ridge IndianReservation 465
monthlybenefits would be directlydeposited. Several of the formercircle participants
mentioned using these direct deposits as collateral for small loans of up to $1,000.
Conclusion
This paper has highlighted the importanceof cultural factors in the success of
institutionaltransplantslike the introductionof the GrameenBank credit groupstructure outside of Bangladesh. While the economic incentives typically analyzed in the
economics literaturewere present in the circles, the social and culturalcontext into
which the circles were introducedwere importantelements in the inability of the Circle Banking Projectto take hold on the Reservation.For example, the GrameenBank
focuses on drawing members from the same physical community, presumably
because the economic incentives createdby the groups will be strongestamong such
individuals. Our analysis indicates that the relevant community depends on the relationships implicit in the culture into which the groups are introduced.In the case of
Pine Ridge, the relevant communitywas the tiyospaye. Our paper also supplements
Udry's (1990) analysis of informal credit markets in Northern Nigeria, where he
observedthatkinshipunits can be importantfor the functioningof those markets.Our
study implies that kinship units can also be importantfor the effective replicationof
credit institutions. Our analysis also suggests that the peer pressurearising from the
credit-groupstructurecannot be too strong. Culturalaversions to face-to-face confrontationsmay preventnon-familymembersfromjoining groupsin the firstinstance.
Of course, the inability of the credit-groupstructureto thrive on the Reservation
does not mean thatthe creditgroupswere a failure.Many formercircle membersinterviewed after the end of Circle Banking were still involved in their micro-enterprises.
The vast majorityspoke of Circle Banking with greatfondness and several expressed
the wish that Circle Banking would be revived. This seemed to be tied less to the economics of Circle Banking loans and more to the extended social network of support
that was createdthroughthe formationof circles.
Notes
1.
2.
3.
4.
This analysis is based on interviewswith thirtyCircle Bankingmembersin 1992 and interviews with twenty of those same membersin 1999. In the interim,two of the originalmembers interviewedpassed away.
See Hossain 1988, 25-27, for a descriptionof the credit groups.
Hereafter,the termfamily will be synonymouswith tiyospaye.
Guinnane1994, 56, makesthis pointwhen contrastingthe efficacy of certaincreditco-operatives in Germanyand Ireland.
466
KathleenPickering and David W.Mushinski
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