Cultural Aspects of Credit Institutions: Transplanting the Grameen Bank Credit Group Structure to the Pine Ridge Indian Reservation
Pickering, Kathleen, Mushinski, David W., Journal of Economic Issues
In recent decades, individuals involved in economic development have propounded the virtues of poverty alleviation through development of micro-enterprises. Increasing the access to credit of micro-entrepreneurs has been prominent in this "micro-enterprise revolution." Economists have generally focused on the market failures, like asymmetric information, that produce rationing of micro-entrepreneurs in credit markets and inhibit micro-enterprise growth (e.g., Stiglitz and Weiss 1981; Carter 1988). They have also analyzed how various non-market credit institutions alleviate the rationing arising from market failures (Besley 1995; Mushinski 1999).
The credit-group structure developed by the Grameen Bank in Bangladesh has been a popular non-market institutional form because of its high repayment rates. In light of its apparent success, it has been replicated throughout the world (Thomas 1995). The economics literature has generally sought to explain the success of the structure by analyzing how the various economic incentives created by it ease the market failures which produce credit rationing (e.g., Varian 1990; Stiglitz 1990; Besley and Coate 1995; and Conlin 1999). The early theoretical analyses seeking to explain the success of the structure have changed to a more critical analysis of its efficacy (e.g., Morduch 1999; Conning 1999). Concerns are also being raised that these loan funds do not result in any long-term change and that they do not work in the context of advanced industrialized nations (Singh and Wysham 1997).
The impact of the social and cultural environment into which the credit groups are introduced on the success of the groups has not generally been considered by 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 important to whether these groups succeed. Timothy W. Guinnane (1994) noted the importance of social factors when analyzing a credit co-operative institutional transplant. Further, the focus of Alexandra Bernasek and James Ronald Stanfield (1997) on the credit-group structure as a vehicle of social change suggests that these groups may have broader impacts 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 Grameen Bank credit group structure that produced mixed results. The Lakota Fund hoped to foster micro-enterprises on Pine Ridge with Grameen Bank credit groups. Initially, a number of credit groups formed and the economic incentives created by the structure appeared to be working (Mushinski and Pickering 1996). However, the Lakota Fund ultimately decided to terminate its credit-group program in favor of small, collateralized individual loans.
This paper analyzes the causes of the failure of the Grameen Bank credit-group structure to take hold in Pine Ridge.  The Lakota Fund experience suggests that a focus on the incentives created by an institutional form alone is not sufficient in determining whether an institutional transplant will be successful. While those incentives may work, the social and cultural environment into which an institution is introduced must also be considered. In the case of Pine Ridge, the impact of Lakota family ties, rules of behavior, and social organization generally posed serious challenges to credit groups deliberately structured to cross family lines.
The World-Wide Focus on Micro-Credit and the Pine Ridge Indian Reservation
In the 1980s individuals involved in economic development world-wide focused on fostering micro-enterprise activities by making credit available to micro-entrepreneurs. The prominence of micro-enterprise lending in development is reflected in the Microcredit Summit in Washington, D.C. in 1997 which was attended by leaders from around the world. The stated goal of the Summit was to ensure that 100 million of the world's poorest families receive micro-credit loans by the year 2005 (Christian Science Monitor 1997). …