Teaching Microcredit: overcome Eurocentric perspective in development education

Teaching Microcredit

6. How do humans operate?

The Psychology of poverty

Authors: Peter Futo, Marton Gosztonyi, Mehdi Hasan

Poverty and psychological well-being: causes and effects. Poverty and human psychological condition have a dual relationship. Poverty may have a detrimental impact on psychological well-being and mental health. At the same time, a person’s limited endowment of psychological resources may reduce a person’s capability to find and keep a job, to attain an education degree, and consequently may increase the probability of the person falling into poverty. The above impact mechanisms may lead to the perpetuation of poverty in a particular group.

The consequences of mistakes made in the household management. Mistakes made in household budget matter much more for the poor. Any mistake in estimating the ability to pay upcoming expenses, such as loan repayments, could result in being late or defaulting on a loan, thereby jeopardizing a person’s ability to borrow affordably. If even one unforeseen event occurs, such as an income-earning member of the household suddenly becoming injured, a child may not be able to continue his education or a mother may not be able to buy enough food for her family.

Interaction between poverty and human competitiveness. It would be unfair to simplify the causes of poverty and to think that people are poor because their human capabilities are weaker. Scientific investigations have supported the thesis that poverty may harm to cognitive performance, and the average person trapped in scarcity may lose about 30-40% of his/her everyday performance and productivity. People hit by poverty are liable to make worse decisions and to apply less thoughtful decision-making patterns in everyday situations. Poor people have a disadvantage in finding employment, in managing their time, or in handling their financial situation (e.g. savings and credit).

Psychological and social aspects of microcredit. It has been shown that access to financial services provides clients not only an opportunity to improve their financial condition, but also it impacts positively the borrower’s mental health and emotional well-being. Many microcredit programs operate on a group-based system that creates an exchange of knowledge and support between members. The resulting strengthening of the social network may improve the mental health of participants, may create a social safety net in case of inability to pay, and may provide emotional support in case of failure of their entrepreneurial projects. In case of group lending the resulting group pressure may function as a kind of guarantee of repayment, but microcredit institutions should avoid excessive social pressure on borrowers. In extreme cases group lending may create enormous amount of tension and hostility if someone is unable to pay the debt and other members of the group have guaranteed his loan. In the Grameen microcredit model most borrowers are women: their access to credit may cause some tensions or conflicts in the households of patriarchal societies, where habitually men may control how loan moneys are used.

Impacts of short-term thinking. Decisions of poor people often have an impact on programs related to microfinance. Training programs which are launched for low-income families often struggle with the ongoing problem that the beneficiaries don’t show up on training courses or they do not want to apply for them. Microfinance programs frequently report that low-income families do not apply for credit from the microfinance organization, but they rather take less favorable loans such as usury, in order to pay their bills or finance their daily livelihoods. Those who live in a constant scarcity are forced to make short-term decisions in order to be able to feed their family or to heat the house today. Therefore frequently they cannot interpret or appreciate the long-term benefits of a microcredit programme. The social benefits of microfinance programs can be improved if their designers take into consideration the above constraints of poor people.

Discussion points:

  • Did you ever take responsibility for some other person’s behavior? And who took / would have taken responsibility for you?
  • Give an example for short term thinking in your immediate environment.


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