Applying a positive deviance approach to determine when rationally bounded borrowers derive benefit from consumer loans

Abstract

The question about how consumer lending benefits or harms society is unresolved. Significant strides have been made in terms of developing a rigorous methodology for assessing the benefits of microcredit using randomised control trials. This approach rules out the shortcomings of selection bias in earlier work. However, studies to date appear prone to anchoring bias associated with the intention of microfinance to eradicate poverty. In South Africa, the volatile socio-economic conditions (slow economic growth, high unemployment levels, heightened levels of labour unrest and high levels of inequality) emphasise the business need for studying the consumer lending market. Financial inclusion could play the role of aiding or harming South Africa s society. This research aimed to determine in what conditions rationally bounded borrowers find loans beneficial using an inductive approach. A two-phased research process was followed firstly, ten semi-structured interviews were conducted with a diverse group of key informants from government, industry, the media and regulators. Secondly, ten borrowers were interviewed and observed drawing on ethnographic research methods. Most of the interviews took place in the home of the respondent and where possible the researcher met the other members of the household. The sample of borrowers were potential positive deviants individuals that derive more benefit from consumer loans than their peers. The research uncovered sustained tension and ideological differences between stakeholders that results in incoherent policy and regulation and inadequate financial inclusion. The landscape is characterised by low levels of savings and a heavy reliance on loans. Borrowers in the sample were selected to participate in the research due to repeat borrowing patterns, yet many expressed a desire to stop or reduce borrowing. This saying-doing gap suggests that a structural and coordinated plan is needed if any behaviour change is likely amongst rationally bounded borrowers. A combination of restrictive regulation and positive incentives is proposed to encourage stakeholders to develop mutually beneficial strategies for achieving financial inclusion. The ability of stakeholders to develop coherence in this landscape will determine whether financial inclusion will make a positive contribution to South African society.