Why Community Based Micro Financing Have Very High Recovery Rates, More Efficient Utilization of the Benefits, and Higher Conversion Tendencies of Beneficiary Into Donors: The Mediatory Role of Social Collateral and Gratitude As Emotional Collateral in Community Organizations of Pakistan

Abstract

There is an increasing role of community welfare organizations as well as NGOs and microfinance institutions in uplifting of poverty. These institutions lately gained financial sustainability as well as immense growth, thereby providing benefits to society from their own resources without relying upon financial support from government. This is mainly due to a very high recovery rate in community-based micro-financing, Efficient Utilization of the Benefits, and higher Conversion tendencies of Beneficiaries into Donors. In this case, it’s a win-win situation for both beneficiaries as well as NGOs in terms of NGOs improving their profile through Minimize risk of defaults, and society benefits from better utilization of the funds. Numerous studies have been conducted on the social and financial impact of community development programs on poor people's lives. The literature so far didn’t explain the psychological impact of these programs. We proposed a theoretical framework linking various religious, cultural, organizational and human factors of the beneficiary, to the efficient utilization of the benefit provided by community or NGO by the beneficiary and their potential conversion from the beneficiary to donor/benefits contributor. Religious factors include a prohibition of interest, group’s Shared believes, spirituality and believing that God would repay the good deeds. This will influence the beneficiary’s pro-social behaviors. Human Factors mainly focused on the sense of responsibility and Psychological attachment towards others. Cultural Factors and Value mainly focused on following societal and collective interests. These include collectivism, Uncertainty avoidance, and pro-social values. And lastly, Community Organization's ethical Image also plays a role in efficient utilization and prompt recovery. These Factors are inculcated in the beneficiary’s mind and motivate him to become donors/givers. The theory also proposed that these factors affect the beneficiary’s performance of the benefits provided by the community or NGO through collaterals. These collaterals could be in the form of: 1. Physical i.e. assets taken by the organization to ensure better utilization of loans or benefits. 2. Social in terms of peer/community pressure as well as the threat of withdrawal from the community, and 3. Emotional collateral in the form an arising the feeling of gratitude and paying back that emerge with someone provide favor to them. These collaterals not only ensure optimal utilization of benefits/loans with extremely high recovery rates but also encourage the beneficiary to convert into donors and providing helping hands to others. To empirically establish its validity, we apply this model to a sample size of 115 respondents that were selected from beneficiaries of three leading organizations by means of a close-ended questionnaire. The data was later analyzed using structural equation modeling and confirmatory factor analysis. The results clearly validated the theory that societal and collective culture and Religious Believes and Spirituality did not directly affect either Benefiter Performance, or the tendency of them to be Converted To Donor, but through the mediatory role of both gratitude (emotional) and social collateral. Culture and religion have a positive and significant effect on both forms of collaterals, moreover, emotional collateral significantly affects both performance and conversion to donors. However, Social collateral inversely and significantly affect conversion to donors and its effect on performance remained insignificant. Human factors and Organization's ethical Image didn’t seem to have any significant effect on performance and conversion directly or through the mediatory role of social and emotional collateral. With the exception that the organization’s image does effect benefiter performance significantly. Hence this implies that emotional collateral in the form of gratitude has a more pronounced effect on both performance and conversion as compared to social collateral. Moreover, cultural and religious factors are the dominating factors of performance and conversion as compared to human and organizational factors.