The central hypothesis underpinning this paper is that much of the institutional fragility in poor villages results from a mismatch between oral and literate ways of managing collective information. Oral tools must be much more clearly understood -- and systematically applied -- if we are to really succeed in transferring the capacity to build institutions to rural villages.
‘Orality’ refers to the characteristic modes of thinking, speaking and managing information in societies where the technologies of literacy (especially writing and print) are unfamiliar to most of the population. It is a living domain where information is managed, decisions are made, trust earned (and lost) and legitimacy is conferred (see pp. 4-5). It is a profoundly different concept from 'illiteracy', and our failure to appreciate the difference has contributed to many poor practices in institution-building in developing countries.
Orality affects a huge population -- not just those who are formally illiterate but also those for whom literacy is not fully consolidated, and everyone else in communities dominated by oral populations. Many societies have maintained a comfortable equilibrium between a small literate population and an illiterate majority for thousands of years. The case for orality – and against literacy -- was strongly advanced by Socrates and Thomas Aquinas, among others. Even today, the oral village is adapted well to the needs of its people, offering illiterate adults few compelling reasons to change.
Understanding orality does not mean supporting its perpetuation or romanticizing it. It means helping users of local institutions to learn and grow as leaders, as entrepreneurs and as agents in their own development even before they acquire literacy. The incentive to change increases, transaction by transaction, in ways that feel positive, practical and relevant to poor people’s needs. Village financial institutions (VFIs) such as credit cooperatives, self-help groups, ASCAs and village banks, have been plagued by a long history of failure in the developing world. Much of this failure results from elite capture, which in turn results from a toxic combination of external capital injections and a fundamental difference in views between literate and traditional oral communities about what institutions are, and how to manage them.
With orality in their blind spot, literate people and institutions promoting VFIs frequently stumble. Text-based systems of information management and control can be easily tampered with by literate elites, and are distrusted – based on much bitter experience -- by most villagers. This deprives the institution of the transparency and legitimacy needed to ensure accountability and to gradually earn, and subsequently maintain, public trust. The use of text-based information systems in oral villages is not the only source reason of institutional weakness and failure, but a key lesson of development practice to date is that it is a critically important one.
Oral governance tools can be integrated into the retail interface while using text at regional and national levels, as governance needs and human capacities warrant (see p. 11). Oral tools can also be very valuable in reducing the tendency of poorer people to 'select themselves out': to hide their savings at home or keep using the village moneylender due to discomfort with text.
Based on a transaction cost economics framework, Section 2 argues that market failure will naturally occur in the oral village in the cases of 3 microfinance products: demand deposits, term deposits and longer-term capital loans (> 1 year) unless there is a trusted institution available in the village to deliver them. Centralized MFIs have not overcome this failure, citing high costs of product delivery and trouble enforcing contracts in remote areas. Most don’t offer loans of the sort that farmers need (>1 year, seasonal repayment cycles). VFIs are the only institutions with the cost structures and enforcement advantages at the village level to sustainably overcome this market failure.
Therefore, this paper classifies 'oral governance tools' by the types of governance risks and costs they can reduce. Most tools offer practical bridges to either literacy or numeracy, or both, and include those:
underpinning the elegant, efficient financial intermediation of ROSCAs (action research and collective memory),
studied in diverse modern settings by experts in communications and crosscultural literacies (row/column syntax, story, song, formula, scribes etc.),
developed in ancient oral cultures (public display, mnemonics, ‘memory palace’, symbol etc.), and
that can simply be used better (cash box, ballot box, information technology and most of the above).
Section 3 classifies oral governance tools by the types of transaction costs they reduce, and illustrates the diversity of such tools already in use. There is a vital need to test and refine oral governance tools that could help to strengthen the institutional performance of village financial institutions. The integration of more appropriate information management tools into VFIs should improve their ability to earn and keep local trust, and to set and achieve more ambitious financial and business goals. A more methodical and systematic approach to testing and refining such tools could yield important dividends in rural microfinance, and more broadly in rural institution-building.
As different tools prove their relative efficacy in the field, it will become increasingly valuable to test migration onto technology platforms including mobile phones, low-cost laptops etc.