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Entrepreneur: Tifa Efendic © CARE/Jon Spaull |
All microfinance is not the same
Rather, there is huge diversity in the types of microfinance institutions (MFIs) that provide financial services for low-income people. As Larry Reed writes “… by 2011, more than 3,600 institutions reported providing loans to 205 million people. These institutions ranged from small, village-based savings and loan groups in rural West Africa to banks in Latin America valued at more than a billion dollars”. Since MFIs have differing methodologies and objectives, the impact of microfinance will also vary according to how financial services are provided and whether or not clients receive other non-financial services and support.
Lendwithcare partners with MFIs that generally provide a range of other financial services, such as savings, money transfer, and insurance as well training, in addition to microcredit. I have just returned from visiting the microcredit foundation Zene za Zene (‘Women for Women; in the local language, often abbreviated to just ZZI) in Bosnia and Herzegovina. ZZI considers that in the Bosnian context women are poor or disadvantaged for a number of reasons (including their lack of business skills, lower levels of education and lack of information) and that simply providing them with capital in many cases will not be sufficient. Therefore, ZZI also imparts training – it has already provided vocational training to more than forty thousand women through year long courses that include components relating to legal rights, entrepreneurship, leadership, health, and marketing as well as short-term more specific course that focus on developing practical skills in areas such as vegetable production in greenhouses, collecting medicinal herbs, weaving, embroidery and knitting (high quality scarves that women have produced have even been exported and sold abroad at for example the American retailer Kate Spade).
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The training has proved very popular and often participants, particularly younger women, request ZZI to provide additional courses in topics such as bookkeeping, information technology and English - skills they consider might assist them to develop their businesses or even find salaried employment.
Having completed the training, many of the women apply for loans from ZZI to start new or develop existing businesses. In some instances, the women who attended the training together have formed local community development associations. The associations have been used by the women to collectively negotiate with local municipalities on issues such as more regular rubbish collection and improving village water supplies. Indeed, some women have even used the associations to collectively market their agricultural products.
With such positive impacts, why is the provision of training not more widespread amongst microfinance organisations? For a start, many MFIs have decided to focus exclusively on becoming specialist financial intermediaries rather than trying to also perfect the different set of skills required by effective training organisations. However, perhaps the main reason is that training can be quite costly, particularly for MFIs who are keen to keep administrative costs, and hence interest rate charges, to the minimum. One example is lendwithcare’s partner in Ecuador, Fundacion de Apoyo Comunitario del Ecuador, which used to provide quite extensive training to women microentrepreneurs, particularly first time borrowers. Still primarily concerned with social development and registered as a non-profit organisation, the Fundacion decided instead to focus its non-credit activities on raising awareness on issues such as sexual and reproductive health, domestic violence, and, of particular importance to its many borrowers who are farmers, the importance of wearing protective clothing when applying fertilisers and pesticides. It has found that the impact of such awareness raising can be also be significant and much cheaper to deliver than training.
By Microfinance Advisor, Ajaz Ahmed Khan
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