NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

‘Microfinance’ today is a broad-reaching concept that has grown and matured in a multitude of ways since being first pioneered. MicroLoan Foundation fits very much at the social end of the microfinance spectrum; while we aim to deliver our services in an efficient, professional manner, our mission is ultimately the reduction of poverty in disadvantaged communities and countries.

MicroLoan Foundation has been making small loans, accompanied by business training, for more than ten years now, and for a number of reasons, we have only ever targeted these services to women:

• Empowerment. We believe that to help people work their way out of poverty, those people should be empowered. Today, women and girls still account for a sixth of the world’s poorest people and two thirds of the world’s illiterate people (UNDP; 2011). However, where women DO have equal opportunities and rights, economic growth improves and poverty falls quicker for everyone. MicroLoan Foundation’s focus on redressing that balance is a necessary condition for tackling poverty in Malawi and Zambia, the two countries in which we operate.

• Children. Generally speaking, where women have a bigger influence in the household, or are responsible for earning a larger proportion of household income, children do better: they eat better, they go to school more, they learn more. A study in Malawi, for example, showed that not only did food security improve when household income went up, but the proportion of income controlled by women had a significant effect on household calorie intake (Kennedy & Peters; 1992).

• Risk. MicroLoan Foundation aims to support as many women as possible through the provision of loans and training in Malawi and Zambia, and to continue to do this sustainably. But as a lending business, it’s important that we get the loans paid back. In the microfinance world, women have proven to be a very reliable credit risk; a study of microfinance institutions in 70 countries confirmed that those lending to more women had lower portfolio risk and fewer write-offs (D’Espallier, Guerin, Mersland; 2011). Higher portfolio quality means we’re more efficient and can make better use of donated funds.

But even with these factors in mind, it’s not as simple as just lending money to poor, rural women, then sitting back and watching it work.

Our loans are always used for investment in small business, ranging from a start-up business simply selling tomatoes at the local market, to larger operations such as tea rooms and bicycle repair shops. But given the levels of literacy, business skills and experience of a typical client, we deliver each client a series of training modules to ensure the loan is successful.

Of course, there were a number of stumbling blocks for us during the development of these modules – not least of which the fact that our clients are frequently illiterate and innumerate. Beyond that, they live in remote locations where training must be conducted under the shade of a tree, rather than in the privacy of a classroom. They’re also family members with husbands or children, or parents to consider when they embark on the foreign concept and experience of starting a business.

That’s why MicroLoan Foundation developed tailored modules – on the likes of group dynamics, leadership, and calculating cost, revenue and profit – designed specifically for these circumstances. We’ve avoided written information and instead use role-play, song, dance and pictures. We use the resources at hand – tree leaves or pebbles – to aid the many exercises, and we invite the family; husbands are welcome to join the training and will even come in their partner’s place should she be otherwise engaged.

It took a long time to develop and pilot the training modules before they were rolled out to all our branches in Malawi and Zambia so we could begin to deliver them to our 27,000+ clients. Our monitoring and evaluation work has demonstrated that those clients who have received the training have shown significantly better levels of understanding of the subjects and ideas covered.

MicroLoan Foundation is always looking to do more, so we are currently working on the development of further training modules to complement the existing course. We hope also to cover issues such as health and family planning with our clients in the future. During 2014, funding permitting, we will expand into the Southern Province in Zambia and continue to grow further in Malawi, making our loans and training available to many more women.

Mike Warmington is head of operations at the MicroLoan Foundation.