NB Financial Health
Training Africa’s ‘Micropreneurs’: Why effective microfinance requires more than just loans
Sub Saharan Africa is changing. In the midst of an entrepreneurship revolution, its countries now have more than twice as many startups as established businesses. Malawi – one of its poorest countries – is seeing an influx of “micropreneurs” whose small-scale ventures are helping to invigorate their communities, providing a sustainable means of breaking the poverty trap.
Microfinance, in enabling budding entrepreneurs to get their ventures off the ground, is vital in fuelling the micropreneur revolution, and for female entrepreneurs in Malawi, it’s a lifeline. While women are known to repay loans at a higher rate than men, female entrepreneurs face significant obstacles to accessing financial services like banking and credit. For these women, microfinance is only as effective as the training and mentorship that accompanies it.
But with high illiteracy and innumeracy levels amongst their clients, how can loan officers work effectively with the women micropreneur community in Malawi? As a microfinance charity serving women in Malawi and Zambia, it’s a question the MicroLoan Foundation (where I work as director of fundraising and marketing) has asked itself from the outset. Not only have just 6 percent of women aged 15-49 completed secondary education, many of the women we support live in remote locations where training must be conducted under the shade of a tree, rather than in the privacy of a classroom.
That’s why MicroLoan Foundation has developed tailored modules to cater to these circumstances, teaching our 30,000+ clients everything they need to know about topics like group dynamics, leadership, and how to calculate cost, revenue and profit.
Support groups for women interested in receiving loans and training typically have 12-20 members including a chairwoman, secretary and treasurer. Starting with the opening of a bank account and a savings plan, the group works to create long-term goals and understand cash flow.
Each group’s training programme aims to:
- Avoid excessive written information: Training programmes are participatory, using role-play, song, dance and pictures to make learning accessible to women without a formal education. Exercises are illustrated using the resources at hand, from tree leaves to pebbles.
- Involve the family: Husbands are encouraged to take an interest in the businesses and are invited to join a training meeting to understand how their wives are participating. This approach helps facilitate a supportive home environment for clients.
- Provide ongoing support: Women receive training before their first loan, covering subjects such as group solidarity, money management and understanding their rights and responsibilities. Every fortnight, groups receive more training, with eight learning modules completed over the course of four months.
- Meet objectives: Each hour-long training session is tailored to feature learning objectives that help achieve sustainable change for the group of women. During these training sessions, the treasurer collects each repayment from individual members of the group, to ensure that women use their business profits to make loan repayments.
- Address the challenges: The first and most vital repayment meeting covers group solidarity and how to handle different challenges. Our trainers encourage women to participate in role play activities demonstrating good and bad practices.
Developing and piloting training programmes has not been without challenge. Modules had to be of guaranteed relevance to clients’ lives, easily understood and actively applied. We went through a rigorous process of researching internal and external training best practices, writing the modules, forming a local training taskforce to provide feedback on the modules, piloting and amending the modules – and carrying out independent evaluations to test the quality of learning. Evaluation showed that those receiving the training are more confident in their abilities to carry out activities like creating a business plan, and that they have improved knowledge of how to calculate their business costs, for example.
It’s important to recognise microfinance’s limitations. It’s not the best solution for the ultra-poor, for example. For those who have not met their immediate needs, such as feeding their family, investing a loan in business is not feasible. In such cases, cash transfers may be more appropriate – small amounts of money given directly to households to help meet basic needs and provide basic training on income-generating activities. This approach can enable families to reach a point at which they are able to take a loan.
Microfinance organisations must remain very conscious of avoiding risk and protecting clients, and a client training programme plays an important part. Group supportiveness training ensures that when individual clients do face challenges such as illness in the family, the group gives long-term support, like helping the client to run her business while she is in the hospital. Enabling clients to work out their business costs and profits, and linking these to an appropriate loan size, ensures clients understand the loan must be tied to the business’ costs and profits – and that they shouldn’t just take the biggest loan they can.
Equally, organisations must openly communicate their terms, such as interest rates or repayment frequency. Loan officers must ensure that each client receives the right level of lending for her alone. Training must be provided in the local language, and each client should have her own passbook which clearly lays out what size loan she has taken, what interest she has to pay, how much each repayment is – and how much she should be saving.
Of course, microfinance is not a silver bullet. It needs to take place in a greater context of commitment to development: access to education, affordable health care, local infrastructure development and access to markets for entrepreneurs. It will not immediately create an influx of medium-sized businesses, but it’s important to view microfinance as the whole package of financial services. Rather than simply focusing on loans, we should talk instead of financial inclusion, whereby poor people have access to reliable, competitively priced services that meet their needs, whether these are savings, loans, insurance products, or remittance services.
The value of these services is seen over the medium to long term, in creating a sustainable pathway that enables women to help themselves. That’s why targeted loans, coupled with tailored training, can help Malawi’s micropreneurs to not only launch an initial venture, but to scale their businesses, creating additional streams of revenue that bring new opportunities and employment to families and entire communities.