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Inhibitors to Success: Education

Guest post by: Grameen Foundation

Article Overview: The third critical factor that prevents some borrowers from sustaining a successful business is lack of education. Most borrowers of microfinance are incurring debt and operating a business for the first time.

Inhibitors to Success: Education

The third critical factor that prevents some borrowers from sustaining a successful
business is lack of education. Most borrowers of microfinance are incurring debt and operating a
business for the first time. And, as we know, the responsibilities that go along with these two
endeavors are great. It requires understanding the fundamentals of credit and how to manage a
complex business. Without the appropriate support and education, a borrower can find herself
unable to manage a growing business, which can contribute to backsliding into poverty and/or
defaulting on a loan. Providing adult literacy and/or financial literacy modules to microfinance
clients can therefore represent a long-term investment in the well-being of the client and the MFI
that serves them, even if it increases costs in the short run. In addition, facilitating higher
educational attainment among clients’ children, arguably a more cost-effective and realistic goal
in most cases, can help ensure that at least one household member involved with the family
business is literate, and that a wage-earning offspring is available to support a client when they
reach old age.
Because these three factors, among others, are key impediments to a borrower’s success
in the microfinance context, it only makes sense that microfinance incorporates some prevention
and mitigation measures into its business model. Improving the health of clients as well as
helping the poor to prevent and/or respond more effectively to these inhibiting factors can
contribute to sustainability at both the client level and the institution level. A healthy client is
more capable of managing her business and generating income for her family. This income
generation translates to an increased ability to make payments on the microfinance loan. This
improved repayment should benefit the lender as much as it does the borrower – leading to a
cycle of economic strength for both.

Microfinance: A Platform for Social Change
by Marge Magner
March 2007
Grameen Foundation

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Article Tags: adult literacy, borrowers, critical factor, defaulting on a loan, economic strength, educational attainment, family business, financial literacy, household member, impediments, income generation, institution level, lack of education, long term investment, marge magner, mfi, microfinance clients, mitigation measures, prevention and mitigation, realistic goal



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