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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Grameen Foundation
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Grameen Foundation's mission is to empower
the world's poorest people to lift
themselves out of poverty with dignity
through access to financial services and
to information.
With tiny loans, financial services and
technology, we help the poor, mostly
women, start self-sustaining businesses to
escape poverty. Founded in 1997 by a group
of friends who were inspired by the work
of Grameen Bank in Bangladesh, our global
network of microfinance partners reaches
over 3.6 million families in 25 countries.
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