Inhibitors to Success
Inhibitors to Success
From accessing funding to managing the disbursement and collection of funds, microfinance
operates like any consumer finance business. But because microfinance serves a very different
client segment – the world’s poor – we cannot ignore the different set of challenges these clients
face and the implications these challenges have on the organizations serving them. Unlike
customers of mainstream consumer finance, who tend to be middle class and live in relatively
stable environments, microfinance customers live under more dire circumstances and contend
with a different set of factors, such as poor health, lack of education and access to basic
necessities, and unexpected threats such as natural disasters that endanger their everyday lives.
Because these factors are so entrenched in their lives, we cannot ignore their influence on an
individual’s economic ability to access, use and repay a microfinance loan.
Clients may be able to gain access to microfinance and may even start a business, but they
may be unable to convert this credit into sustainable income. According to one study of three
large MFIs in Bangladesh, approximately 5 percent of microfinance program participants lift
their families out of poverty each year.8* This finding of impact in particular does bring to our
attention that microfinance does not result in overnight success for many clients; with current
product offerings and costs, progress for most clients appears steady, but slow. In the current
models being used, a certain percentage of clients are never able to generate sufficient profits to
completely escape poverty or even to improve their conditions at the margins. An alarmingly
high percentage drop out (5-30 percent annually in many cases) and many ultra-poor families
never join in the first place (i.e., they self-select out).9 According to some studies, it takes 5 to10
years for a poor client to work her way up above the poverty line, and even longer before she has
sufficient productive assets to function independently from the microcredit institution (although
continued participation with an MFI is not necessarily an indicator of failure on the part of the
client or MFI, and in fact may be correlated with the success of both, in the sense that it may be that many formerly poor clients continue to have robust investment opportunities and the MFI
has products that are relevant to those opportunities).
What are the factors that hold back microfinance clients from overcoming poverty more
quickly than is currently the case? In other words, why do some people move out of poverty and
others fail to do so or make progress slowly – even though both participate in a microfinance
program? In assessing the research and speaking with numerous practitioners, we identified three
elements that diminish microfinance participants’ chances for being successful in a program:
poor health, natural disasters, and lack of education. Because the poor live in a state where even
the smallest misfortunes threaten their survival, these three elements are critical factors in
determining the performance of their loans, their progress out of poverty or lack thereof, and
ultimately the long-term sustainability and profitability of the MFI.
Microfinance: A Platform for Social Change
by Marge Magner
March 2007
Grameen Foundation
Inhibitors to Success - To learn more about this author, visit Grameen Foundation's Website.
Like this article? Share it with your friends
At its core, microfinance is not terribly different from mainstream consumer finance.
From accessing funding to managing the disbursement and collection of funds, microfinance
operates like any consumer finance business. But because microfinance serves a very different
client segment – the world’s poor – we cannot ignore the different set of challenges these clients
face and the implications these challenges have on the organizations serving them. Unlike
customers of mainstream consumer finance, who tend to be middle class and live in relatively
stable environments, microfinance customers live under more dire circumstances and contend
with a different set of factors, such as poor health, lack of education and access to basic
necessities, and unexpected threats such as natural disasters that endanger their everyday lives.
Because these factors are so entrenched in their lives, we cannot ignore their influence on an
individual’s economic ability to access, use and repay a microfinance loan.
Clients may be able to gain access to microfinance and may even start a business, but they
may be unable to convert this credit into sustainable income. According to one study of three
large MFIs in Bangladesh, approximately 5 percent of microfinance program participants lift
their families out of poverty each year.8* This finding of impact in particular does bring to our
attention that microfinance does not result in overnight success for many clients; with current
product offerings and costs, progress for most clients appears steady, but slow. In the current
models being used, a certain percentage of clients are never able to generate sufficient profits to
completely escape poverty or even to improve their conditions at the margins. An alarmingly
high percentage drop out (5-30 percent annually in many cases) and many ultra-poor families
never join in the first place (i.e., they self-select out).9 According to some studies, it takes 5 to10
years for a poor client to work her way up above the poverty line, and even longer before she has
sufficient productive assets to function independently from the microcredit institution (although
continued participation with an MFI is not necessarily an indicator of failure on the part of the
client or MFI, and in fact may be correlated with the success of both, in the sense that it may be that many formerly poor clients continue to have robust investment opportunities and the MFI
has products that are relevant to those opportunities).
What are the factors that hold back microfinance clients from overcoming poverty more
quickly than is currently the case? In other words, why do some people move out of poverty and
others fail to do so or make progress slowly – even though both participate in a microfinance
program? In assessing the research and speaking with numerous practitioners, we identified three
elements that diminish microfinance participants’ chances for being successful in a program:
poor health, natural disasters, and lack of education. Because the poor live in a state where even
the smallest misfortunes threaten their survival, these three elements are critical factors in
determining the performance of their loans, their progress out of poverty or lack thereof, and
ultimately the long-term sustainability and profitability of the MFI.
Microfinance: A Platform for Social Change
by Marge Magner
March 2007
Grameen Foundation
Inhibitors to Success - To learn more about this author, visit Grameen Foundation's Website.
Like this article? Share it with your friends
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Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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