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Should MFIs provide entrepreneurs with training as well as loans?
This is an area of some debate and while many MFIs focus solely on providing financial services, they are often referred to as minimalist MFIs; others often labelled ‘credit-plus’ MFIs do provide additional components such as training or education to borrowers as well because they believe that poor people face more than just financial constraints. For example, entrepreneurs who would like to expand their enterprises or enter newer more dynamic fields may face lack of access to markets, low technology levels, be illiterate or semi-literate, and may lack training in business and related skills. Some MFIs believe that additional support such as training and technical assistance is a pre-requisite to enhance poor people’s enterprises and productivity. Indeed the addition of training components has been justified as a means of guaranteeing effective use of credit and improvements in productivity and income for entrepreneurs, as well as being necessary to overcome a variety of non-financial barriers that they may encounter.
Usually training is provided in small business administration, basic accountancy, bookkeeping, and marketing. Although training may be ongoing it is generally only given once before the entrepreneur receives his or her first loan. In addition, there is also a concern that too many of the same types of business may be established – for example, too many dressmakers or too many small grocery stores, thereby flooding the local market. Therefore, some MFIs are concerned with encouraging entrepreneurs to diversify into new business opportunities.
However, despite these concerns most MFIs tend to focus quite narrowly on providing financial services because the provision of training can be costly and add significantly to the MFIs operational costs. The underlying philosophy of these MFIs is that they do not know what is best for entrepreneurs, rather that entrepreneurs must decide for themselves how best to use their own money.
