Microfinance and Education

By Tara Capsuto, KF12, Ecuador

Since it’s back to school month at Kiva I thought I’d take the opportunity to spotlight the role of education in microfinance. Microfinance alone is not a silver bullet to eradicate poverty. To be most effective, microfinance must be part of a broader schema of social and economic development. Providing education to microfinance clients on topics ranging from marketing to reproductive health is one of the key ways in which microfinance institutions (MFIs) can serve the broader needs of their clients. Let`s take a look at microfinance with education at Fundación Espoir, where I spent the past 6 weeks, and then take a higher level view.

Fundación Espoir provides its clients with an extensive educational program. The majority of its clients are part of village banks that meet once every 15 days — a model that is highly conducive to education. At each meeting, loan officers lead a dialogue-based learning session on health, business education, human development (self esteem and life goals), credit policies, and natural disaster management. Meetings are a lively affair, held at a client`s home or at the Foundation. Loan officers have plenty of distractions to compete with: there`s usually children running around, breastfeeding, and the chatter of 8-45 women (95% of Espoir`s clients are women). Nevertheless, clients seem to be engaged and interested in the lessons. I`ve interviewed around 20 borrowers and the vast majority said their favorite part about their loan is the charlas or [educational] chats given by loan officers.

Loan officer, Alexandra, discusses money management with a village bank in Portoviejo, Ecuador

Espoir combines educational tools developed by Freedom from Hunger and the Gender Action Learning System (more on this later) with content they develop themselves. The lessons are adapted to the requests and needs of different village banks (e.g. groups located in areas prone to flooding receive training on flood preparedness). Fundación Espoir also plays a key role in educating borrowers on other services available to them outside of the Foundation from free osteoporosis screenings to discounts at pharmacies and vocational schools.

A village bank meeting at Espoir`s office in Cuenca, Ecuador focuses on basic nutrition and chronic disease prevention.

Espoir gets creative with education: for Christmas they gave all of their clients monopoly-like board game that teaches players about natural disaster preparedness.

The tools

While some MFIs develop their own curricula, there are a number of established educational programs used by MFIs around the world. One such program is Credit with Education by Freedom from Hunger. Freedom from Hunger is a leader in microfinance with education and has implemented Credit with Education at dozens of microfinance institutions in 14 countries of Africa, Asia and Latin America with topics on health, nutrition, business and money management. Another such curriculum is the Gender Action Learning System (GALS) from the Women’s Empowerment Mainstreaming and Networking for Gender Justice in Economic Development Program. The GALS methodology focuses on individual life and livelihood planning and collective action and gender advocacy for change. Over 2,000 women and men in Uganda are now using GALS and over 25,000 in Latin America, Asia and elsewhere in Africa.

The case for combining microfinance with education

The origins of the microfinance movement are based on the presumption that credit constraints alone are the obstacle of the poor, not entrepreneurial skills. However, several recent studies have shown that microfinance with education may have more impact than financial services alone. In a randomized control trial conducted between 2002 and 2005 with FINCA-Peru, researchers from Innovations for Poverty Action found that clients who received business training improved business knowledge, practices and revenues. Studies conducted by Freedom from Hunger and independent investigators found that women participating in their Credit with Education program in Bolivia, Ghana, Mali, Peru and Thailand have more income and assets, a greater sense of personal empowerment to make decisions, and better nourished and healthier children than women who did not participate in the program.

Providing education with microfinance, however, involves tradeoffs. Education for borrowers requires an ongoing investment of time – which is in short supply for most loan officers. Time spent on education can mean loan officers have less time to serve a greater number borrowers, a key indicator of their success. Cost is also a factor. MFIs are in a constant balancing act of providing services to their clients while maintaining reasonable fees and/or interest rates.

Village bank meetings are not just about repayments at Fundación Espoir (sidenote: Ecuador's official currency is US dollars)

Despite the challenges to providing education to microfinance clients, there is reason to believe that effectively deployed education can amplify the effects of microfinance. But don’t just take my word for it. A number of Kiva Fellows will share their perspectives from the field so keep an eye on the blog this month for more on microfinance and education. If you’re feeling especially ambitious check out these links for additional reading on this topic:

Credit with Education Program

Gender Action Learning System

Innovations for Poverty Action’s study on Microfinance and Education

Tara Capsuto is a roaming fellow in Ecuador, serving at Fundación Espoir and Fundación D-MIRO. When she’s not playing natural disaster-themed board games she can be found conducting CERISE social performance monitoring or cruising Ecuador’s Ruta del Sol (usually not simultaneously).

Make a loan to an entrepreneur in Ecuador here!

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