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teaching entrepreneurship: impact of business training on microfinance clients and institutions - English

Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

Topic : Community-based Finance, Microfinance, Saving and Credit

This study measures the impact of a business training program for female micro entrepreneur clients of a group banking program in Peru. Using the credit with education model, the researchers assigned clients randomly to either treatment or control groups. Treatment groups received thirty to sixty minute entrepreneurship training sessions during their normal weekly group banking meeting. These lasted between one to two years. Control groups remained as they were before, meeting weekly with the group banking program solely for making loan and savings payments. The study shows strong benefits for the microfinance institution, as well as improved business processes and knowledge by the clients. Also, there are a strong positive impacts on repayment rates and client retention for FINCA, the lender. Clients also report engaging in some of the exact activities being taught in the program: separate money between business and household, reinvest profits in the business as much as possible, maintain records of sales and expenses, and think proactively about new markets and opportunities for profits. However, these changes did not lead to a measurable increase in business income or assets.

Several reasons could exist for the lack of impact on business income or assets:

these are likely the noisiest to measure, and hence perhaps true impacts have occurred but simply are not detectable;
the length of time, one to two years, may not be long enough to measure the impact;
related to the first and second, perhaps the true impact of making these changes to ones business process are simply too small to detect with this sample size;
these business changes, listed above, do not in fact lead to improved business income or assets. These may be the type of business processes that good entrepreneurs do, but merely doing these activities is not sufficient to become a good entrepreneur;
further experimentation, perhaps with tighter control or influence on the changes in business practices, may be necessary in order to establish whether these practices are indeed beneficial for individuals to undertake.

The study shows that the treatment led to higher repayment and client retention rates for the microfinance institution, improved business knowledge and practices, but no measurable impact on business income or assets.