The Financial Education Chain of Microfinance
Senior Managers must gain buy-in from their Field Staff for Borrowers to benefit
**This is Part 2 of a series on the Myanmar microfinance industry and the development of new and innovative Financial Education tools. Financial Literacy education has been historically weak in Myanmar, so Opportunities NOW has joined with USAID to respond to this burgeoning need.
Opportunities NOW conducted a mixed qualitative/quantitative research project* into the Myanmar microfinance industry in June and July of this year. We conducted interviews with 18 organizations and traveled to 5 states and divisions of Myanmar, talking with senior managers, MFI field staff, and the borrowers the system is built to serve. We learned some lessons for providing financial education to microenterprise owners through the microlending system.
The training being provided in most cases is weak and ineffective, and in many cases non-existent.
“…financial education is just a nice to have.” — MFI leader in Myanmar discussing why they don’t provide essential financial literacy training
This is dangerous, especially in a system that is moving toward individual lending, and it poses a potential systemic threat in the making.
The results of the study weren’t promising for the industry, but they lead us to believe that creating another training that targets groups of borrowers in a lecture-style setting would be a waste of time. Rather, the tool we create will leverage the frequent face-to-face conversations held between a borrower and MFI field staff to strengthen the financial literacy of the small business owner, resulting in the practical strengthening of decision-making.
The research served as a discovery effort to understand how best to implement a light and flexible financial education program that is effective, attractive and easy-to-use for both the MFI staff implementing the training, and the borrowers who would be applying the training to their lives. Thankfully, the study uncovered attitudes of institutional support for financial literacy development at each level of microfinance, though the study confirmed suspicion that a disconnect exists between what senior management believes is taking place within their organization and what actually is taking place — how effective field staff can actually be in achieving organizational targets, and what education client borrowers actually receive from the institution.
Let’s look at each of the players involved, and the obstacles they face to implementing financial education through microfinance institutions.
Senior Management — the decision-makers.
For large international MFIs, operations run on tight margins which seem not to allow additional time or money to be spent on training borrowers beyond cookie-cutter approaches to training. When considering client problems such as over-indebtedness (read: “taking loans from multiple MFIs) and default, their approach seems to be an enforcement-oriented one, in which some have discussed the creation of a “black list” of borrowers to whom all MFIs would refuse service.
For smaller and local MFIs, many of these organizations exist because of their social impact. They offer financial education, but the approach usually consists of large group meetings and lectures, rather than the interactive style of learning necessary for effective education in such abstract subject matter as that of financial management. Innovative or efficient literacy programs are not usually deemed necessary, and the effectiveness of traditional financial education training is assumed, perhaps incorrectly.
Borrowers — the “beneficiaries”
Confirming much of the “Financial Diaries” research conducted recently in Myanmar, borrowers typically have multiple streams of income. Income fluctuates widely between the streams and is frequently drawn on in response to felt needs in the family or in the broader community.
Nearly every MFI interview stated that the intended use of their microloan was for investment into the growth of an Income Generating Activity.
These Activities are typically Sole Trader businesses, where no other person works in the enterprise beyond the borrower, and these loans typically are the smallest loans of organizations on average.
Considering that more MFIs have expressed plans to expand operations toward more individual lending strategies and in large loan amounts, one could expect the larger microenterprise loans will be used at investment levels above the tiny businesses currently being operated by Sole Traders. These new businesses will be infused with larger capital amounts, the business models should be more complex, and the borrowers will likely require more relevant advising and education services from the MFI than are currently on offer.
For instance, most enterprises keep no written record of their business, although MFIs provide training focused on income statements and balance sheets, usually in a lecture setting. These tools are rarely useful to the microenterprise owner whose most immediate sense of the health of her business is the cash in her pocket.
Training must be immediately practical and practicable, or it will not be implemented by Borrowers.
As more complex models are introduced, borrowers typically face cash flow problems when there are time-sync issues between income and outflow. For instance, when a loan payment comes due or an investment is necessary long after a sale has been made, the borrower frequently resorts to the sale of property or a high-interest short-term loan to make the payment, rather than planning on the cash flow of the business to save for these expenses. Present MFI financial education does not handle this issue effectively, though larger loans for larger businesses which are more likely to face this challenge are being promoted loudly.
Field Staff — the doers
MFI staff are hard-pressed and overloaded: the understandable result of an expensive operational model with narrow margins. They are responsible for as many as 500 borrowers and dozens of groups in multiple villages. These realities conspire against engaging with a business owner on an advisory level.
However, field staff have a deep understanding of the everyday realities of their borrowers, and have a sense of when and where pain point occur. Simple and timely financial messages embedded into workflows can provoke community conversations through which most people learn.
If the relatively low value lecture-style training sessions common in every loan cycle were sacrificed for a more effective messaging system, the time recovered would be very beneficial to the work of the typical field staff, as well as the community in which they serve.
It is the Field Staff stakeholder that is perhaps the most important link in the chain. When gaining staff buy-in becomes important to the Senior Management, the Field Staff gain an understanding for the value of the training they are offering to their own lives, allowing them to make a strong case to the Borrowers they serve. This case is made through conversation, NOT through lectures.
The Time is Now
In only two months since completing the above research, individual microlending (as opposed to the traditional group-lending model championed by Grameen) has gained momentum, with a recent announcement that USAID would provide loan guarantees to five Myanmar MFIs through its Development Credit Authority program. This guarantee is meant to encourage more individual lending in amounts ranging from $400 to $5000. This program is important, and will very likely be used extensively, because in a system with little-to-no focus on the necessity of financial education, default rates are likely to rise to intolerable levels.
Financial Education is necessary, but how does one promote a style of financial education that a majority of MFIs will implement, when they have currently little incentive to provide any training at all? The next post will deal with what an effective financial education strategy would look like.
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*While the data in this study should not be viewed as statistically rigorous, it does offer broad anecdotal applications that are useful for framing future research that is needed. Myanmar microfinance is a little understood, new and rapidly developing industry.
