In a thought-provoking recent article from AFKInsider about the dangers of predatory microlending, Loren Crary, Educate!'s Director of External Relations, offered some perspective about the role of microfinance in developing small enterprises.
The article notes that many of the world's poorest have become overburdened by debt from microfinance institutions, and that microfinance's true effects are not well-understood. The author wonders if perhaps there is a safer alternative to debt for encouraging entrepreneurs from the bottom of the pyramid.
Loren comments that in the Educate! model, "while the organization does partner with microlenders and teaches students about accessing capital, the students’ age puts a necessary boundary around borrowing." Instead of encouraging scholars to take out large sums of money in debt, Educate! provides education about how to save and build capital. Loren offered the following example: "We teach stuff like how to make liquid soap. It’s not a high margin business but there’s almost always a market, so it’s a way for people just starting out to build capital so they can invest in their next project.”
Savings and financial literacy are crucial components of the Educate! model. One key indicator we focus on in evaluating our programs is whether graduates have adopted formal savings strategies and created business plans. Our scholars are always our top priority, and we are proud to champion rigorous monitoring and evaluation of our programs.
We thank Loren and AFKInsider for this fresh perspective. See the full article here: http://afkinsider.com/78754/unchecked-microfinance-overburdens-poor-south-africans/