Microfinance -- Developing countries, Microfinance -- Evaluation, Financial services industry
Microbusiness owners often lack the knowledge and skills--the human capital--necessary to make effective use of financial capital. They lack even the basic knowledge about how a loan is obtained and repaid and how debt can be used for business development.Most microfinance institutions have developed training that teaches clients about the timing and amount of repayment, the need for financial discipline to meet the repayment schedule, and the importance of investing the loan in working capital or productive assets rather than using it for household consumption. Although this training is essential for successful loan management from the institution's perspective, it often falls far short of the training necessary for clients to raise their businesses to a level of growth that can begin to break the cycle of crushing poverty in which they've been trapped. Together with a team of researchers, we interviewed hundreds of these microfinance clients (microentrepreneurs) and microfinance managers in numerous countries ranging from Nicaragua in the Americas to Ghana in Africa, reconstructing their cash flows and attempting to identify the problems these small businesses face and the most important decision-making strategies they use to solve them.We also developed a variety of new, culturally sensitive instruments to understand both the financial transaction flows and the decision-making strategies of these businesses.We found that what these businesses needed most to complement access to financial capital was enhanced human capital. And time and time again, the principles that provided the greatest potential for reducing common mistakes and increasing productivity and growth were principles found in any basic course of study of management accounting: budgeting, cost control, process improvement, and risk management.
Management accounting and control: Lessons for and from the World's tiniest businesses, Strategic Finance, November 2009, pp. 27-34, Srikant Datar, Marc Epstein, and Kristi Yuthas