Cash Flow Training and Improved Microfinance Outcomes
Journal of International Development
Despite its promise as a powerful tool for alleviating poverty, research suggests that microfinance has had only a modest impact on development. Misallocation of funds by clients has been implicated as a major impediment to microfinance success. In this study, clients received training on how to track (but not manage) their cash flows during the first two meetings of the microfinance loan cycle. Examination of weekly cash flow shows that clients immediately invested the majority of their funds into the businesses and carefully managed revenues and expenditures to maintain sufficient food and other household expenditures throughout the loan cycle. It is not possible to know whether this behaviour occurred as a result of monitoring cash flow because clients who do not keep cash flow records do not have a reliable way to report expenditures. However, exit interviews provide evidence that cash flow tracking enhanced financial performance and control. When asked whether tracking cash flows affected their understanding and behaviour, half or more of the subjects responded that tracking their cash flow helped them to understand the importance of investing in the business, identify unnecessary expenditures and/or develop a better understanding of their revenues, expenses and profit. By investing a small amount of time in helping clients track cash flows, lenders can empower clients and potentially improve both the repayment and productive benefits of the loans they make.
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Epstein M.J., Yuthas K. 2013. Cash Flow Training and Improved Microfinance Outcomes,