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Microlearning: a new approach to empower microcredit borrowers and their communities through financial literacy

Use microcredit organizations to incentivize financial literacy in poor communities in a way that is also applicable in developing countries

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Who does this idea benefit, who are the main players and what's in it for them?

Using the existing structure of staggered microlending, applying groups receive financial education (including personal finances)-supported by SMS and simple mobile phone apps- before receiving each round of financing. The group must pass each course’s test, which motivates learning and helping peers
The idea benefits the financed groups, their community and MFIs involved. The group receives an empowering education to pay loans and manage family finances.MFIs benefit from higher repayment rates

How is your idea specifically using the power of communities to improve financial opportunities and resources?

Microcredit organizations already use a community structure, which is the informal financial mechanism available to the BOP. Since the loans are staggered, to access each new round of financing the entire group would have to take a course and pass the exam. Since every member of the group has to pass the exam, everyone has the incentive to study and help each other learn in order to receive the loan. This gives the community incentives to work towards increasing financial literacy of its members

What early, lightweight experiment can you try out in your own community to find out if the idea will meet your expectations?

1) Test whether finance is teachable to people from the BOP in an easy progressive way. Try teaching some topics to a diverse range of people from a vulnerable background.

2) Test the chosen syllabus with local MFIs. In many cases, MFIs involve some sort of training, such as a class at the start of the program, but do not have formalized multi-course structure. To test the experiment, we could introduce our idea to such institutions to test it on a small group of its existing members.

What skills, input or guidance might you be seeking from the OpenIDEO community to help you build out or refine your idea further?

Advice or input on best syllabus for finance courses for the BOP.
Advice or input on how text messages and simple apps can educate users.
Advice or input on devices for the training courses: tvs, tablets, multimedia booths?
Research on the impact of financial education on the individuals and community to help partnering with financial institutions and NGOs.
Discuss and brainstorm with the team (or review our proposals) on how to obtain sustainable financing to fund our idea.

This idea emerged from:

  • A group brainstorm

(UPDATED 6/8)

Microlearning: a new approach to empower microcredit borrowers and their communities through financial literacy

Our idea takes advantage of the group microcredit structure to set the right incentives to promote financial literacy among low income communities, in a way that is applicable in developed and developing countries.

The main objective is to promote personal and business financial education and literacy in the base of the pyramid (BOP), using the existing structure of staggered group microlending.

MFIs already use a community structure, which is is the informal financial mechanism available to the BOP: group lending through common pots, or borrowing from their network friends and family.

Groups which are applying for microcredits will receive basic financial education (business and personal finances) before receiving their first loan and will then continue to be trained further as they apply for renewals or new loans. To make sure the group is actually benefitting by increasing knowledge, a multiple choice exam would be taken after each course is completed.

Since the entire group must pass each course’s test, borrowers have incentives to both learn in order  to pass exams, and to help fellow peers which may have more difficulty studying. Members with more difficulties would benefit from the efforts of their microcredit group  to help them understand new concepts. In this way, the community has incentives to work towards increasing financial literacy of its members. Borrowers will go through a digital syllabus designed to be learned progressively, and tailored to practical examples of the BOPs transactions, which will include the support of sms text and simple mobile phone apps for studying.

The main players are the microfinance institutions (MFIs), the groups receiving microfinancing and the team that will develop and implement the learning tools.The idea benefits the group that receives the loan, its broader community and the financial institutions that participate.

The group receives an empowering education which help members repay the loan and manage their business and family finances.  If their businesses are successful they will gain additional income, which through education, they can learn to manage properly.  BOP households are consistent savers, but they don’t see savings as an asset-building or interest-generating investment. Instead they use them primarily as a cushion for emergencies. Also, many BOP consumers tend to exclude themselves individually from the the formal financial sector because they simply do not understand it or find it intimidating. Through group loans, they feel more comfortable to start engaging in financial  services, and additional financial education will provide them with the confidence and knowledge to further engage with formal bank services.

The borrowers are also strengthened as a group by additionally helping each other study for the exams, the broader community receives the spillover effects of local micro business and more educated neighbours which may spread their knowledge onto their community .

The financial institution gains by improving the payment capacity of the clients and its loan portfolio. More financially educated borrowers are more likely to correctly administer their business and generate enough cashflow to repay credits in a timely manner.

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FEEDBACK AND KEY CONCERNS (UPDATED 6/8), INTERVIEW WITH MFI MUJERES2000

-Rather than having classes we should make courses or workshops which should last a bit longer, which should require multiple interactions.

-The current courses most MFIs offer are before the first disbursement and are short: e.g. Mujeres2000 has one that is twice a week during one month, Grameen bank has a 1- week intensive training before the first disbursement.

-Trust is our main concern: applicants are afraid of tests and failure, we should focus our communication on not intimidating them and be careful not to lower their self esteem. In turn, we should use a fun and collaborative approach.

-There are already courses which could work as a prototype by including a final evaluation and including them as part of the loan requisites. If they work we would next prototype applying more course throughout all the project before the disbursements are approved.

-Advisory should be during the whole Project that the loan is financing. Adding an initial "incubator" for those applicants who have not developed the idea would be great too.

- MFIs, including Mujeres2000 do not have many requirements for approving the loan. They usually require completing an initial course and developing a business plan with loan officers. They present the idea to an NGO which may or not approve the idea.If the idea is approved, they receive a loan which can be renewed from 9 months to 1 year (now usually 9-10 months) for which they have to attend weekly meetings (80% assistance rate required), have a payment delay of 1 month maximum, and have completed the previous disbursement.  They do not require an additional course for disbursement


There are four loan structures offered: 24 weeks, 30 weeks, 39 weeks and 48 weeks. Loans can be canceled if applicants complete repayment before the scheduled dates.

-Key idea for Microlearning: since very few use formal financial services, the courses could help applicants learn more and start trusting the formal banking system, instead of using loan sharks and other costly services.

-Micro business topics to include:

  1. How to estimate fix and variable costs
  2. How to Price products and services in order to make a profit
  3. How to include opportunity costs or their salary into the price
  4. How to track record  sales
  5. How to measure monthly income and profits
  6. How to incorporate inflation
  7. How to use EXCEL
  8. Personal Finances


OTHER MICROFINANCE EDUCATION INITIATIVES 

Grameen Microfinance Training Institute

The new Institute, located in Queens, NY, will help provide thousands of aspiring entrepreneurs in low-income communities access to microloans. Through classroom-style learning and apprentice-based training programs, community loan officers will be equipped to empower women entrepreneurs with the financial tools they need to grow their small businesses and create better lives for their families - source: http://3blmedia.com/News/Grameen-America-Scales-Microlending-Model-Across-US-Launch-Microfinance-Training-Institute#sthash.sDrAgu1T.dpuf

http://www.capitaloneinvestingforgood.com/small-business/grameen-launches-microfinance/

http://www.wsj.com/articles/calls-grow-for-a-new-microloans-model-1426627810

 “The discussion varies from the need for microlenders to offer more savings and insurance options for the poor to the need for them to include more business training, healthcare and education with their loans.”

Opportunity International Training Program

“Another concern that’s frequently raised in conversations surrounding microloans is training. A woman might secure a loan to buy a cow but if she’s never been a farmer, will she truly be empowered? Opportunity International aims to head off trouble (and defaulted loans) and ensures each loan beneficiary completes a 16-week training program on running their own business, as well as pairing entrepreneurs with community experts in their industry. The “all-in” training program for aspiring entrepreneurs is funded for Opportunity International by Credit Suisse.”

source: http://www.forbes.com/sites/meghancasserly/2013/02/14/carly-fiorinas-new-gig-changing-the-world-one-microloan-and-woman-at-a-time/


Women Economic Empowerment Programme

http://www.ls.undp.org/content/lesotho/en/home/presscenter/articles/2014/08/22/-women-businesses-get-a-boost-from-undp-micro-loans-training.html

Suggestions from David Rada (Project Enterprise)

- Have a small business owner or entrepreneur actually teach the course, potentially someone who has gone through the same or similar program. (At Project Enterprise, they would have entrepreneurs that went through the course itself teach the courses. This enables the instructor and groups they work with to all continue to learn together, as well as spread out the reach of the MFI)

-Another possible idea that PE uses that could be useful would be to include some other benefits to both increase the trust as well as utility of the program. PE offers free legal services/advice, as well as technical assistance (1 on 1 counseling time provided by the instructor or other member of the staff)

photo credits: economist.com

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Team

Please take a look at our new updated idea!
 We've tackled many questions we had about working with MFIs, we came up with a more detailed approach to the way the system would work. We've also installed a grading infrastructure to further insure there is a trust between the institutions and those taking out loans. We catered our update to satisfy thoughts and comments we received in interviews with other MFIs. Mujeres 2000 is very excited to help us prototype this further and create a program to install within their institution. We are additionally in touch with IBDAA an MFI in Lebanon- through these various institutions, we are able to test our hypotheses about adapting to various cultures and regions. Our next step is testing and prototyping our ideas even further!!

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