Module 6: Microfinance and Education
Microfinance interventions provide low-interest loans to people living in poverty, in order to encourage entrepreneurship and promote economic growth. Microfinance institutions (MFIs) operate in villages, slums, and neighborhoods that lack typical financial resources, and offer people a reliable and convenient way to borrow money.(1) The microfinance sector has been highly successful in numerous settings, though there are critical pitfalls that need to be avoided. By the end of 2005, more than 3,000 MFIs were reported to have been providing services to 113 million clients, 84% of whom were women.(2)(3) Quality MFIs have extensive networks of community members who can both disseminate and receive health care information.
Education and training are crucial components in the success of microfinance borrowers. Financial education curricula can greatly improve microfinance projects by increasing participants’ knowledge of money management, savings, and budgeting.(4) Because education enables individuals to develop entrepreneurial skills, a joint venture of microfinance and education will be more effective than a microfinance program in isolation. Studies from Sri Lanka and Bolivia show that financial education can lead to positive behavior change and entrepreneurial success.(5)
There are potential health benefits associated with microfinance initiatives, as low-interest loans make healthcare services more available for the poor. Microfinance schemes can provide households with steady incomes, enabling them to afford healthcare and medicine, and consequently increasing food security through the additional financial resources. Furthermore, the financial “buffer” that loans provide can dramatically help individuals cope with unemployment due to illness. Interventions aimed at improving financial security are capable of indirectly improving public health. In this way, microfinance programs intervene in the potentially dangerous interdependence between poverty, health, and development.
In light of the complex social and physical needs of people living in poverty, microfinance services are often paired with supplemental health interventions.(6) Many MFIs throughout the world use health and nutrition education to promote public health.(7) One particularly successful example is the Credit with Education program through Freedom from Hunger, implemented in Africa, Asia, and Latin America.(8) Credit with Education combines microfinance with education by providing female borrowers with information about “health, nutrition, business and money management” through group meetings.(9) Research from Bolivia, Burkina Faso, Sri Lanka, Ghana, and Peru indicate that women enrolled in the program increase their financial stability, have a greater “sense of personal empowerment”, and have healthier children, compared with women not participating in the program.(10)(11)(12)(13) Microcredit interventions that involve education cover a wide range of topics, including optimal breastfeeding practices, HIV/AIDS awareness, malaria prevention strategies, and domestic violence.(14)
MFIs also recognize that financial instability creates barriers to education, preventing children from attending school; these barriers include the costs of transportation, schoolbooks, and uniforms, as well as lost hours of child labor that would contribute to family income.(15) Microfinance initiatives can indirectly support education by providing families with income stability, enabling them to afford schooling. Financially secure households are better equipped to keep children in school than are their financially unstable counterparts. Theoretically, increased economic income (a potential result of microfinance initiatives) should result in higher expenditures on schooling. Although few studies have analyzed the effect of microfinance on access to education, several reports from Bangladesh support positive associations.(16) Research from Uganda also suggests that participation in microfinance programs correlates with increased investment in children’s education.(17) However, there is also evidence suggesting that microfinance projects may actually exacerbate educational inequities; while one household may experience an increased demand for schooling, another family whose farm size has increased due to newly-acquired loans may have a greater need for child labor.(18)
Interestingly, participation in microfinance worldwide is predominantly female, and it has been reported that women are more likely to utilize finances for household-level benefits.(19) Women tend to place more importance on educating their children than do men.(20) Many microfinance programs loan specifically to women in the hopes of increasing household expenditure on education.
There is evidence that supports a positive association between microfinance and the enhanced health and social status of women.(21) Research in South Africa has demonstrated that combining microfinance with gender-based curricula can reduce domestic violence rates and increase health knowledge.(22) This research suggests that training should consist of sessions that use participation techniques to cover topics such as gender roles, cultural beliefs, violence, and HIV/AIDS. The training also encourages wider community mobilization to engage both youth and men in the intervention, rather than solely women. The study found that the observed reduction in violence was likely due to female empowerment, increased self-confidence, the confronting of existing gender norms, heightened communication, and greater value of a woman's role in the household.
The concept of microfinance has led to the provision of additional access to critical programs such as basic health services, health education, and health insurance plans.(23) However, despite these successes, many obstacles remain. Microfinance institutions face tremendous pressure to become financially sustainable. It is important to generate a body of research that evaluates the most effective institutional strategies for microfinance providers interested in adopting public health programs. Furthermore, numerous obstacles impede the widespread adoption of microfinance initiatives in certain regions such as sub-Saharan Africa, where there is a lack of infrastructure to regulate and support small-scale financial activities. MFIs favor clients with previous business experience, and thereby often fail to reach or train those most in need.(24) Despite these challenges, nearly 1,000 MFIs currently provide services to more than 7 million people in sub-Saharan Africa.(25) Increasing access to healthcare for MFI clients is just one possible entry point for implementing successful health interventions.
Microfinance schemes have the potential to improve a population’s educational standards by building educational interventions into their programs. MFIs can provide individuals with knowledge ranging from best health practices to crucial business skills, enabling them to transform their livelihoods. Further research must be conducted to make connections between microfinance and childhood education.
(1) Pronyk, P.M., Hargreaves, J.R. and Morduch, J. Microfinance Programs and Better Health: Prospects for Sub-Saharan Africa. JAMA. 2007; 298(16):1925-1927.
(2) Armenda´ riz de Aghion B, Morduch J. The Economics of Microfinance. Cambridge: Massachusetts Institute of Technology Press; 2005.
(3) Daley-Harris S. State of the Microcredit Summit Campaign: Report 2006. Washington, DC: Microcredit Summit Campaign; 2006.
(4) Gray, B., Sebstad, J., Cohen, M., & Stack, K. (2009). Can financial education change behavior? Lessons from Bolivia and Sri Lanka. Global Financial Education Program Financial Education Outcomes Assessment Working Paper #4.
(6) Reinsch, M., Dunford, C., & Metcalfe, M. (2011). Costs and benefits of microfinance institutions offering health protection services to clients. Enterprise Development and Microfinance, 22(3), 241-258.
(8) Freedom from Hunger. (2011). Credit with Education. Accessed 22 November 2011.
(11) Gray, B., Crookston, B., de la Cruz, N., & Ivinas, N. (2007). Microfinance against malaria: impact of Freedom from Hunger’s malaria education when delivered by rural banks in Ghana. Freedom from Hunger Research Paper #8. Accessed 22 November 2011.
(12) Metcalfe, M., Leatherman, S., Dunford, C., Gray, B., Gash, M., Reinsch, M. & Chandler, C. (2010) Health and Microfinance: Leveraging the Strengths of Two Sectors to Alleviate Poverty. Freedom from Hunger Research Paper #9. Accessed 22 November 2011.
(13) Gray, B., Sebstad, J., Cohen, M., & Stack, K. (2009). Can financial education change behavior? Lessons from Bolivia and Sri Lanka. Global Financial Education Program Financial Education Outcomes Assessment Working Paper #4.
(14) Leatherman, S., & Dunford, C. (2010). Linking health to microfinance to reduce poverty. Bulletin of the World Health Organization, 88, 470-471.
(15) Rosati, F., & Rossi, M. (2003). Children’s working hours and school enrollment: evidence from Pakistan and Nicaragua. World Bank Economic Review, 17(2), 283-295.
(16) Khandker SR. Fighting Poverty With Microcredit: Experience in Bangladesh. New York, NY: Oxford University Press; 1998
(17) Barnes C, Gaile G, Kimbombo R. Impact of Three Microfinance Programmes in Uganda. Washington, DC: US Agency for International Development; 2001.
(18) Maldonado, J.H., & Gonzalez-Vega, C. (2008). Impact of microfinance on schooling: evidence from poor rural households in Bolivia. World Development, 36(11), 2440-2455.
(19) Armenda´ riz de Aghion B, Morduch J. The Economics of Microfinance. Cambridge: Massachusetts Institute of Technology Press; 2005.
(20) Maldonado, J.H., & Gonzalez-Vega, C. (2008). Impact of microfinance on schooling: evidence from poor rural households in Bolivia. World Development, 36(11), 2440-2455.
(21) Cheston S, Kuhn L. Empowering women through microfinance. In: Daley-Harris S, ed. Pathways Out of Poverty: Innovations in Microfinance for the Poorest Families. Bloomfield, CT: Kumarian Press; 2002:167-228.
(22) Kim JC, Watts CH, Hargreaves JR, et al. Understanding the impact of a microfinance-based intervention on women’s empowerment and the reduction of intimate partner violence in the IMAGE Study, South Africa. Am J Public Health. doi:10.2105/AJPH.2006.095521.
(23) Dunford C. Building better lives: sustainable integration of microfinance with education in child survival, reproductive health, and HIV/AIDS prevention for the poorest entrepreneurs. In: Daley-Harris S, ed. Pathways Out of Poverty: Innovations in Microfinance for the Poorest Families. Bloomfield, CT: Kumarian Press; 2002:75-132.
(24) Wright GAN. Microfinance Systems: Designing Quality Financial Services for the Poor. London, England: Zed Books Ltd; 2000.
(25) Daley-Harris S. State of the Microcredit Summit Campaign: Report 2006. Washington, DC: Microcredit Summit Campaign; 2006.