Good Practice in Business Development Services: How Do We Enhance Entrepreneurial Skills in MFI Clients?

After working for 10 years in the microfinance arena, both at the Calmeadow Metrofund and at the Alterna Savings Community Micro Loan Program (both based in Toronto, Ontario, Canada), it is my belief that it takes more than a loan to help a micro-business succeed and reach its goals. I believe a combination of financial credit and operational support is crucial to helping entrepreneurial clients succeed in today’s marketplace, regardless of the location where the micro-entrepreneur is competing. Any entrepreneur has to have a combination of technical, operational and strategic skills. The technical skills come with the commitment, creativity, experience and knowledge they have within their field. The operational skills (including accounting and finance, business planning, quality control, health and safety regulations, marketing and human resource management) can often pose a challenge and necessitate support. Finally, strategic skills can take an entrepreneur from the start-up phase to the next level in business management. Most entrepreneurs believe a lack of ongoing capital is the reason for stagnation within their businesses. While this can be an important factor, a lack of continual operational skills support also plays a strong role in Micro Small Enterprise (MSE) failure, or in MSEs not reaching their growth potential. In the 1990’s operational skill assistance was provided to microentrepreneurs through Business Development Service (BDS) organizations, which operated separately from the sources of financing for MSEs. BDS services were viewed as non-financial and were thought to be less challenging to deliver than financing, which has capital and other requirements. (BDS services include management and vocational skill 4 training, consultancy and advisory services, marketing assistance, access to information, technology development and transfer and business linkage promotion.) According to the article Bundling Microfinance and Business Development Services1 , there is a growing recognition in the microfinance community that to develop successfully low-income people need a wider range of integrated financial and non-financial services. A combination of expanded financial and non-financial services can help an entrepreneur succeed by: building their self-confidence; increasing their income, productivity, and employment; and ultimately facilitating the personal growth of the entrepreneur. Through the provision of more integrated services, microfinance institutions will no doubt benefit from better loan repayment and portfolio quality, client retention and the increased ability of the entrepreneur to access other financial products and services. To achieve these results, microfinance institutions need to ensure that the appropriate support is provided to clients, so they can gain the skills needed to successfully and continually operate their businesses. This support can be in close partnership with Business Development Service Organizations or within the microfinance institution itself. The question is: How do we enhance entrepreneurial skills in microfinance institution clients? This paper will answer the question by identifying best practices in Business Development Services offered in close partnership or integrated within microfinance institutions—both in developing and developed world settings.

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