Is Credit Enough? The Critical Component of Business Training for Microentrepreneurial Performance

Abstract: Due to commercialization of the microfinance industry, fewer MFIs offer business training to their clients. The debate whether commercialization of microfinance is good or not takes two positions; the minimalist model which emphasizes that specialization on credit alone is the key to poverty alleviation, and the credit-plus approach in which credit alone will not accomplish poverty reduction. As a consequence of the commercialization of the industry, a growing number of non-profit organizations offer business training in order to build the human capital of microentrepreneurs and improve their standard of living in the work against poverty. To investigate how business training affects the performance of microentrepreneurs, a natural experiment has been conducted. The treatment group consists of 91 women who have attended a 12 week long business training program from MAPLE and who sell fresh. The control group consists of 101 women selling fresh, and neither of them has received business training. A survey was conducted based on questions regarding human capital, social capital, financial capital, self-efficacy, and business characteristics. Performance was measured in terms of profits, sales, salary to oneself and employees, and whether the entrepreneur reinvests and has repaid VSLA loans on time. From the regressions and interviews it can be inferred that business training has a significantly positive effect on performance, hence credit alone is not enough for the goal of poverty alleviation.