Unlocking Potential: The Transformative Role of Digital Business Development Services for Micro Enterprises in Developing Countries

Part 1/3 – The Broken Promise

Working in the microfinance sector for the past 17 years, where once I considered the synergy between micro entrepreneurs and microfinance institutions (MFIs) as a win-win situation, now I lean towards it being a relationship of mutual convenience rather than benefit.

For micro entrepreneurs who lack collateral, credit history, and have few options when it comes to accessing financial services, MFIs offer a lifeline. The convenience of obtaining financial services cannot be overstated, and especially compared to the alternatives such as loan sharks for the less supported. In this regard, digital credit has been a game changer in terms of access and convenience, but it comes with a hefty interest rate, generally ranging from 5% – 10% per month. MFIs on the other hand, who pride themselves on providing financial resources to those in need and emphasize their social responsibility credentials, have commercial imperatives to consider. Typically, MFIs charge between 40% to 50% (per annum), and combined with a variety of fees, this in itself becomes a significant hindrance to micro business growth.

Talking to a dozen microfinance contacts on Whatsapp, and sharing the above diagram, most were in general agreement with the depressing customer journey for both the microentrepreneur and MFi. It’s a damning indictment from industry insiders. With pressure on microentrepreneurs to repay loans within a specified timeframe, this can lead to a vicious cycle of indebtedness and hinder their ability to use the loans for sustainable, long-term business growth. It could be argued, microfinance, in many instances, is not just failing the very individuals it promised to uplift, but makes their situations worse. However, being an entrepreneur is a necessity for many (due to lack of employment) and MFIs are the best of bad options… but, many are largely sustainable only due to donors (and high interest rates).

With the above in mind, there needs to be a paradigm shift if economies are to get the gains of unlocking the potential of MSMEs. The question that therefore needs asking, is, what are the micro finance sectorial challenges and what can be done to unlock the potential of MSMEs, as microloans, by themselves, are not the beacon of hope they were once considered.

In conclusion, the failure of microfinance to fully deliver on its promises means the current relationship, while convenient for both parties, does not provide mutual benefit. There’s need to be genuine empowerment of entrepreneurs, this is only possible when both parties thrive in a truly symbiotic relationship. This is what I will discuss in part 2 – unlocking the potential.

#microentrepreneur, #digital #businessdevelopmentservices #sustainablegrowth #transformation