Enabling conditions for positive impact for MFI clients

There are certain enabling conditions under which the clients are likely to benefit more from provision of microfinance. Our research indicates that the following enabling conditions allow clients to benefit more from provision of microfinance.

Skills: In almost all the instances where positive impact has been witnessed, clients had required skills necessary for the enterprise or had acquired these skills with the help of friends or acquaintances.

Availability of market: Availability of market is an important precondition for an enterprise to succeed: Availability of a ready market where there is demand for the products and services of the enterprise is an important condition in which the enterprise is likely to succeed.

Fit in the existing supply chain: It is easier for an enterprise to fit in an existing supply chain rather than create a new supply chain. Given the fact that these microenterprises are extremely small in nature, it will be difficult for them to create a totally new supply chain.

Risk taking capacity: Every business entail certain amount of risk. Capacity to take risks varies from person to person and situation to situation. Most of the clients covered in our case studies had the ability to take calculate risks on the basis of the given situation. Since we have considered only the client success stories, the risks taken by the clients in our case studies have seemingly paid off. It is likely that in many cases, these risks would not have paid off.

Alternate sources of cash flows: Loans offered by most of the MFIs have weekly or fortnightly frequencies. Also, the loans offered by them do not have any moratorium. In case, the clients do not have alternate source of cash flows, it may become difficult for the clients to repay their loan installments in a timely manner. This is particularly important when the loan is used to start a new income generating activity.

MFIs can use these insights in their operational practices to enhance impact on their clients.

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