Non-Financial Services in MFI: Microfinance Beyond Loans

Non-Financial Services in MFI - Microfinance beyond loans

Share This Post

By seeing the title, you must be thinking about what else is there for microfinance organisations other than lending money to poor people. Well, it is true that most microfinance lends money to financially deprived people, but beyond that, MFIs also provide non-financial services. And in this blog, we are going to learn about those fascinating aspects of MFIs.

Reminder: This blog is not only for general readers but also for MFIs who are only providing financial services. We believe every microfinance organisation should know about these services and their social impacts.

Microfinance institutions (MFIs) have long been recognized for their role in providing financial services to underserved and financially marginalised communities. Primarily, they offer microloans to individuals and small businesses who may not have access to traditional banking services.

But it turns out that the journey to financial well-being doesn’t stop at money. It requires more which is why MFIs should explore the necessary grounds and provide non-financial services to uplift the borrowers.

You must be thinking, what are those services?

Well, Non-financial services in MFI encompass a wide range of services and interventions and have become increasingly important in addressing the multidimensional needs of clients. With this blog, we’ll take you on a journey of microfinance beyond loans, where microfinance institutions (MFIs) are stepping up their game. They’re not just giving out loans; they’re also offering financial education, business training, healthcare support, and more.

It’s a game-changer because, by addressing not only the financial but also the practical and personal needs of their clients, MFIs are helping individuals and communities transform their lives in ways you might not have imagined. If you are running a microfinance organisation, this is more important for you than anyone else.

So, get ready to discover how non-financial services in microfinance are making a real difference and how they might just be the key to breaking the cycle of poverty and building a brighter future. However, before we move forward, we need to understand the purpose for which microfinance was built and how it evolved.

remote MFI community

Understanding The Purpose of Microfinance and Its Evolution

We know that you already have complete knowledge of why microfinance came into being and how it has evolved since its inception. Still, let us take you on a journey to the purpose of microfinance for a deeper understanding of this topic as a whole.

The purpose of microfinance is to help underprivileged people who have no access to the traditional financial system so they can start businesses, pay for important things like education or healthcare, and improve their lives. It’s like giving a small financial boost to those who need it most.

Over time, microfinance has changed a lot. It began with small, local lending and savings groups in many parts of the world. Then, in the mid-1970s, it started to grow into more formal institutions, like banks and organisations. They realised that poor people, especially women, needed a way to borrow money without having to pay high-interest rates to loan sharks.

This is where the non-financial service in MFI began!

Since then, microfinance has evolved to include not just loans but also savings accounts, insurance, and other services. The idea is to help people save money, manage their finances, and protect themselves from unexpected problems. It’s become a powerful tool for fighting poverty and improving the lives of millions of people.

While loans remain the core offering to date, MFIs have realised that addressing the non-financial needs of their clients is also crucial to achieving sustainable and holistic development. This realisation has led to the integration of non-financial services in MFI models.

The Significance of Non-Financial Services in MFI

Now the question is how significant are the non-financial services in microfinance operation. Well, that depends on why you started microfinancing rather than any other business. Let’s assume you started your MFI to help people and for a social cause. Then your organisation goes beyond just providing loans, and it stands as a social reformer. In that case, non-financial services in MFI are more important than you can imagine. But why?

Well, in non-financial services, you also want to teach your borrowers about budgeting, saving, and managing their money, making sure they can grow and succeed with the monetary help your MFI is providing. Non-financial aspects also cover health and education, showing borrowers how to stay well and keep their families in school.

Non-financial services empower your borrowers, thus empowering society, especially if they are women or living in a tough situation. MFIs provide knowledge and skills, making their life better. It’s not just about loans; it’s about improving the lives of people in many ways, and that’s why non-financial services in MFIs are as significant as loans.

Now let’s see what are some of the most important and popular non-financial services in Microfinancing.

BRAC Fazle Hasan Abed
Sir Fazle Hasan Abed, the founder of BRAC, with children at a BRAC School.

5 Most Important Non-Financial Services in MFI

Now, it is time to dive into the non-financial services in MFI that you have been waiting for some time. Microfinance can do many types of non-financial services as long as they serve the social good. But we are going to talk about a few that every MFI should take care of and beneficial for both the party. Let’s dive in.

Financial Literacy Training

Among non-financial services in MFIs, financial literacy training is an important one that helps poor people be aware of their conditions. Sometimes, borrowers might not understand all the money stuff, like loans, and how to handle them. These training programs teach them in simple ways. You can show them how to budget, so they understand where your money is going. They also learn about loan terms and conditions, so they are not confused.

With this knowledge, they can make smart choices about their money. It’s like providing them with a map to guide them through the financial world. With this, they can learn how to save, plan, and use their money wisely. It makes them more confident in managing their business and personal finances.

We believe every microfinance should provide this training to their borrowers before they get the loans so that they are more aware of their money and the purpose of the loan.

Entrepreneurship and Skill Development

Entrepreneurship and skill development are critical parts of microfinance that go beyond just loans. Microfinance institutions (MFIs) understand that providing a loan isn’t enough; borrowers also need to know how to run a business well. So, they offer training programs to help people learn essential business skills.

These programs cover things like marketing, which teaches them how to promote their products or services effectively. MFIs also delve into accounting, so their borrowers can keep track of their money and know if they’re making a profit. Plus, your borrowers get management skills, so they can make smart decisions about their business.

By improving these skills, they can manage their business better, make more money, and secure a brighter future for themselves and their family. It’s not just about giving them a loan; it’s about giving them the tools to succeed in their business and life.

Health and Wellness Services

Health and wellness services are one of the most important non-financial services in MFIs around the world. And this is a very essential responsibility that microfinance organisations can help with. Many people with low incomes struggle to get healthcare. However, some microfinance institutions (MFIs) step in to assist. They either offer healthcare services directly or work with healthcare organisations to ensure their borrowers and their families get basic medical care.

It means they can see a doctor when they need to, and it doesn’t break your budget. MFIs might also teach people about staying healthy through health education. This way, you can help them prevent problems and keep their family well.

If your borrowers and other people in a community get health and wellness services from your MFI, they will worry less about getting sick and focus more on improving their lives. It’s not just about money; it’s about the well-being of the people your MFI is working for.

Impacts of MFIs and CBS in uganda

Gender Empowerment

Gender empowerment is an important thing that microfinance does. And this is one of the most important non-financial services in MFI that is making a difference in society.

In many places, women don’t have the same chances as men. But microfinance institutions (MFIs) step in to help. They run programs that focus on making women stronger and more confident.

For example, they provide resources like money or tools to help women start or grow their businesses. They offer support and training to teach women how to handle their business and money better. This way, women can break free from the barriers that society puts in their way.

It’s not just about business; it’s about making women more powerful and giving them the chance to succeed. These programs change lives. When women become stronger, they can support their families and communities better, and everyone benefits. Gender empowerment is a big step towards fairness and equality.

Social Services

Social services from microfinance institutions (MFIs) go beyond money as well. Today, many MFIs realize that having a good home, education, and enough food is crucial for people and society. So, a significant number of MFIs around the world help people with these things too.

But what are those services?

For example, many MFIs provide support to improve people’s housing conditions or offer guidance on finding a safe place to live. For decades now, many MFIs have been running initiatives for education for poor adults and children. Microfinance institutions also help their borrowers and other people alike to help their kids access better schooling.

Services like those make a big difference because when the living conditions, education, and nutrition are better, life becomes better too. They can work and learn more effectively, making their community stronger. You should know that social services are the biggest non-financial services in MFI that make a huge difference in fulfilling the objectives of microfinance. 

The Impact of Non-Financial Services in MFI on Society

The integration of non-financial services in MFI has several positive outcomes, and you are going to be amazed by it. Hope this will change your mind to start investing in non-financial services for the betterment of society and your microfinance. 

The impact of non-financial services in MFIs on society is very noticeable. These services are like a helping hand that reaches out to people in need and makes their lives better in many ways.

Firstly, non-financial services help people understand money, which leads them to make smarter choices about money. Your borrowers learn how to budget, save, and handle your loans well. This benefits not only the individual borrower but also their family and community because they’re more financially stable.

Secondly, in this aspect of microfinancing, you teach your borrowers skills, like how to run a business or manage it better. It helps them earn more money and support their family. So, your MFI is just improving the borrower’s life; you are creating a ripple effect in your society.

Thirdly, non-financial services in MFI address critical areas like health, education, and gender empowerment. It results in healthier, more educated families and communities. Your society becomes more equal and robust.

Fourthly, when it comes to social services, MFIs help borrowers find better living conditions, and help them get their children’s education or access to nutritious food. This improves overall well-being and strengthens your community.

You might be thinking how does it benefit your MFI?

Well, with non-financial services, you create a positive impact on society by improving individual lives, making communities stronger, and reducing inequalities, step by step.

Most importantly, you help your organization. Ask how. When borrowers are well aware of their responsibilities and how they spend money, they tend to be more conscious of their debts. As a result, with responsible people, your MFI repayment rates will increase. Besides, these good non-financial services will help spread good words for your MFIs resulting in increased borrowers, happy investors, and recognition.

Non-financial services in MFI have proved to be transformative. They offer not just financial support, but the knowledge and skills necessary for individuals and their communities to flourish. These services teach people how to manage their finances wisely, enhance their business abilities, and ensure their well-being through healthcare and social support. The impact of these services extends beyond money; they foster independence and create a positive effect, strengthening communities and empowering marginalized groups. Similarly, microfinance Organisations benefit from the stable borrower and community, increasing market exposure and repayment rates.

Looking for a Core Banking Solution for Your MFI?

Explore Southtech’s Ascend Financials

Subscribe To Our Newsletter

Get updates and learn from the best

More To Explore

Top 5 Core Banking Solutions for MFIs in Africa

Top 5 Core Banking Solutions for MFIs in Africa

If you are running a microfinance organisation in Africa, you must be facing limitless challenges. You may have already considered adapting to a core banking

Requesting demo

Ascend Financials logo