HOW IMPORTANT IS THE RELEVANCE OF CAPACITY BUILDING IN MICRO FINANCE INDUSTRY

Introduction:-

The microfinance sector has come a long way since its inception, with MFIs playing a critical role in providing financial services to underserved communities. However, the success of microfinance organizations depends on their ability to build their capacity continuously. Capacity building is an ongoing process that involves developing the skills and knowledge of staff and management, enhancing institutional performance, and adapting to changing environments. It is a crucial aspect of microfinance that can make the difference between success and failure. In recent years, the Indian government has taken significant steps to support capacity building in the microfinance sector, recognizing its importance in promoting financial inclusion and reducing poverty. Despite the efforts, MFIs face several challenges in building their capacity, such as limited resources, inadequate training, and a lack of infrastructure. Nevertheless, by implementing effective strategies for capacity building, MFIs can overcome these challenges and achieve sustainable growth and impact. In this article, we will explore the importance of capacity building in the microfinance sector, the role of the Indian government, current challenges faced by MFIs, and the strategies for successful capacity building. According to a study by the Consultative Group to Assist the Poor (CGAP), only 23 percent of microfinance providers worldwide have high levels of capacity in all areas. Capacity building is therefore crucial to the success of MFIs in achieving their mission of promoting financial inclusion and reducing poverty. In this article, we will explore the critical role of capacity building in the microfinance sector, current challenges faced by MFIs, and the strategies for successful capacity building to achieve long-term success.

The Indian government has also established the Small Industries Development Bank of India (SIDBI), which provides funding and technical assistance to microfinance institutions and micro-enterprises. SIDBI has implemented several capacity building programs for microfinance institutions, including training on financial management, risk management, and social performance management. One of the key initiatives of the Indian government is the National Rural Livelihoods Mission (NRLM), which aims to alleviate poverty in rural areas through a variety of interventions, including microfinance. NRLM provides funding and technical assistance to state governments, NGOs, and community-based organizations to implement microfinance programs and build the capacity of microfinance institutions.

Organisational aspects

Capacity building is critical for the success of microfinance Institutions (MFIs) as it helps to strengthen their institutional capacity, enabling them to deliver high-quality financial services to low-income populations and micro-enterprises. Here are some ways in which capacity building helps MFIs for success:

1. Improves Governance and Management: Capacity building programs help MFIs to improve their governance and management structures. This includes training on strategic planning, leadership development, and financial management. Effective governance and management structures are essential for the long-term sustainability of MFIs and their ability to deliver effective financial services to their clients.
2. Enhances Operational Efficiency: Capacity building programs help MFIs to develop and implement effective operational systems and procedures. This includes training on loan processing, risk management, and monitoring and evaluation. Improved operational efficiency helps MFIs to reduce costs, increase productivity, and improve their service delivery to clients.
3. Promotes Financial Inclusion: Capacity building programs help MFIs to develop innovative financial products and services that meet the needs of low-income populations and micro-enterprises. This includes training on financial education, customer service, and business development services. By promoting financial inclusion, MFIs can contribute to poverty reduction and economic development.
4. Builds Technical Capacity: Capacity building programs help MFIs to develop the technical skills and knowledge needed to operate effectively in a complex financial environment. This includes training on new technologies, such as mobile banking and digital finance, and understanding regulatory and legal frameworks. Building technical capacity helps MFIs to adapt to changing market conditions and stay competitive.
5. Fosters Collaboration and Partnerships: Capacity building programs help MFIs to build strong partnerships and networks with other stakeholders, such as regulators, donors, investors, and other microfinance institutions. This can help MFIs to access funding and technical assistance, promote collaboration, and share knowledge and best practices.

Future Aspects

The future of capacity building in microfinance looks promising as the sector continues to evolve and adapt to changing market conditions and client needs. Here are some potential future aspects of capacity building in microfinance:

1. Digital Transformation: Capacity building will continue to play a vital role in supporting the digital transformation of microfinance institutions. This includes training on digital financial services, mobile banking, and block-chain technology, among others. As more clients access financial services through digital channels, capacity building will be crucial for MFIs to remain competitive and meet client needs.
2. Client-Centric Approaches: Capacity building will increasingly focus on client-centric approaches, such as financial education, business development services, and customer service. This will enable MFIs to better understand the needs of their clients and design financial products and services that are tailored to their needs.
3. Risk Management: Capacity building will continue to play an important role in strengthening the risk management capacity of microfinance institutions. This includes training on credit risk, operational risk, and liquidity risk management, among others. As microfinance institutions grow and diversify their product offerings, effective risk management will be essential for their long-term sustainability.
4. Partnerships and Networks: Capacity building will continue to foster partnerships and networks among microfinance institutions, donors, investors, and other stakeholders. This will enable MFIs to access funding and technical assistance, promote collaboration and knowledge-sharing, and build a more robust and sustainable microfinance sector.
5. Sustainable Development Goals: Capacity building will increasingly align with the Sustainable Development Goals (SDGs), particularly SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth). Capacity building initiatives will focus on building the institutional capacity of MFIs to promote financial inclusion, reduce poverty, and support economic development.

CURRENT CHALLENGES

While capacity building is critical for the success of microfinance Institutions (MFIs), there are several challenges that they face in implementing effective capacity building initiatives. Here are some of the current challenges of capacity building in microfinance:

1. Limited Resources: MFIs often have limited financial and human resources, making it challenging to invest in capacity building initiatives. This can restrict their ability to implement effective training programs, hire skilled staff, and adopt new technologies.
2. Lack of Coordination: Capacity building initiatives in microfinance often lack coordination and are fragmented, with multiple stakeholders providing different types of training programs. This can result in duplication of efforts, inconsistent quality of training, and confusion among staff and management.
3. Insufficient Evaluation: MFIs often lack the resources and capacity to evaluate the effectiveness of their capacity building initiatives. This can make it difficult to determine the impact of the training on the skills and knowledge of staff, the quality of service delivery, and the sustainability of the institution.
4. Rapid Technological Change: Technological advancements are transforming the microfinance sector, making it challenging for MFIs to keep up with the pace of change. This can require significant investment in training staff on new technologies, and a continuous effort to stay up-to-date with the latest developments.
5. Limited Access to Training: Microfinance organizations in rural and remote areas may have limited access to training programs due to geographical and logistical challenges. This can make it difficult for staff to access quality training programs and improve their skills and knowledge.

Strategies Aspects 

To ensure the success of capacity building in microfinance, there are several strategies that microfinance institutions (MFIs) can implement. Here are some examples:

1. Needs Assessment: Conduct a thorough needs assessment to identify the capacity building needs of the organization. This should involve identifying the skills and knowledge gaps of staff and management, and understanding the specific challenges faced by the organization.
2. Tailored Training Programs: Develop tailored training programs that are specific to the needs of the organization. This should involve designing training modules that address the identified skills and knowledge gaps, and incorporating practical, hands-on training to ensure that staff and management are able to apply the knowledge gained.
3. Continuous Learning: Capacity building should be an ongoing process, with regular training and learning opportunities provided to staff and management. This can be achieved through mentoring and coaching, attending seminars and conferences, and providing access to online learning platforms.
4. Monitoring and Evaluation: Regularly monitor and evaluate the effectiveness of capacity building initiatives to ensure that they are achieving their intended outcomes. This can involve measuring the impact of training on staff performance, quality of service delivery, and the financial sustainability of the organization.
5. Partnerships and Collaboration: Foster partnerships and collaboration with other microfinance institutions, donors, investors, and other stakeholders to access funding and technical assistance, promote knowledge-sharing and best practices, and build a more robust and sustainable microfinance sector.
6. Use of Technology: Embrace technological advancements to support capacity building initiatives, such as e-learning platforms and mobile training applications. This can improve the efficiency and effectiveness of training programs, and provide greater access to training for staff and management in remote and rural areas.
7. Soft Skills and Behavioural Training: Organizations must promote soft skills and behavioural trainings amongst all levels. This would enables the staffs to think out of the box, they would be able to act accordingly in all situations.
8. Promote Financial Literacy Programs: Regular FE programs helps rural / urban people to understand the correct usage of account, banking facilities and make them able to take financial decisions. They can also manage their money effectively which best suits in livelihood.

Organizations must prioritize organizational aspects, consider future trends, address current challenges, and implement effective strategies to thrive in today’s business landscape. By optimizing operations, anticipating changes, overcoming obstacles, and adopting innovative approaches, organizations can position themselves for sustained success and growth. In the end, we would like to say that if there is more focus on business growth in MFI with capacity building centric approach, then we can definitely brought a new change in the industry.

(The author is Kaushal Kishore Chaturvedi, Vice President – Training & Development, Satin Creditcare Network Limited, and the views expressed in this article are his own

Having over 20+ years of versatile experience in Development Sector with Different Developmental Organization (National and International) / Micro Finance Institutions (NBFC) / Agencies / State Governments Bodies such as the Rajiv Gandhi Foundation, UNICEF and different World Bank projects, Mr. Chaturvedi possesses a strong ability to manage multi-sectoral activities and can carry out programme operations even in adverse conditions. He holds expertise in the fields of participatory training, research and study and project monitoring. He joined, Satin Creditcare Network Limited in 2015. At Satin, his area of work includes imparting a training support system across all departments, maintaining coordination of a large training team, which includes core process trainers and Deputy regional managers, for continuous capacity building of 10000+ employees. Additionally, he directs training and development processes and ensures all new hires receive high-quality orientation and on-boarding experiences in order to maintain a high employee performance level.)