Micro-entrepreneurs in developing countries face a number of constraints on business growth. Lack of access to capital has received a lot of attention amongst donors and practitioners, as witnessed by the rise of the microfinance movement. But while there is a lot of optimism about the power of finance for small scale business development, research demonstrates that success cannot be taken for granted. In order to optimize the impact of microfinance, it is clearly important for governments and donors to u nderstand the factors that determine its success and failure. From the viewpoint of microfinance institutions (MFIs), it is also important to gain a better understanding of the factors that determine whether clients stay in the loan program or drop out.
T he present research proposal builds on ongoing research in Tanzania, which started in 2007, and which is led by members of the research group. The main ambition of the ongoing research project has been to evaluate the impact of business training for small scale entrepreneurs in Dar es Salaam, who are all members of the main microfinance institution in the country, PRIDE Tanzania (Promotion of Rural Initiative and Development Enterprises).
Our long-standing collaboration with PRIDE Tanzania and with resear ch institutions in the country, including the University of Dar es Salaam and Research on Poverty Alleviation (REPOA), provide an excellent platform for further research on the topic.
In particular, the ambition of the present research project is to dig d eeper into the mechanisms of microfinance, starting with the individual's motivation for seeking a loan in a microfinance institution (entry decision), to the importance of social capital on the functioning of groups (group dynamics), and ultimately to th e effects on micro enterprise development (business outcomes).