[Header image: Trainees from the Aggar Microfinance Institution learn about cost–benefit analysis at a LIFT course in Addis Ababa.]
In March 2019, Land Investment for Transformation (LIFT) delivered training to several partner microfinance institutions (MFIs) to introduce them to cost–benefit analysis (CBA). CBA is a well-established approach in business to determine whether or not an investment is sound, and if so, to compare investment options. The goal of introducing this method is to enable MFIs to more efficiently, profitably and reliably implement the financial products and services developed in partnership with LIFT, such as loans linked to second level land certification (SLLC).
A total of 52 experts from five partner MFIs participated in the three-day CBA training sessions given by LIFT in February 2019. Four separate training sessions were held: for Aggar Microfinance in Addis Ababa; Amhara Credit and Savings Institution in Bahir Dar; Oromia Credit and Saving Share Company in Addis Ababa; and Omo Microfinance Institution in Hawassa. In addition to classroom lectures, trainees gained practical hands-on experience in using CBA through a series of exercises that resembled the real-life interactions taking place between MFIs and farmers during the pilot stages of the SLLC-linked loan programme. The training was further customised for each MFI so that trainees learned to evaluate the performance of the different credit and savings products from their specific institution.
One of the key lessons learned by MFI staff during the CBA training was that an individual loan product, available with SLLC, is more profitable than a group loan product. A second important lesson was that for one particular MFI, an SLLC-linked savings product was not profitable due to the high cost of mobilising savings. This finding helped participants to unlearn the common assumption that savings are normally low cost, and identified a need to scale up the loan at this MFI to make the product profitable.
LIFT is now documenting the techniques, tools and best practices for CBA developed through the training session to bring this knowledge to other MFIs and stakeholders.
For more information, contact the LIFT communications team at email@example.com