Risks of Social Entrepreneurship in Microfinance

SHG women running a cabinet manufacturing business [Photo by mckaysavage] (CC BY-SA 3.0)

The risks of social entrepreneurship in the area of microfinance have made headlines lately, pointing to the fact that this sector is perhaps more risky than other social business models.

In developing countries like Uganda, microfinance has been viewed by some as a panacea for alleviating poverty and unemployment, and government budgets there have allocated large sums to projects like the Youth Entrepreneurship Capital Venture Fund to help young people finance business startups.

However, examples elsewhere are showing that if not properly managed, providing loans to poor people can do more harm than good. In some cases these funds are spent on consumption or invested in dubious business propositions which lack proper risk management. Some suggest that a better solution to the problem of youth unemployment would be to begin employment training much earlier in life.