Micro-enterprise

the US State Dept (USAID) defines a micro-enterprise as “a firm of 10 or fewer employees, including unpaid family workers, that is owned and operated by someone who is poor.” apart from the grameen bank type efforts, Congress supplies a good amount of money every year for small sized loans (~$500) and business development activities (BDA) to poor individuals worldwide – majority women – in the form of microcredit.

in 2002 it was $170 million = $110M microfinance + $47M business development services (BDS) +… see review papers prepared by the US state dept (in 2004). this has been shown to bring families out of poverty — consistent with what we would expect from Dr. Krishna’s surveys on the causes for families falling into and rising out of poverty.

the basis (or bias) of microcredit is a repayment rates of 95-97% ensured through social support groups who hold each other accountable, and which turn requires focus on businesses that the villagers know how to make money from and so many end up being agricultural based. examples cited here tend to indicate this (selling vegetables, food preparation, etc) while some are non-agricultural (sewing, kerosene lamps, handicrafts)

1. Members must run successful businesses. This is at the heart of what we do. Our members create businesses around existing livelihood skills and provide simple services and products for which there is already a demonstrated demand. Their business plans must pass the scrutiny of their own self-guarantee groups, which have the power to reject loan applications.

2. Perhaps counter-intuitively, even the poorest people (i.e., those earning less than $1 per day per capita) do not, in general, need formal training before launching a business supported by a microfinance institution (MFI). Their “survival skills,” honed in an environment where there is neither a safety net nor wage employment to fall back on, are well developed, though severely undercapitalized. Providing capital, in a structured format where peer accountability is emphasized, is the most efficient and respectful means of ensuring rapid progress. Costly business training and technical assistance programs can therefore often be dispensed with or used only in exceptional cases.

so the success of micro-enterprises hinges on information that the villager already knows about and has access to. from these papers and the IIT-Madras analysis for india, it seems little to nothing has been done so far to expand the information available to villagers about higher paying opportunities in their village or region by exposing demand and reducing distribution costs in the local/rural economies – how do we close the information deficit?

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