The Micro Enterprise Panacea

There’s a lot of talk about micro enterprise and its associated issues at the moment, with many sallying into the debate on poverty solutions waving around concepts like micro finance and technology inclusion as sorts of panacea pin ups. There are plenty of advocates arguing that if only we could get the capital, or the computers, or the craftsmanship into the hands of the poor, we could deal a fatal blow to world poverty as we know it. But while micro enterprise undoubtedly has a key role to play, the evidence suggests there’s plenty of room for improvement in the construction of the concept. In Nepal, the Small Farmer Development Programme’s micro finance operation reports loan default rates as high as 60%, while in Bangladesh, journalist Gina Neff found 55% of the Grameen Bank's clients were not able to meet their basic needs after eight years of borrowing, with most using their loans to buy food rather than invest in businesses. What is going wrong? And what can be done to turn the situation around?

Perhaps the first place to look for answers is in the modern history of development aid and micro enterprise as a poverty alleviation program. Micro enterprise is not a new concept – since time immemorial, individuals producing goods or providing services and trading them in the market has formed the most basic level of economic activity. Accordingly, in the experience of the developed world, it’s to these foundations that people and governments perennially turn in time of economic hardship. Government support for small business and “ma and pa” operations across the developed world waxed throughout the 20th century during depressions and recessions, only to wane in favour of big business in times of plenty. And the Western world’s approach to development aid for third world countries, a concept only really formalised in the late 1940s, has mostly reflected these changing trends. Large-scale anti-poverty projects and campaigns with multi billion dollar price tags implemented by behemoth organisations have had their time in the not-for-profit sun, as multinational conglomerates enjoyed tax breaks and policy privileges in the corporate sector. But after years of globalisation, homogenisation and continual widening of the rich-poor gap, it seems there’s been something of an awakening to the flaws of big business in the West, and a backlash against it. Workers are demanding flexible hours and family friendly arrangements, or abandoning the corporate infrastructure altogether. “Buy local” campaigns are rallying citizens to keep their consumer dollar within the national borders. The slow food movement is gathering pace in resistance to the ubiquitous fast food, low taste culture. One-of-a-kind, handcrafted clothes and homewares are hailed an expression of individuality while their mass produced counterparts are seen as a sign of conformity. And micro enterprise, brought to prominence by the success of operations like the Grameen Bank and Opportunity International in the 1970s and 80s, has experienced a surge in foreign aid policy popularity.

This backlash has had a huge impact on the developing world as well. Aid delivery via small, locally operated projects is now favoured over remotely managed, international NGOs and program strategies focused on cutting the foreign funding apron strings sooner rather than later are the new conventional wisdom. These trends significantly alter the course of funding flows, with micro enterprise a darling of the current policy push. But for the most part, the developing world has skipped the step of disenfranchisement with big business that in part is driving the program donors as it leaps into the arms of micro enterprise – which has always formed the backbone of its economies but is now fêted in policy. The effect of this leap is that many micro entrepreneurs, instead of embracing the competitive advantages at the essence of a micro enterprise, are trying to replicate the big business model on a small scale. Instead of concentrating efforts on designing and developing unique products that reflect the ever changing nuances of the market, the focus is on duplicating the style of the homogenised competition. Instead of deliberately charging premium prices that reflect the extra time and creativity required to produce unique, individually crafted products, there’s a doomed battle to match the price of the mass produced competition, and perpetual pressure to cut costs and wring out the last drop of labour capacity. Instead of preserving the traditional techniques necessary to produce finely crafted, premium goods, handlooms and wooden spoons are being replaced by powerlooms and industrial mixers to produce cheaper imitations of the originals. And the result is a swath of struggling micro enterprises churning out a plethora of products that are neither handcrafted nor mass produced, but are inferior to both, which consequently are given a lukewarm reception at best in the market.

Perhaps one of the keys to resolving these shortcomings lies in reconsidering how micro enterprise programs are typically constructed. Firstly, there seems to be some confusion about the difference between micro enterprise and micro finance. Micro finance, as the name suggests, is concerned primarily with providing the cash necessary to operate the business. Micro finance services often also encompass some analysis and feedback on the business plan and training on basic budgeting and accounting skills as a means of ensuring a return on their investment, but that capital is the main focal point. Capital is an important component in establishing and growing an enterprise, but it’s by no means the only one, and the potential achievements of a program that focuses solely on the provision of credit are restricted from outset. In fact, any program that focuses on just one element of enterprise development constrains its own success. Programs concentrated on skills development, or improving access to technology, in isolation from other key components, like credit provision, entrepreneurship training and product marketing, are no better at delivering more than mediocre outcomes.

On the other hand, the Micro Enterprise Development Program, a joint initiative of the UNDP/Nepal and the Nepal Government, boasts a healthy – and realistic – success rate of 95% in establishing sustainable enterprises among the poor. MEDEP provides a package of services covering the key elements of entrepreneurship, which are offered to new micro entrepreneurs in sequential order. Business management skills training is provided before technical skills training; access to credit and then technology is addressed after that. The MEDEP model aims to develop micro entrepreneurs who are equipped to grow their business from start up to maturity and overcome the inevitable operational hiccups, rather than simply providing potential entrepreneurs with a hammer and hoping they will be able to figure out how to build the house themselves.

Apart from the design of programs at a government or NGO level, the success of micro enterprise as a solution to poverty is also dependent on society’s attitude to consumption.
And this is the point at which we all, as consumers, have a responsibility in shaping our own communities’ future. What do we demand from the products we buy? Is low price at any cost our main criteria? How much value do we place on marketers’ brands? Is it important to consider the social and environmental impact of our purchasing choices? Do those choices play a role in preserving traditions and skills or do they act to weaken them? It may be part of the answer to reducing poverty, but micro enterprise also raises a maelstrom of questions and the concept’s full impact won’t be achieved until they are addressed, not just by policy makers but by the public.