Poverty Reduction Through Entrepreneurship
There are two types of programs most commonly associated with helping the global poor.

The first is government to government aid. The second is a direct service NGO that performs tasks like building wells and distributing medicine. However, another effective way to boost poverty reduction is through entrepreneurial assistance.

There is a persistent impression of the world’s poor as being entirely dependent on others and incapable of improving their own lives. Contrary to this belief, there is a vibrant entrepreneurial spirit in the developing world. After all, given the lack of government support in these regions, citizens have to become creative in order to simply survive. The problem is just that most of these individuals lack the knowledge, skills or financial means to turn their ideas into reality.

The Transformational Business Network (TBN) explains that growing entrepreneurship can be a powerful means of poverty reduction for three main reasons. First, it provides individuals with the tools to improve their own circumstances as opposed to relying on aid from foreign governments or NGO’s. Second, it gives people the means of achieving a sustainable income. Third, it improves overall economic growth which benefits all the citizens of a country.

The TBN identifies microfinancing as a popular means of facilitating entrepreneurship in the developing world. Microfinancing involves providing individuals with small loans, usually a couple hundred dollars, to help them set up micro businesses. Microfinancing has shown a large degree of success with an extremely high loan repayment rate and has grown into a multi-billion dollar global enterprise creating millions of entrepreneurs.

Microfinancing does have its limits. The Carnegie Council identifies two different types of entrepreneurship: opportunity entrepreneurship and necessity entrepreneurship. Opportunity entrepreneurship involves the creation of real businesses that have the capacity for significant growth. Necessity entrepreneurship usually involves self-employed individuals who are barely surviving.

The Global Entrepreneurship Monitor project found that opportunity entrepreneurship is a much more effective way of growing a nation’s economy and lifting entire populations out of abject poverty than necessity entrepreneurship. Microfinancing, however, tends to create more necessity entrepreneurs.

USAID’s PACE initiative is currently engaging in a comprehensive strategy to increase both necessity and opportunity entrepreneurship by partnering with over 40 accelerators, incubators and seed-stage impact investors. According to the PACE initiative website, the idea is “to catalyze private-sector investment into early-stage enterprises and identify innovative models or approaches that help entrepreneurs bridge the” gap between promising enterprises and potential investors.

The PACE initiative also hopes to expand the entrepreneurship knowledge base by partnering with a number of organizations including the Omidyar Network, the Argidius Foundation and Emory University. Together these groups are launching a research project designed to assess the efficacy of accelerator programs, providing these programs with “statistical data and market insight to better inform their own decision-making.”

It’s clear that the future of anti-poverty efforts will and should involve an increased investment in entrepreneurial enterprises.

James Long

Photo: Flickr