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What is Microenterprise?
What is microenterprise? Microenterprise is the mom and pop shop on the corner. It is the lemon-aid stand on the side-walk. It is the vegetable stand in the local market. Microenterprises are entrepreneurs working towards a livelihood with a small number of products and often limited access to financial security and support.

USAID uses financing of microenterprises as an anti-poverty program. Economic growth on its own is not enough. Poor people in developing countries often do not share in the wealth creation. The distribution of income from economic growth through empowering poor people to participate is a crucial and fundamental challenge undertaken by USAID.

An additional challenge, particularly for women in developing countries, is finding a safe place to keep their savings. Without a reservoir of savings, obtaining credit and making investments in their business is next to impossible. The savings they do accumulate are often drained when natural disasters and social/cultural events occur. Their lack of access to insurance means they spend their available money on purchasing life saving medicine for an ailing relative or purchasing new seeds when drought kills a crop.

The USAID provides financial services to many of those lacking access through their national and private institutions. These services include savings and credit. These two basic financial tools allow entrepreneurs to invest in technology, connect to professional networks and most importantly, get their products to market.

The USAID microfinance programs have three goals:
1. “Improve the quality and affordability of financial services.
2. “Extend access to excluded populations such as women, the disabled, and those living in remote areas
3. “Assist smallholder farmers and small business entrepreneurs in selling their products by linking them with buyers and suppliers of good and services.”

The approach USAID and partners use is called the Value Chain Approach. The VCA views each business as a unique cog in the intricate clockwork of the global marketplace. To assess the potential of projects VCA focuses on influencing “structures, systems and relationships that define the value chain.” Manipulating these factors increases competitiveness by improving/upgrading processes and products. The scope of industry analysis and inputs to intervention design yield a unique perspective that has led to great success.

• “A market system perspective
• “A focus on end markets
• “Understanding the role of value chain governance
• “Recognition of the importance of relationships
• “Facilitating changes in firm behavior
• “Transforming relationships
• “Targeting leverage points
• “Empowering the private sector”

By working to fulfill these goals, USAID and entrepreneurs make higher quality products and increase the visible to consumers. In the experience of USAID, when micro financing options are offered alongside education, health and energy services, household earnings are increased allowing people to “graduate themselves out of poverty.”

Katherine Zobre
Sources: USAID , Microlinks
Photo: USAID

Africa: Working to End Hunger Internally

When discussing the issue of hunger and global poverty, most immediately think of foreign aid and intervention from donors as being the main solution to the problem. What seems to be disregarded is the power of those living in poverty and the influence of those in power in impoverished countries. Now, leaders in Africa are working to end hunger internally. A recent conference brought together delegates from five African nations with the Director-General of the Food and Agriculture Organization to develop an effective way to eradicate hunger in Africa.

FAO looks to form innovative partnerships in Africa to “build on experiences and stop the suffering of the estimated 23% of all Africans who remain undernourished”. While the organization’s program, Unified Approaches to End Hunger in Africa, will work to provide greater access to water, food, and education, the program builds off of the already increased production of goods and “consistent political will” in many developing African countries.

Countries like Angola and Ethiopia have run social protection and national development plans, promoting domestic agriculture and the provision of water as well as infrastructure improvement. Services including microfinancing and “cash-for-work public infrastructure programs” work to accelerate development in order to end poverty. These internal programs work to create stable societies and economies that are more conducive to greater production in order to advance the protection of their citizens.

While partnership and foreign aid are incredibly important forces behind eradicating extreme poverty around the world, they are by no means the only work being done. It is necessary to take into account the work being done by these people that are often portrayed as hopeless and helpless by the media; they are far from it and are working to end global poverty just as resolutely internally as developed countries are external.

– Sarah Rybak

Source: All Africa
Photo:Radio Netherlands Worldwide

microfinance

The values and benefits of microfinance lending to the world’s poor are mixed; but they have overall proven to be a mechanism for lifting individuals out of poverty.  The system of proving microloans is a well-oiled machine providing finance to individuals in low resource areas. One micro lender wants to go a step beyond microfinance and provide the poor with much needed savings and insurance products.To continue to help the poor life themselves up, Microlending pioneer Accion has called for more financial products typically common in the developed world.

These financial products such as insurance, saving accounts, and ways to move money are sophisticated tools many in the developed world don’t think twice about, but for the world’s poor these products are rarely available.  Accion, based in Boston, announced they would begin investing in start-ups that are working to provide more variety of financial tools to people around the world.  Unfortunately, business models and technology to deliver financial tools like savings accounts is much less tested in rural and poor areas. The lack of longevity in testing and practice causes many venture firms to be wary of investing in start-ups.

Accion’s Venture Lab will invest $10 million in ventures seeking to expand financial tools beyond microfinance.  This is not to diminish the effects and needs of microfinance, but to continue to take the poor a step beyond microfinance.   Accion’s first investments include Salud Facil, which helps low-income individuals in Mexico pay for health care, and Varthana, an Indian company financing low-cost private schools.  In addition, the fund is investing in payment companies in Asia and Mexico as well as a start-up in Hong Kong attempting to use data to improve credit scores.

Other investors are also offering money for financial products in the developing world. LeapFrog Investments has dedicated $135 million to bring insurance to underserved markets. Those in poorer income brackets need financial services beyond credit. Constant innovation and testing must be continued to find self-sustaining and profitable financial products to developing markets. Accion Venture Lab will continue to invest in start-ups to help them do the testing they need and continue to innovate in providing insurance and savings products to low-income individuals. Accion’s model is to help the start-ups and if they fail, to take the lessons learned and start over. Ultimately, the goal is improving the credit and lives of the world’s poor.

– Amanda Kloeppel

Source: Bloomberg Businessweek

Top 10 Microfinance Blogs
Blogs are a great way to hear a variety of voices and experience an issue from diverse perspectives, and there are a variety of sites full of information, opinions, and more. Below are 10 interesting blogs that present unique perspectives on the topic of microfinance.

  1. The Consultative Group to Assist the Poor (CGAP) Microfinance Blog discusses the benefits and challenges of various tools used in microfinance and provides a forum to learn more about new microfinance initiatives. There is a variety of contributing writers who share their expertise on the nuances of microfinance, and CGAP also presents fact-based blog entries in addition to opinions on how to improve the industry.
  2. The Nicholas D. Kristof blog is a favorite of many readers of The New York Times. This blog is not directly related to microfinance but discusses many of the world problems that microfinance addresses.  It tackles many development issues around the world and discusses issues ranging from hunger to education to women’s rights.
  3. A Grameen Foundation blog (Creating a World Without Poverty) discusses Grameen’s work in microfinance and showcases thoughts and feelings from the organization’s volunteers in the field. It provides a variety of voices experiencing microfinance in action around the world.
  4. The Wall Street Journal’s India Real Time blog provides a “daily pulse for the world’s largest democracy.” This blog is not solely about microfinance or poverty eradication but it does provide many articles related to daily life and the economic growth of India. It offers regular comments and critiques of the Indian microfinance industry.
  5. The Center for Financial Inclusion blog from ACCION International covers and comments on the many new ventures currently in progress in the field of microfinance. It also discusses methods for how to enable more people to access microfinance services in the future.
  6. Defeat Poverty provides reviews on current books in the field of development and microfinance, in addition to covering many other issues related to poverty eradication.
  7. The India Microfinance blog discusses the issues and triumphs of the microfinance industry in India. It discusses many specifics on the financial tools used. India’s microfinance industry is critiqued by many and this blog provides voices that speak on either side of the issue.
  8. Banking with the Poor Network blog discusses microfinance in Asia and around the world, with a focus on a wide variety of organizations.
  9. The MF Transparency blog deals with some of the challenges faced by for-profit and nonprofit microfinance organizations and offers information and resources that encourage transparent pricing.
  10. The myKRO blog serves as an online community where microfinance organizations can raise awareness about their work, offering and receiving commentary about their actions with other players in the field.

 – Katie Brockman

Source: Opportunity International
Photo: Fairview High School

Female-Entrepreneurs

Since the start of 2013, a huge focus in the humanitarian world has been on the benefits of small entrepreneurial endeavors in developing countries. Due to global financial crises and budget cuts, especially here in the United States, investors are becoming more picky with where and to whom they are sending their money to. In many cases, they have opted for private organizations that directly put the money in the hands of local men and women who are making immediate and visible changes in their communities.

Ana Cecila Acuña is such woman. Despite her meager circumstances, having grown up in a small village in Nicaragua, her parents instilled in her a confidence that would help her dictate her own life and propel her towards success. A big obstacle that Acuña and many other women in her position have been able to overcome is making a name for themselves in a patriarchal society where not only does man dictate home life but also all outside business and negotiations.

Ana established a small home business selling oil and rice with the help of microloans from the nonprofit Opportunity International, managing to expand her business as well as to incorporate 20 other women and their ideas into the project. This venture led her to gain a seat on the board of the La Laguna Community Cooperative. A local political organization run exclusively by men, the Community Cooperative was in charge of handling the village’s affairs. When Ana recognized a fault with the way things were going, she decided to make the change herself.

Opportunity International, which started in the 1970s, is a microfinance nonprofit that has been providing loans, saving opportunities, insurance, and finance training to entrepreneurs in over 20 countries. After working with Ana and her small business, they funded the Cooperative with a $10,000 loan. The money was used to build a well in the village, providing close access to water for over 200 families, a luxury that the Cooperative was not able to figure out on their own. Instead of walking four miles by foot each day, the water is sent directly to the village homes through a piping system that was also installed.

Acuña’s achievements are remarkable for two specific reasons: the first is because of her socioeconomic standing prior to forming her business and joining her village government and the second, because she is a woman. Women in developing countries are being looked at to lead the escape out of poverty for their families and communities. Gayle Tzemick Lemon of the Huffington Post recently reported on the increase of female entrepreneurs and that “when women have income coming in research shows that the entire family benefits in the form of better nutrition and health”.

It is important to keep in mind the potential that every single human being possess. Whether they live in Angola or Arkansas, the entrepreneurial spirit is embedded in all of us; it simply needs encouragement, a bit of hope, and of course a little bit of money.

– Deena Dulgerian

Source: Huffington Post