Microfinance and microenterprise
The Agurban from Boomtown Institute - Microfinance and Microenterprise
September 18, 2007
In the United States, microfinance refers to financial services and products that meet the market demands of low-wealth individuals. They include microloans, microenterprise development training, personal financial education, individual development accounts, second-chance accounts, stored-value cards, and asset-building check-cashing accounts and remittance services. These financial products, services and skills build wealth in communities, revitalizing them over the long term.
In this country, microenterprises are companies with five or fewer employees that need up to $35,000 to start up or expand. Microenterprise borrowers are entrepreneurs who have insufficient credit history, need a loan smaller than the usual small business loan or do not meet other lending criteria of traditional financial service providers.
The Association for Enterprise Opportunity, an industry trade organization, puts the number of total U.S. microenterprises at 21.5 million. Approximately 10 million of these microentrepreneurs are individuals who face barriers to mainstream finance and business development services. This group is largely composed of women, people of color, ethnic minorities, the disabled and individuals on welfare interested in starting a business. In addition, an untold number of microentrepreneurs operate in the growing informal economy, the set of economic activities that are considered legal but not in accordance with industry regulations and tax laws. That economy is estimated to represent approximately 10 percent of the U.S. gross domestic product and includes both employed and self-employed individuals.
An increasing number of companies are downsizing, hiring more temporary workers and outsourcing. The growth of nonpermanent jobs translates into a shrinking financial safety net. This is especially true in rural communities, which continue to face economic decline. An aging U.S. population exacerbates this destabilization by reducing the size of the workforce while placing greater demands on the social infrastructure.
Microenterprise development helps address this destabilization by increasing employment among the unemployed and underemployed. These jobs are important beyond the paychecks they provide because they serve as a training ground for future employment. From a macro perspective, microenterprise is significant because it is the precursor to small business-the backbone of the U.S. economy-and generates 17.2 percent of the country's private employment.
Asset accumulation is another function of microenterprise development. Microenterprises generate income for entrepreneurs and their families, enabling them to build their assets. One direct benefit of asset accumulation is the reduction of dependence on public assistance. As microenterprise helps decrease dependence on public assistance, it raises tax revenues by increasing the number of workers. The growth of
microenterprises also increases sales for regional businesses that supply goods and services to microentrepreneurs and their households, further boosting sales tax revenues.
In addition to these quantifiable benefits, there is a wealth of qualifiable returns from microenterprise development. They include borrowers' improved economic literacy, business and financial skills; increased access to conventional sources of credit; and strengthened emotional capital, such as self- esteem, pride, sense of independence and financial security, and the feeling they can enjoy the privileges and rights of being active economic participants. As microentrepreneurs raise their households' standard of living, they tend to strengthen their family and community ties because entrepreneurship makes their schedules more flexible, shows them the benefits of increased neighborhood participation, and provides needed goods and services to the local community.
Moreover, entrepreneurs create intangible and tangible intergenerational wealth by involving their children in their business operations, discussing business at the kitchen table and transferring their assets to them.
Entrepreneurship continues to be a key economic development tool. The success of your entrepreneurs will strengthen your community.
The Blog Log Visit my weblog to see where I've been and what I have learned along the way.
On the road again. In addition to my travel blog I'll list my upcoming engagements in each issue of The Agurban. Come see me when I'm in your neighborhood!
Upcoming Speaking Engagements:
Tuesday, September 11 - New Castle, PA - Lawrence Co. EDC Annual Meeting Tuesday, September 18 - Dodge City, KS - Centera Bank Friday, September 21 - Oil City, PA - Oil Region Alliance Monday, September 24 - Martinsville, IN - Martinsville Chamber of Commerce
Jack Schultz is the CEO of Boomtown Institute and Agracel Inc. an industrial development firm majoring in rural America, author of Boomtown USA, and speaker. Boomtown Institute serves as an economic development mentor to communities across the United States, leading communities to realize their full potential.
Visit the Boomtown Institute website at www.boomtowninstitute.com Keep up with Jack as he tours the country on his blog! To learn more about Agracel visit www.agracel.com.
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