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What is Microenterprise ? 

A microenterprise is traditionally defined as a very small business owned by one person or a family that does not have access to capital.  In the developing world, microenterprises are most often in the informal economy but in the United States, this is not always true.  Microenterprise programs are designed to assist these small businesses get access to the capital they need to grow their business and be prosperous.  It started as an experiment to see if access to capital could help women get out of poverty (more below).   Microenterprise programs also help people who are interested in starting their own business, but may lack the skills or training they need in addition to the funds. 
 
Where did the idea come from? 

 The first microenterprise program started in 1976 when Muhammed Yunus began an experiment by lending small amounts of money to poor women so they could expand their small, informal businesses.   He identified access to capital as a primary problem for these women.  In many developing countries, banks are inaccessible to the majority of the population, mostly poor, who, in turn, have only one option of borrowing capital from moneylenders who charge exorbitant rates.   The basic premise of the Grameen Bank is to lend small amounts at commercial rates, and collect small payments each week from peer lending groups. 
                                                                                                                             Muhammed Yunus
What are Peer-lending groups and how do they work? 

The Grameen bank first developed peer-lending groups as a way for women to guarantee each other's loan.  Poor people in general do not have collateral to insure their loans.  Members know each other from their village and can decide not to accept a person into the group if they think the person will not pay back their debt.  The Bank makes a single loan to the group as opposed to each individual to cut down on administrative costs and increase the group’s decision making power at the same time.  After initial training and observing Grameen rules for a period of time, two members are allowed to receive their initial loans, after two months of good repayment, the next two can receive their loans and then finally the groups’ leader receives their loan.  No one can receive any further loans if a group member falls behind in their payments. Group peer pressure is the primary method to ensure compete repayment of loans.  This model has been adopted by many international programs and now Western programs as well.  American programs have found, however, that because of our country's very different economy structure, diversity and welfare system, that importing these models directly is not possible, but requires modifications.
 
What kinds of programs are there in the U.S.? 
In the United States, there is a wide variety of microenterprise programs.  Some programs work specifically with women, some work only with people who already run their own businesses but need assistance accessing capital.  Edgcomb, Klein and Clark  looked at a seven different programs in the U.S. and found a range of approaches and divided them into three groups: credit as the primary service, group lending programs, and training-led programs that emphasize technical assistance and training (1996).  To find out more, go to the microenterprise programs links.

Can microenterprise programs eliminate poverty?

Microenterprise programs have gained popularity as a possible solution to poverty in this age of Welfare Reform.  This is not surprising considering it has elements of self-sufficiency and non-dependency that appeal to conservatives and liberals alike.  Most experts agree, though, that microenterprise programs are not a cure-all for poverty.  But they can be a solution for a group of people who have entrepreneurial skills and drive, but are kept at the margins of our economy.  As interest grows, however, the pressure will also grow as to how these microenterprise programs perform and alleviate poverty.   The foundation for further study and evaluation has been laid, and with time the impacts of different models and strategies should become apparent. 

Unanswered Questions

Perhaps the most interesting and crucial question is to what extent can microenterprise be successful in the United States?   In some areas bottle-necking has occurred when micro-businesses get to a certain size and there is no bank or micro-lending program that can help them grow large enough to be considered by a regular commercial bank (Mehta, 1997).   Clearly, more linkages and institutional support for growing microentrepreneurs is needed.  But beyond that, the scale of operations that can be achieved in the U.S. remains uncertain (Edgcomb, Klein and Clark, 1996; Balkin, 1993). 

The longitudinal effects of microenterprise programs on participants are also yet unknown.   Many supporters of microenterprise assert that it empowers poor people and gives them an entry point into the mainstream economy.  Higher satisfaction levels and quality of life are cited as benefits (Raheim and Alter, in press).  At the same time, some opponents say that microenterprise does nothing to alter existing power structures and these groups remain marginalized and pushes them off of welfare as well (Servon, 1997).  Further evaluations may not end the debate, but perhaps knowing the long-term impacts of microenterprise programs on "successful" participants will enlighten the discourse as to the barriers to poor people escaping poverty through microenterprise.

Finally, it has been noted that microenterprise programs do not turn participants into clients or passive recipients of aid, but rather the programs demand input, investment and commitment from participants and that is the primary reason why it is such a successful strategy for social and economic development.  It begs the question then, what are the other areas of community and economic development that could benefit from this approach?   I find myself asking, when we will stop looking at poor people as liabilities or lazy and truly begin to value them as people and build their capacities?