Microenterprise development programs (MEDs) were originally developed and utilized overseas in less developed nations where there is extreme poverty throughout the entire country. These programs have provided microcredit to those living in poverty to encourage them to start their own small businesses. The term microcredit is utilized because the amount of the loan is usually quite small, as low as $50 and a maximum of usually around $100 or $200. Because these businesses are so small, usually comprising 0-5 employees, they are referred to as microenterprises. You can read more about MEDs in some of my other articles on economic development.
Is microcredit king?
Although international MEDs are considered successful, it has been assumed that microcredit is all that someone needs in order to start their own microenterprise. These theories are grounded in research which state that those living in poverty are very resourceful, adaptive, creative, hard-working, etc. Even though this may be correct, does this mean that microcredit is the only barrier preventing them from starting their own small business?
In 2009 I spent five months in Ukraine and conducted some research for one of my doctorate classes while there. Although I am a Russian speaker, I utilized the assistance of two native speakers to review and modify my questionnaire to ensure accurate meaning in translation. My questionnaire was distributed to one young lady, who then distributed it at her place of work and at her university. She distributed 60 questionnaires, and 42 were returned completed, resulting in a 70% response rate. Average respondent income was equal to approximately $100 per month. Those of you interested in demographics and other methodological issues are welcome to request them from me via e-mail.
The results were surprising (see the slide show for bar graphs):
(1) Credit was not rated as the number one barrier to starting a micro-business. Bureaucracy was rated the number one barrier to starting a small business, and it was rated at the maximum of the scale provided.
(2) Credit was not rated as the number one need from an MED. Help with advertising and tax incentives were rated as being of greater need than credit. They were also rated at the maximum allowed by the scale provided.
The implications of this research are potentially significant. In other words, even though MEDs that provide microcredit are shown to be effective, perhaps they could be MORE effective! How? By first providing solutions to bureaucracy, help with advertising, and tax incentives, followed by credit (if needed).
The end result would be a better use of tax dollars, which is how MEDs are funded, and also improved economic and community development.