WHEN Catalina Barajas's husband left her to raise the last three
of seven children alone, she was forced onto welfare and into public
housing. But to make ends meet, she knew she was going to have to
find another means of income.
Going out and starting a business was not the first thing she
thought of - nor would it be the first thing the United States
welfare system would prescribe for the former farm worker, who
speaks only Spanish and has minimal business qualifications.
What Mrs. Barajas didn't recognize, until the Micro Industry
Credit Rural Organization (MICRO) stepped in to show her, was that
the small sewing jobs she had taken in for years were a business she
It's this kind of entrepreneurial seed that MICRO, a Tucson,
Ariz., nonprofit development group, cultivates through small,
business loans. On collateral as small as a wedding band or a color
television, low-income and disadvantaged people, who would qualify
quicker for welfare than a traditional bank loan, can get business
loans as small as $500.
Barajas's first loan of $500 three years ago allowed her to buy
more fabric at a lower price than she was used to. This increased
her profit on the brightly colored bedspreads she makes. Demand for
her work increased, so she bought a better sewing machine with her
second loan of $1,000. Having paid off her first loans, with a third
loan of $2,000 she was to travel to Los Angeles from this remote
area to buy cheaper fabric and supplies.
"I never thought someone would lend me the money," says Barajas.
"This has motivated me to work more, whereas before I had to take
from my food money to invest and sometimes there just wasn't any."
She would never have considered asking a bank for money after having
been turned away by a local bank when she tried to open a savings
account with a crisp $20 bill and was told it wasn't enough.
Microenterprise development in many cases can substitute a ladder
of opportunity for the dependency fostered by the welfare safety
net, says Robert Friedman, founder and chairman of the board of the
Corporation for Enterprise Development, a Washington policy advocacy
group that also sponsors demonstration microenterprise projects.
"Microenterpise (development) crosses both liberal and
conservative lines," he says. For conservatives, he adds, "it's quid
pro quo. It's not a handout. And for that part of the liberal
establishment that simply looks at income redistribution, it works."
Microenterprise, which is free enterprise in its most basic and
spontaneous form, is a sort of business counterpart to subsistence
farming: It exists in pockets of poverty all over the world where
the unemployed must use their wits to survive. The informal sector -
that market in which microenterprise exists off the books, outside
taxes and government regulation - is believed to constitute 30 to 50
percent of the economies of developing nations.
In Latin America, for example, Peruvian economist Hernando de
Soto's studies of the informal sector (documenting the capitalistic
nature of upward mobility among squatter settlements in Lima) became
the inspiration for a whole school of international development that
has grown up around microenterprise.
The Grameen Bank in Bangladesh, on the other hand, has been the
international model for how to loan to the poor. It pioneered the
idea of giving credit - in amounts as little as $50 - to the poor
when it began offering loans in 1975 to peasant women who made
bamboo furniture. Today, reaching perhaps 500,000 people, the bank
offers loans to small groups of people who are trained together in
basic business procedures, divide the money among themselves for
their own businesses, and are responsible for the collection and
reinvestment of the money. The incentive of future loans maintains
discipline within the groups, which have a repayment rate of 98