Poor Take Micro-Steps off Welfare Microenterprise Development Encourages Self-Sufficiency Via Loans for Small Businesses
Clara Germani, writer of The Christian Science Monitor, The Christian Science Monitor
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 could develop.
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 percent. …