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Microenterprise development programs provide low-income entrepreneurs with the skills and capital needed to start or improve a small business and help them achieve economic selfsufficiency. A microenterprise is a business with five or fewer employees that requires no more than $35,000 in start-up capital. Common microenterprise industries include: jewelry making; arts and crafts; clothing and textiles; furniture repair; computer technology; day care; recycling; taxi service; street vending; in-home catering and food preparation; nail care; and hair braiding. More than 60 percent of microenterprises are run out of the owner’s home.
The average microentrepreneur has a high school diploma or GED and often has attended some college; the majority are women with children. Successful microentrepreneurs often hold other jobs in addition to running their microbusiness. Workweeks for microentrepreneurs average in excess of 60 hours. The Association for Enterprise Opportunity (AEO) estimates there are more than 2 million microentrepreneurs in America.
Microenterprise Development Programs. Microenterprise development as a state strategy usually targets those at or below 150 percent of the poverty line. The Aspen Institute and AEO identified 650 nonprofit microenterprise development programs in the United States in 2002. Most are run by private nonprofit organizations, although partnerships with state and federal governments have increased. In terms of client demographics, 72 percent report serving urban clients; 60 percent, rural clients; and 41 percent, suburban clients.
Microloans are popularly defined as business loans under $35,000. They usually carry market interest rates and are often short-term, six to 60 months in length. Default rates in microloan programs, although higher than those found in most commercial lending, are comparable to similar economic development loan programs. Many practitioner programs facilitate microlending through separate credit programs already in operation instead of directly providing loans to their clients.
Business education, training and support services are crucial components of microenterprise development programs. Microentrepreneurs participate in business classes, one-on-one technical training, mentoring and peer networking. Subjects include business plan development, economic literacy, sales and marketing principles. Comprehensive programs provide continuous support to clients through marketing, technology, legal and accounting services. Microenterprises that are ultimately unsuccessful often report a lack of continued business support and training as the main reason for their failure.
Benefits to Individuals and States. The Aspen Institute’s Self-Employment Learning Project (SELP) five-year survey of microentrepreneurs published in 1999 remains one of the most comprehensive and authoritative studies on microenterprise development. Key findings include:
78 percent of microentrepreneurs experienced gains in household income over five years.
53 percent of the entrepreneurs increased their income enough to move out of poverty.
Household income increased 61 percent on average. The average change was $8,484—rising from $13,889 to $22,374 over five years.
Survival rates of microbusinesses were 49 percent, comparable to rates for businesses with similar characteristics and owners.
The percentage of microentrepreneurs receiving food stamps or other food supplemental assistance was cut in half over the course of the five-year study.
Reliance on government assistance declined among microentrepreneurs, an average of 61 percent. Average government benefits received declined by $1,679 a year.
Every state has some kind of microenterprise development program. The District of Columbia has the highest number of practitioner programs per capita followed by Vermont, Maine, Nebraska, Alaska, Montana and Massachusetts.
Montana and Nebraska have intermediary organizations that assist and advocate for microenterprise development programs. The Montana Microbusiness Finance Program, created by the Legislature and part of the Montana Department of Commerce, supports microenterprise development programs by leveraging funds for the programs, mobilizing loan capital, and providing staff training and program networking. The Nebraska Department of Economic Development manages state support of microenterprise development programs under the Nebraska Microenterprise Partnership Fund created by legislation in 1997. The 2003 report to the Nebraska Legislature documented increases in the number of active microloans, the average microloan size and the number of microbusinesses receiving self-employment training.
Like all entrepreneurs, microentrepreneurs have various degrees of business success and failure. Microenterprise development is not a panacea for every employment, welfare and community development problem that states face. It can be, however, an effective tool that states can use to address these topics among an identifiable, highly motivated group of citizens: those interested in achieving economic self-sufficiency through running a microenterprise.
Clark, Peggy, et al. Microenterprise and the Poor. Washington, D.C.: The Aspen Institute, 1999.
Kearns, Monica. Promoting Economic Development in Vulnerable Communities. Denver, National Conference of State Legislatures, 2003.
Report to the Legislature on the Nebraska Microenterprise Development Act (LB 327). Lincoln, Nebraska: Department of Economic Development, 2003.
Staley, Samuel R., et al. Giving a Leg Up to Bootstrap Entrepreneurship: Expanding Economic Opportunity in America’s Urban Centers. Los Angeles: Reason Public Policy Institute, 2001.
The 2002 Directory of Microenterprise Programs. Washington, D.C.,: The Aspen Institue, 2002.
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Posted August 24, 2009