ByRene Gonzalez

ContentsBackgroundWhat is MicroenterprisesWhy Microfinance and Microenterprises as a

SolutionBenefits & CostsWhy microenterprises FailActions for success

BackgroundWorldwide:

more than 1 billion people live on less than $1 a day, and3 billion are estimated to live on $2 a day.Furthermore, poverty has increased in the last

generationThe income gap continues to widen, with countries

like Brazil leading40% of Latin Americans live in povertyAccess to credit is the fourth most important

development need, exceeded only by food, health, and education. Everyone has heard of ‘health’ and agrees that it is a core development need, few people have heard of microfinance.

MicroenterprisesSome economist believe that:

One of the most effective strategies in the global fight against poverty is loaning people money to start small businesses. (Not give)

Others believe differently…

What is a Microenterprise?

Is an economic business which is: operated and managed by one or two people,usually based within a family, andusually functions within the informal sector of

the society outside of bureaucratic regulations and government controls.

Micro LoansMicro loans tend to be loans in the range of 50

dollars to 1,500.Microfinance institutions (MFIS) make the

loans to those who request them.U.S investors are the ones typically funding

such institutions.565 microfinance institutions in Latin America

financing around nine million microenterprises, with an outstanding loan portfolio of 9.2 billion

dollars,

Micro LoansThose investors who fund MFIS, do it not for

the return but for ethical purposes.Make individuals independentGovernment Aid as in Handouts

Promote dependenceProvide a solution for hunger

Default rates on MFI loans run about 4%, which is less than half the rate on subprime loans made by U.S. lenders

Why Microenterprises?Self-employment opportunities among

the poor;Employment which is labor intensive

rather than capital and education intensive;

Economic growth based on small scale business initiatives;

An economic base from which to foster business expansion;

Why Microenterprises?Economic development opportunities for

indigenous populations as opposed to "alien minorities" within a developing country's social and economic structure;

Poverty alleviation through new sources of income;

Technology adaption to indigenous resources; and

Development of entrepreneurial skills and talents

MicroenterprisesIn developed countries, microenterprises

comprise the smallest end of the small business sector.

In developing countries, microenterprises comprise the vast majority of the small business sector—a result of the relative lack of formal sector jobs available for the poor. These microentrepreneurs operate microenterprises not by choice, but out of necessity.

BenefitsMicroenterprises add value to a country's

economy by : creating jobsenhancing income (income distribution)strengthening purchasing powerlowering costsPoverty alleviationsTechnology familiarity

DisadvantagesLow Labor ProductivityLow WagesGoods are Inferior GoodsLittle Potential for Exports and Foreign

ExchangeOverall – Society’s welfare is Diminished

No reinvestments to their businessMiss use of funds

Why Microenterprises FailWHAT INHIBITS MICROENTERPRISE

GROWTH?

PoliciesImproved business regulations, tax regimes, licensing requirements, financial sector reformbank supervision will promote better

conditions for microenterprise development.

Why Microenterprises FailLack access to services such as

marketing, training in basic business skills, and technology transfer

Overall Uneducated

Remittances

In Latin AmericaTypes of Microenterprises:

Street venders, carpenters, machine shop operators. seamstresses and peasant farmers.

Many of these men and women and their employees are poor and have limited access to services.

More than 80 percent of the businesses in Latin America have l0 employees or less,

Numbered at some 50 million, these microenterprises can no longer be considered marginal. They are the heart of the region's economy.

In Latin AmericaAn average repayment rate of more than 90

percent, Loan funds are used over and over again without

requiring additional money for overhead. Since industries need suppliers of raw materials,

transporters for goods, advertisers, there are often spin-off effects, which can begin to reverse the decline of state-run towns. People gain confidence. People refurbish churches, roads and recreational

area. Alcoholism and family abuse are declining.

Women

Women-owned businesses make up one of the fastest growing segments of microenterprise. In Latin America , women own and operate 30-60 percent of such companies.

Increased income in the hands of women is invested in: health, education and housing for their familieswomen not only make a huge contribution to

national income, but they also create reliable social safety nets for their families and communities.

Reducing PovertyMicroenterprises contribute significantly to

economic growth, social stability and equity.Important vehicles through which people can

escape poverty. With limited skills and education to compete for formal sector jobs, these men and women find economic opportunities in microenterprise as business owners and employees.

In Chile, a Banco del Desarrollo evaluation found that 88 percent of the bank's microenterprise clients, who represent the poorest groups, improved their standard of living after receiving a loan.

In PeruIn Peru, the impact of the global crisis has led to

a plunge in exports, spending cuts and a rise in social tension, especially among the poor.

Microfinance takes on a special importance because it channels funds into keeping afloat small businesses, which are a lifeline for the lowest income sectors

In Peru, which has an economically active population of 10.6 million people, there are an estimated three million micro-businesses.

DevelopmentMicroenterprise itself and the improvement

of its business in the future. (Not certain/ Possible)

Home and the improvement of living conditions for the micro-business owner’s family, like health and education for the children

MeasurementsThe majority of microenterprises in

developing countries do not keep financial records,

Inputs may be purchased in one period and sold in another, and production can be highly seasonal.

Individuals may be sensitive about revealing how much they earn, and

Concerned about the information being used for tax purposes.

MeasurementsBusiness goods and materials used for home

consumption, but recorded as business expenses

Firm inputs which were given as gifts by non-household members, but which were recorded as business expenses.

Firm owners who paid themselves a salary, but failed to include this when reporting profits

Business revenues used to pay for household expenses, but not included as profits (unreported drawings).

Poverty Cycle

Henry Paulson“Lack of finance may mean the difference

between success and failure, growth or stagnation. These entrepreneurs need capital to expand into bigger space, purchase additional inventory to serve growing demand and markets, to buy capital equipment. We see evidence in economies around the world that greater availability of finance not only enhances growth, it reduces poverty and inequality. ”

United States is committed to helping Latin America reduce poverty, fight corruption, build the middle class

Road to SuccessLoan recipients need more than capital to

succeed. They need training.Business training, including bookkeeping,

marketing, and managing of resources.Treating employees fairly and producing high

quality products in an ethical manner.Government RegulationsMinimize Government Aid as Handouts

Supporting Microenterprises in Latin America

Microsoft Support through Technology