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Title: Introduction to Microenterprise Development


1
Introduction to Microenterprise Development
Elizabeth Wilson, Senior Director
2
Introduction
  • In summoning people to match their talent and
    labor with small amounts of credit,
    micro-enterprise development meets low-income
    communities where they are, introducing new
    opportunities to create work, income and assets,
    and thereby affirming human worth and dignity.
  • Jack Litzenberg, Charles Stewart Mott Foundation
  • There is nothing better than being charge and
    responsible for your own future.
  • Jenny Smith, Drain Wizard, Cedar Rapids, Iowa

3
900 Introduction to Microenterprise, New
Directions, Challenges to the Field
1030 Break 10 20 Program Design for 2009,
Client characteristics, Marketing 1200 Lunch 100
Training and TA, Pew Practices in Client
Curriculum Development 200 Microlending,
Microfinance, Microequity 300 Break 320 Funding,
Technology Support Services for MDOs,
Opportunities in the Stimulus Package for
MDOs 400 Evaluation Services, Microtest 430 QA
and Wrap up 500 Adjourn
Agenda
4
AEOs Mission
  • AEO supports the development of strong
    effective U.S. MDOs to assist underserved
    entrepreneurs in starting, stabilizing,
    expanding businesses.

5
AEOs Vision
  • Underserved microentrepreneurs will have
    successful businesses, which will create wealth,
    assets and economic well-being for them and their
    families, resulting in healthy connected
    communities.

6
AEO Organizational Capacity
  • In-Depth Knowledge of the Industry
  • Commitment to Low-Income Entrepreneurs
  • Comprehensive Training and Education
  • Effective Advocacy Research
  • Special Public-Private Partnerships to Strengthen
    the Industry

7
What is Microenterprise Development?
  • An income generating strategy that helps low
    income people start or expand very small
    businesses

8
Success Story Noahs Art
9
Success Story Noahs Art
  • Digitally combining photographs and rough
    geometric shapes, called fractals, Noah Trembly
    creates and sells original digital artwork.
    Noahs father, a jewelry design artist,
    introduced him to painting and drawing as a boy,
    but Noah was more drawn to computers and the
    digital world of graphics.
  • Early on, computers and technology became both a
    necessity and a blessing for Noah. Born with
    cerebral palsy, Noah is quadriplegic and mute,
    but technology has enabled him to unlock the full
    potential of his artistic creativity. Noah
    speaks using an electronic device that looks like
    a cross between a laptop computer and an
    old-fashioned compact telephone switchboard. He
    looks at a key or a phrase on the device and,
    after a few seconds, the device emits an audible
    voice.
  • On the computer, Noahs talents truly shine. He
    began studying graphic design in 1995 and
    continues to keep pace with the latest software
    and design techniques by attending workshops and
    seminars. In the graphic design world today
    computers are the mainstream. This makes it
    possible for people with disabilities to work in
    graphic design. I mean, sitting in front of a
    computer all day is perfect for me, says Noah.
  • After working for a while in the graphic design
    and web development fields, Noah decided to
    dedicate himself to his art fulltime. Since 2004
    he has worked as an independent artist, promoting
    his work online and at regional art shows. In
    2008, Noah joined Art of Ohio, a networking and
    marketing community for select Ohio artists. Art
    of Ohio is supported by the Ohio Arts Council
    (OAC) and the Appalachian Center for Economic
    Networks (ACE Net). Through ACE Net, Noah was
    chosen to receive a 1,600 eBay Foundation
    Techquity award. Noah used that award and 400
    of his own money to purchase a new computer with
    additional memory for his artwork and graphic
    software.
  • With the help of ACE Net and Art of Ohio, Noah
    has been able to better focus on his target
    market. He has gotten his name out in the
    community and been able to network with other
    local artists. This year, he was part of Art of
    Ohios exhibit at Ohio Universitys Multicultural
    Gallery. Two local newspapers have since written
    articles on Noahs work and his involvement with
    Art of Ohio. The eBay Techquity award has
    allowed Noah to stay on the cutting edge by
    running the latest software programs and staying
    connected to the world. Todays computer world
    has given me a gift the opportunity to convey
    my inner soul to humanity. In my world, art and
    technology are one. They blend together to form a
    new level of artistic expression. And, my
    website gives the world a link to me

10
How MED Helps People
  • Creates income, assets and fulfills personal and
    family needs of microentrepreneurs.
  • Contributes to employment creation and local
    economic development.
  • Helps the poor work their way out of poverty,
    fulfill their dreams, contribute to their
    community.

11
What are the roots of the MED field in the U.S.?
  • MED programs appeared in the mid-1980s as
    response to the changing structure of the economy
    the failure of traditional business assistance
    financial institution to respond to specific
    markets.
  • Professionals in poverty alleviation
    community-based economic development began to
    consider self-employment programs as one approach
    to help people improve their economic financial
    security.

12
What are the roots of the MED field in the U.S.?
  • In the late 1980s the Corporation for Enterprise
    Development (CFED) a national organization that
    promotes asset-building economic opportunity
    strategies, primarily in low-income distressed
    communities, led the effort to create a national
    self-employment demonstration project.
  • CFED operated the Self-Employment Investment
    Demonstration (SEID) from 1988 to 1992, testing
    self-employment as a self-sufficiency strategy
    for welfare recipients. Also, the U.S.
    Department of Labor initiated demonstrated
    projects in the states of Washington and
    Massachusetts.

13
What is a Microenterprise ?
  • A sole proprietorship, partnership, or family
    business that has fewer than five employees.
  • Small enough to benefit from loans under 35,000.
  • Too small or otherwise unable to access
    commercial banking services.

14
What is a Microenterprise ?
  • Retailers
  • craft shops, florists, used clothing stores
  • Service suppliers
  • hairdressers, caterers, graphic design
  • Manufacturers
  • carpenters, craft artisans, bakers

15
Profile of a person served by a microenterprise
program
  • Working poor
  • People caring for families
  • People with disabilities
  • Public assistance recipients
  • Immigrants and refugees
  • Recently unemployed

16
ME Client Profile
  • 78 women
  • 42 African American
  • 81 with no college degree
  • 47 with business sales under 1,000 per month
  • Median income of 26,227 for poor and non-poor
    clients

17
Who Provides MED Services?
  • Microenterprise development agencies
  • Traditional business development agencies
  • Community economic development organizations
  • Employment training organizations
  • Human services and faith based agencies
  • Target group focused organizations

18
Success Story The Vintage Shoppe
19
Success Story The Vintage Shoppe
  • Gretchen Gentsch started the vintage Shoppe as
    an offshoot of the Extend the Dream Foundation in
    October of 2006. Gretchen Gentsch, who suffers
    from depression, became a member and client of
    Extend the Dream Foundation prior to launching
    her business. She became affiliated with the
    organization, as they were a pioneering group in
    the initiative of helping individuals who are
    handicapped become business owners. She at first
    operated a clothing store and later decided to
    fulfill a long-standing dream of hers by
    branching off into selling antiques. However, she
    had no prior knowledge of how to attain or market
    her products. Through use of the HP equipment and
    the training offered, she said she got a more
    practical understanding of technology and gained
    tremendous knowledge in matters relating to the
    acquisition and marketing of antique products.
    She made special mention of a training done on
    utilizing the marketing tool EBay, which she
    found extremely helpful. Through the help she has
    gotten from Extend the Dream Foundation and her
    various successes she said she his happy and
    since opening her business she has not had a
    relapse of any depressive spell. She left with
    these words of advice and encouragement for
    anyone seeking to become an Entrepreneur Reach
    into the community around you and get their
    support, but also think self sufficient have
    belief and be happy with what you created.

20
MED Program Goals
Business Development
Poverty Alleviation
Employment Creation
Empowerment
Community Economic Development
21
MED Program Profile
  • Average operating budget 378,781
  • Staff 4.1 full-time staff members.
  • Target Market poverty alleviation is a primary
    goal for most programs 70 report that gt 50 of
    their clients household income was lt 80 of the
    HUD median income for their location.
  • Gender Fully 62 of the programs had a client
    base of more than 50 women.
  • Persons of Color Fully 45 of the programs had a
    client base of more than 50 persons of color.

22
MED Program Profile
  • Client load On average, programs serve 362
    participants, including 175 clients who received
    more significant levels of service. Programs
    make an average of 50 loans.
  • Capital
  • The average capital available per agency was
    595,492. Loan sizes are from 15,000-25,000
  • The average outstanding portfolio was 341,025.
    and 57 of total loan capital was outstanding to
    borrowers during FY 2002.

23
MED Program Profile
  • Technical Assistance the average number of
    clients served is 161 and the average number of
    hours of assistance is 14.
  • Business Training the average number of clients
    served was 156 and the average number of hours of
    training was 43.

24
What products services do MED programs
typically offer?
  • Training Technical assistance to help
    microentrepreneurs develop the skills they need
    to plan, market, manage their own business.
    Typical curricula also include basic business
    financing and personal effectiveness
    (communication skills, time management and goal
    setting).

25
Typical Skills Expected to be Learned by Clients
of MED
  • Define and clarify the business vision
  • Identify the target market
  • Identify and assess competition
  • Develop a pricing strategy
  • Develop a marketing strategy and plan
  • Develop a sales technique
  • Develop sales and production cycles
  • Establish recordkeeping procedures

26
Typical Skills Expected to be Learned by Clients
of MED
  • Analyze business costs and make a budget
  • Make cash flow projections
  • Use break even analysis
  • Understand basic financial statements
  • Research and seek financing and funding
  • Computers QuickBooks, Windows, Internet,
  • e-commerce
  • Access community resources and referrals
  • Understand manage regulatory/ legal aspects
  • Understand and manage risks

27
Fast Facts About Training and Technical Assistance
  • Substantial numbers of low-income individuals
    start, stabilize and expand their businesses
    within 18 months of completing training. At four
    programs studied by Aspen, ownership increased by
    an average of 49 percent among those who entered
    training prior to business start-up.

28
What Matters
  • Readiness for business
  • Financial skills development
  • Training styles
  • Training markers
  • Ongoing support services

29
Microlending
  • Capital in the form of individual or peer group
    loans from in-house loan funds or from
    collaborating banks provides disadvantaged
    entrepreneurs with financing for their businesses
    in affordable amounts and terms. Loans range from
    500 to 25,000.

30
Success Story Big Cool
31
Challenges of Micro-Lending
  • Microloans are small so the economics of lending
    require keeping the costs of analyzing, approving
    and administering loans low and maximizing
    interest and fee income to help cover those costs
  • Microloans are risky because borrowers have
    limited cash savings to make payments when cash
    flow from the business doesnt materialize and
    few assets to use as collateral (a secondary
    source of repayment).

32
Challenges of Micro-Lending
  • Microlenders are different from traditional
    finance institutions in several ways
  • Clients are low-income
  • The methodology is characters and cash flow based
    rather than collateral-based lending
  • The portfolio is made up of many loans of small
    size, short maturities, and more volatile
    delinquency.

33
Common Pitfalls of New Programs
  • Lack of standardized lending policies and
    underwriting guidelines, resulting in poor loan
    quality and high costs per loan.
  • Over-emphasis on character-lending and not enough
    focus on business cash flow
  • Insufficient focus on collections procedure
    resulting in high delinquency rates and
  • Inadequate information on portfolio quality and
    poor risk management.

34
Success Story www.momswithspecialneeds.com
  • Kathy

George
Foster
35
Success Story www.momswithspecialneeds.com
  • Kathy R Foster Holmes-Bass is the founder of this
    company, www.momswithspecialneeds.com.  At the
    age  of 30, she lost her vision overnight to a
    severe bout of meningitis and encephalitis. At
    the time of this occurrence, in 1996, Kathy's
    older child George Bass was 3 years 10 days old
    and her younger child Foster Bass was two months
    two days old. Eight years later, in 2004, Kathy's
    life has been a journey of challenges,
    opportunities, laughs, and smiles. Since the loss
    of her sight, Kathy has been featured on a PBS
    documentary (1999). In 1999, Kathy was also hired
    blind as a adjunct faculty member where she
    taught a upper-division social work course to
    sighted students at a major university. After
    extensive rehabilitation training, Kathy was
    accepted and enrolled in a PhD program at Georgia
    Institute of Technology in Atlanta, Georgia. She
    has successfully completed all her coursework in
    the School of Public Policy at the university and
    is currently working on her dissertation research
    in the area of Micro enterprises.

36
Step-by-Step Functions
  • Understand your clients and their need for
    credit.
  • Design loan products that meet their needs and
    acceptable risk as a lender.

37
Step-by-Step Functions
  • Make Good Loans
  • -- Develop clear loan policies and underwriting
    guidelines
  • -- Screen applicants carefully and design a
    good loan application
  • -- Assess loan applications to understand the
    borrower and the business
  • -- Review/approve loans
  • -- Close and disburse loans

38
Step-by-Step Functions
  • Manage the loan fund prudently
  • Periodically review program outcomes and
    efficiency and revise and modify for improvement.

39
CASE STUDY
  • Toni of Tonis Touch of Class Florist has
    completed your organizations Entrepreneurial
    Training Program and has come to your loan
    review committee in January for an 8000 loan to
    expand her business. She is requesting the funds
    for inventory and flowers for Valentines Day.
    She has just signed on with the Teleflora wire
    service and she expects to double her sales this
    season. She grosses 80,000/year and has one
    part-time floral designer. She recently moved
    her business from a flea market to a storefront
    and had a 3 year lease. Personally, she has gone
    through many difficulties and a divorce which
    caused her to file bankruptcy two years ago. She
    has a business plan, but no financial statements.
    She also has several corporate customers who
    have provided her with letters of recommendation.
  • Would your committee give Toni a loan? If so,
    why? If not, why?

40
Additional Service Economic Literacy and
Financial Education
  • Many practitioners also offer financial education
    training and counseling to help clients
  • Reach immediate financial goals
  • Become long-term savers and asset owners
  • Plan for their financial future well-being
  • Make effective financial management decisions

41
Funding MED Programs
42
Funding Sources
43
The Stimulus Package
  • Zero capital gains rate for small business -
    Obama will eliminate all capital gains taxes on
    investments made in small and start-up
    businesses. Unlike McCain, who wants to give 200
    billion in new tax cuts to the largest and most
    profitable businesses, Obama wants to cut taxes
    for the small businesses that create jobs.

44
The Stimulus Package
  • Temporary tax incentives to encourage investment
    in jobs -Obama will give small businesses
    additional incentive to make investments and
    start creating jobs again by providing temporary
    business tax incentives through 2009. This will
    be accomplished, in part, by the extension of IRS
    code section 179 expense deduction to 250,000
    which now expires in December 2008.

45
The Stimulus Package
  • New tax credits for employee health care costs -
    The Obama Small Business Health Tax Credit will
    provide a refundable credit of up to 50 on
    premiums paid by small businesses on behalf of
    their employees and to small businesses with no
    employees.
  • Opportunity Never has the industry been in a
    better time and place.
  • Microenterprise is being seen as an economic tool
    for businesses and the community as well as for
    the individual.
  • 2) Incoming administration vs. the outgoing
    administration.
  • Opportunity The outgoing administration was
    hostile towards the field, attempting to
    eliminate programs specifically deigned by the
    field, and making significant reductions on other
    programs. The new administration is favorable
    towards the field, what we do, who we serve, how
    we can do it better and for more individuals and
    communities.
  • We must focus on program efficiency, be results
    orientated, and gather and share our data so that
    the programs are proven to be a good investment
    for federal dollars

46
The Stimulus Package
  • 3) Congress
  • Opportunity On the verge of program
    eliminations we have instead been able to
    maintain and in some cased grow the support and
    resources for federal programs.
  • Including PRIME, SBA microloan and the Womens
    business Center, and CDFI
  • 4) Other
  • CDFI Stimulus request, and is also supporting the
    Rural Economic Development Councils request for
    funding through the Farm bill at 21 million.

47
Does Microenterprise work? What has the
microenterprise industry achieved?
  • The short answer is yes the strategy does
    work. Microenterprise development is a
    cost-effective strategy for helping a specific
    niche of low-income people stabilize and increase
    income and assets, create jobs in local
    communities, reduce dependency on public
    assistance, and more fully realize their personal
    and professional potential.

48
Fast Facts About Business Ownership
  • In a longitudinal study of low-income
    entrepreneurs, the survival rate of micro
    businesses after five years was 49 - comparable
    to the survival rate for businesses with similar
    characteristics owners.
  • More than half - 53 percent - of the poor
    entrepreneurs in that study had household gains
    large enough to move out of poverty. For those
    individuals, their move over the poverty line was
    an economic change of huge magnitude in most
    households, family income nearly doubled over the
    five-year study period.

49
Empowerment Community Development
  • Increased self-esteem, control over key life
    decisions, sense of security, support networks,
    skills.
  • Increased community networks, economic activity
    in communities, security, image

50
Cost-Effective Job Creation Economic
Development
  • Estimated cost of job created with MED support
    4,114 - 6,155 (comparable or slightly higher
    than JTPA)
  • Estimated for every 1 invested in MED returns
    2.5 (income for owners employees, asset
    growth, reduction in public assistance,
    unemployment insurance costs, increased tax
    revenues.

51
What is Microtest?
  • MicroTest is a management tool that empowers
    microenterprise practitioners to gauge and
    improve the performance of their program and the
    outcomes of their clients.
  • The MicroTest performance framework, developed
    through a collaborative effort with industry
    practitioners since 1997, has been used by more
    than 70 microenterprise organizations.
  • Through funding from JPMorgan Chase, Microtest
    will include many agencies from NYS

52
What is Microtest?
  • MicroTest is a reporting system that recognizes
    the full range of ME services provides data on
    client demographics, scale, credit training
    program effectiveness, sustainability.
  • By embracing MicroTest as a reporting instrument
    for grantee programs, funders receive high
    quality performance data that both responds to
    their needs provides useful management
    information for the programs they support.

53
What does MicroTest tell us about Performance?
  • The 10 most prolific lenders made loans between
    4-5,200 the average cost per loan is 2,726
    (overall average is 6,329).
  • In 2000, the median graduation rate was 79 and
    57 of enrollees completed business plans.
  • Top performers had rates that exceeded 88.

54
What does MicroTest tell us about Performance?
  • Top 1/5 of MT lenders have Total Portfolio at
    Risk rates below 3.1 And 40 have PAR below 2.2
    (average is 15 for training-led 20 for
    credit-led).
  • Cost per client Average is 3,529 58 are below
    2,500 76 are below 3,500
  • Cost per loan top performers are under 1,500.
    60 have cost per loan below 5,000 40 are
    below 3,000
  • Cost/business training/TA 60 spend less than
    1,773 per client and the most effective spent
    less than 763 per client.

55
Challenges Opportunities Facing the Industry
  • From the Report of the
  • National Microenterprise Strategy Project

56
Challenges
  • External Funding Competition
  • Changes in public finance
  • Competition from financial institutions
  • Need for industry-endorsed measurements
    standards to foster quality high performance
  • High costs and inefficient delivery methods.
  • Limited practitioner education, training and
    technical assistance.
  • Narrow range of products offered.
  • Insufficient scale and market share

57
Opportunities
  • New and expanded markets for microenterprise
  • Awareness of entrepreneurship as a public good.
  • Expanded public information
  • The emergence of SMAs
  • Technology
  • Maturation of the field

58
Recommendations
  • Support Adopt MicroTest Performance Measures
    Industry-wide.
  • Develop Quality Standards an Accreditation
    Process.
  • Provide Education and Technical Assistance in
    Market Diversification Strategies, New Product
    Development Capacity Building.
  • Develop and build the capacity of SMAs
  • Strengthen Expand Advocacy Efforts.

59
Wrap Up, Evaluations, Test!
  • Shop Until You Drop
  • At the Micro Marketplace

60
Contact Information
  • Elizabeth Wilson
  • ewilson_at_microenterprisematters.org
  • 404-344-2601
  • Thank you!
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