Last week the Associated Press reported an increase in the number of microloans disbursed in the United States since the economy began to falter in 2008. These microloans, sometimes as small as $50.00, are sourced by nonprofit organizations that often provide small business training for low-income microentrepreneurs, most of whom are women.
Federal economic policy is out of sync with these trends. The Small Business Administration (SBA)’s Program for Investment in Micro-Entrepreneurs (PRIME) offers technical assistance and support to nonprofit microfinance organizations. But the program, which is tiny to begin with, has experienced budget cuts and was nearly eliminated in fiscal year 2012. The current fiscal year 2013 budget makes the program increasingly vulnerable; if not eliminated, PRIME may experience additional cuts.
In fact, both Congress and the President’s job growth agendas have largely ignored microentreprise. While President Obama’s latest small business focus may help increase access to capital for some, these policies do not accomplish enough for low-income microentrepreneurs who have great potential but lack strong credit or business training.
Given that microenterprise can improve the lives of low-income women and their families, as well as boost the economy, PRIME and other pro-microenterprise initiatives ought to take a greater role in the federal government’s economic growth strategy.
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Cultivating microenterprise has a proven return on investment in the United States, as many organizations have demonstrated: Women’s Initiative for Self Employment, Erase Poverty, and more famous entities like Grameen Bank, and Accion, are just a few of the groups that provide low-income entrepreneurs with microloans, as well as training and support in creating viable businesses.
The Women’s Initiative, founded in 1988, is exclusively focused on supporting low-income women entrepreneurs in the San Francisco Bay Area. Its program offers a range of support to low-income women, including training on building a business plan and the nuts and bolts of launching a business, as well as microloans. To date, the Women’s Initiative graduates have launched 3,000 small businesses that pay an average of $16.45 per hour, double the minimum wage in California.
Adriana Lahl is a 2010 graduate of the Women’s Initiative’s training program. Lahl founded Sal de Vida, a company that produces gourmet salts, spreads, and rice mixes. Lahl now belongs to the highly competitive program with La Cocina, another San Francisco microenterprise NGO that supports low-income food entrepreneurs.
Lahl has a 6-year-old daughter who is on MediCal, and her husband is unemployed. She is hopeful her company can become steady source of income for her family over the long term.
“The Women’s Initiative helped me build my business plan and provided me with a $3,000 loan that I am now paying back,” Lahl said. “It was important to me to begin building relationships and credit for my company.”
Women’s Initiative Interim CEO Nicole Levine tells me that her organization’s resources have been constrained in recent years (and they expect their PRIME funding to decline), even as demand for their program is increasing among low-income women.
Programs like the Women’s Initiative offer a level of support that low-income women simply can’t get from traditional lenders, like commercial banks that cater to people who already have resources, or at least good credit.
And a “small” loan from traditional lenders is still at least tens of thousands of dollars. It is not possible for many low-income women to qualify for a loan of that size. Unlike traditional loans, a microloan can be a much smaller loan at low interest.
Even a $250.00, $1,000 or $3,000 loan, along with support resources, can change the lives of a woman and her family. As the Associated Press story pointed out, “A 2008 survey by the Aspen Institute found the average household income of families participating in a microenterprise program rose 20 percent to $36,000.”
If we take further advantage of the economic potential of microenterprises, many, many Americans could benefit. According to two major microenterprise advocacy organizations, the Association for Enterprise Opportunity and the California Association for Micro Finance Opportunity (CAMEO), if one in three microenterprises hired just one more person, the US would have zero unemployment. As it stands, the very smallest enterprises that employ fewer than 5 people account for 17 percent of the GDP and employ 31 million people.
Many federal programs are experiencing cuts these days, and PRIME may continue to feel the squeeze in 2013. But the program should not be eliminated. PRIME, along with other support for microenterprise, should become a more central part of the President and Congress’s long-term economic growth strategy–so that groups like the Women’s Initiative for Self Employment can cultivate more businesswomen like Adriana Lahl.