Analysis Race

Investing in Microenterprise is a Wise Economic Growth Strategy. So Why Aren’t Policymakers Doing More to Support It?

Sheila Bapat

Demand for microloans is increasing among low-income American women, but federal economic policy is not adequately supporting this demand.

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.

Analysis Law and Policy

Child Support Awareness Month: Why Helping ‘Deadbeat Dads’ Is Part of the Solution

Sheila Bapat

A few small public programs throughout the country are helping poor fathers who are interested in achieving financial independence and, at last, crawling out from under the albatross of child support arrears.

As part of our coverage of Child Support Awareness Month, a piece last week focused on a new Treasury Department rule that illustrates the challenges child support enforcement can pose to impoverished non-custodial parents, most of whom are fathers. This week we highlight small programs throughout the country attempting to address the heart of the matter: improving the financial status of poor fathers.

Enforcement of child support orders has been viewed as part of larger systematic efforts that, as author Barbara Ehrenreich sees it, “rob the poor.” In her May essay for TomDispatch.com, Ehrenreich points out that about half of child support debt is owed to state governments as reimbursement for welfare payments that have already been paid to children. She argues that, just as private lenders prey on the poor, public sector entities view collecting debt from poor fathers as a juicy tactic to raise revenue for the state. A new Treasury Department rule that could deplete the social security and veterans’ benefits of child support debtors is a proof point of Ehrenreich’s thesis.

Tough enforcement is generally accepted because the concept of a “deadbeat dad” is a fiercely negative one, particularly among those who know all too well the tough hand dealt to single mothers. So public programs that attempt to aid child support debtors– the majority of whom are fathers–are not always popular. Consider a program in Spokane, WA where Spokane Neighborhood Action Partners (SNAP), a nonprofit focused on poverty alleviation, is collaborating with local child support agencies. SNAP offers a range of financial support services for non-custodial fathers who have failed to comply with child support orders.

“We got some bad press for helping deadbeat dads,” said Jordan Tampien, SNAP’s Financial Services Manager. “But in reality what it’s done is create paying customers who now can afford their child support payments.”

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So what does it mean to be a deadbeat dad? There are plenty of fathers who do not pay child support because they simply choose not to, leaving their children and their children’s mother in a lurch. And, as Ehrenreich highlights, there are fathers who are unable to comply with child support orders because they are just too poor. People in arrears can face jail time in some states, or they can risk having drivers licenses, passports and professional licenses revoked–consequences that can make it all the more difficult to find employment. Child support debt can also ruin debtors’ credit, making it even harder to pull themselves out of the hole.

Tampien’s fledgling program attempts to aid this population. It’s off to a strong start: In the second year of its three years of federal funding, SNAP’s program has  served almost 170 fathers. Sixty percent of those 170 have elected to take SNAP’s financial education classes. SNAP works directly with child support debtors to modify their child support orders and establish payment plans, and also offers the fathers financial education classes.

This program is part of a small federal effort to figure out long-term solutions for poor child support debtors. Washington is one of seven states that are part of a  pilot program called Building Assets for Fathers and Families (BAFF). The 3-year, $25 million program partners the Department of Health and Human Services’ Asset Finance Initiative (AFI) with child support and enforcement agencies in seven states to identify strategies for increasing financial stability of non-custodial parents.

While BAFF launched in 2010, AFI has been in existence since 1998 and also aids domestic violence survivors, Native American families, refugees and people with disabilities in building their financial futures.

The federal BAFF grant actually precipitated this collaboration between SNAP and child support agencies, but the program is expected to continue even after the federal funding runs out.

BAFF funding supports similar programs in Colorado, Florida, Michigan, Ohio, Tennessee, and Texas. In Texas, the Baylor College of Medicine received BAFF funding to provide employment and asset building services to over 100 Houston noncustodial parents. The program will also enroll dozens of noncustodial parents in Individual Development Accounts, complete financial education classes, and help poor fathers purchase assets such as a home, education loan or small business. 

Just like SNAP’s program in Spokane, Baylor’s program will continue even after its federal funding runs out. According to Baylor’s organizers, their program was “designed to become self-sustaining after the end of the federal pilot.”

Ehrenreich and other critics of child support enforcement have shown that the framework for enforcement to date has been heavily weighted toward seizing whatever money a debtor has, causing debtors to perceive enforcement agencies as “police” and leaving them in a tougher financial position. 

SNAP and Baylor’s programs offer a different framework, one in which enforcement agencies can play a supportive and solution-oriented role in debtors’ lives. True, fathers who are not genuinely interested in paying child support and getting out of child support debt are unlikely to engage in these programs. But at the very least, SNAP and Baylor’s efforts are connecting with poor fathers who want to achieve financial independence and, at last, crawl out from under the albatross of child support arrears. “I don’t think we’ve had one client come in who doesn’t want to pay his child support,” said Tampien. “They’ve all wanted to pay.”