Financial Inclusion Working Paper

The Material Conditions for Microenterprise in the United States and the Third World

Sparked by a few successful microenterprise programs in the third world, community-development organizations in the United States have started hundreds of microenterprise programs. Can they be as successful in the United States as in the third world? This paper concludes that microenterprise in the United States is probably more difficult than in the third world. For example, the U.S. microenterprise sector is smaller and more complex because most people can get wage jobs and because of the public safety net. Unlike third-world programs, U.S. programs must do more than make loans. Microentrepreneurs need savings more than debt, and while some of them are creditworthy, all of them are depositworthy. Microenterprise programs can do little to facilitate savings, however, other than host Individual Development Accounts or advocate for relaxed asset tests on welfare programs. Indeed, most U.S. programs focus on classes meant to instill the skills and oomph needed for successful entrepreneurship. The cost-revenue structure of these classes, however, is not sustainable. Microenterprise is not a panacea for low-income communities in the United States. Community-development practitioners should recognize that microenterprise programs will help a few extraordinary poor people, but most poor people would benefit more from other forms of aid. Practitioners ought to make modest claims for the potential of microenterprise and continue to explore diverse ways to connect the poor to the workforce, remembering that microenterprise is not an end in itself but rather just one means to the end of improved well-being for the poor. Practitioners should search for ways to monitor self-employment effort by the poor that do not require attendance at classes nor constant indebtedness. Microenterprise programs should focus not on loans and general up-front classes for start-ups but rather on savings and on-call advice for existing businesses in specific sectors. Funders should aim to strengthen the systems of incentives that prompt practitioners to search for ways to reduce costs and to increase the worth of services. a simple first step is to measure costs and outputs. Finally, the community-development community should insist that banks who seek credit for microenterprise work under the Community Reinvestment Act do the work themselves rather than give grants to not-for-profits. Otherwise, banks will not learn to make microenterprise loans well enough to make it a business rather than a write-off.

Project: Microfinance


Schreiner, M. (2000). The material conditions for microenterprise in the United States and the third world (CSD Working Paper No. 00-2). St. Louis, MO: Washington University, Center for Social Development.