New Strategies for Microenterprise Development: Innovation, Integration, and the Trickle Up Approach.

• Author: Fairley, Joanne

In the last few years, microenterprise development has become one of the most diverse and dynamic approaches to poverty alleviation, with literally hundreds of programs implemented by a wide range of institutions across the globe. Within the microenterprise field, microcredit is the best known approach to providing microenterprise services. Loosely defined, microcredit programs provide small amounts of capital to the poor to enable them to generate their own income. The popularity of this approach was highlighted by the Microcredit Summit held in Washington, DC, in February 1997. About 2,500 varied institutions were represented at the summit, including governments, United Nations bodies, financial organizations and nongovernmental organizations (NGOs). Together, they pledged to raise U.S.$8 billion dollars and bring microcredit services to 100 million of the world's poorest families by the year 2005, with special emphasis placed on reaching women. The Summit's organizing committee defined the poorest families as those living in the bottom 50 percent of those already below the poverty line. The Summit's pledge to work with this group stemmed from the recognition that these families are often excluded from other development programs.(1)

While microcredit is an important and effective poverty alleviation tool, it is only one approach to microenterprise development. Vocational training, business development and other types of non-financial and financial services can be equally effective in this area. One side effect of microcredit institutions that work exclusively with microcredit is that they tend to focus on repayments and institutional sustainability rather than on poverty alleviation. Dr. Christopher Dunford, President of Freedom from Hunger, articulates this problem:

... as a microcredit practitioner, I know that this is "just" a new fangled form of banking. And I know the history of banking ... [banks] drift away (bankers call it "going upscale") from serving the truly poor, the people suffering from chronic hunger, social isolation, ignorance of the world, lack of hope; the people who are ill and whose children are malnourished. To serve the truly poor is too inefficient, too unprofitable, or just too darn hard.(2) As a result, microcredit alone often fails to reach and make an impact on the poorest communities.(3) Research suggests that the following six factors impede the success of microcredit programs:

1. microcredit institutions work with a safe target group--not the poorest--because of funding accountability concerns; 2. government microcredit programs and staff tend to be both paternalistic and distrustful of the poorest; 3. identifying and reaching the poorest is extremely time consuming; 4. government policies (e.g., licensing requirements) and an unstable economic climate (e.g., high inflation) counter business growth and savings potential; 5. the poorest often reject microcredit programs because they do not want to assume the risks involved; and 6. inflexible microcredit criteria, such as group borrowing, initial loan repayments or collateral requirements are beyond the means of the poorest. For these reasons, there are organizations committed to poverty alleviation that have developed alternate microenterprise approaches. One of these is the Trickle Up Program, a New York-based organization in operation since 1979. The founders, Mildred Robbins Leet and Glen Leer, developed a microenterprise strategy that was able to reach the poorest families, while avoiding many of the pitfalls of microcredit programs. Starting in Dominica, the international program now operates in over 50 countries, with 7,537 miroenterprises started last year. One hundred dollars in seed capital is made available to families or groups of three people who want to start or expand a business. Beneficiaries agree to three basic conditions: completion of a business plan and report, working 250 hours per person in a three-month period and saving at least 20 percent of the profits for household and business use.

   One strength of the program is the use of local partner organizations as implementing bodies. In Asia, these organizations are generally grassroots NGOs that already have established programs in the community. They volunteer their services to Trickle Up's microenterprise program and become responsible for selecting beneficiaries, providing business training and support services and reporting. In general, these NGOs have six common characteristics that enable them to successfully implement Trickle Up's microenterprise program:

1. they know their community; 2. they have a working relationship with and trust the poor; 3. they encourage self-help groups in the community, especially with women members; 4. they give responsibility to the self-help groups to identify problems and find solutions; 5. they use integrated development strategies to address a multitude of problems simultaneously; and 6. they use the Trickle Up approach to microenterprise (outlined above) to reach the poor and enhance their work. Interestingly; Trickle Up partner NGOs in Asia do not usually know each other, nor do they realize they share common approaches to poverty alleviation. Each has developed its strategy on its own: from personal experience, from living in the community, from listening to the poorest and from realizing that together they must address the multitude of problems these people face. These NGOs use Trickle Up's approach to microenterprise as an essential part of this integrated development strategy.

   NGOs benefit from using the Trickle Up Program because it enables them to reach the most disadvantaged families in their community, who are often too poor to participate in other development...