Introduction to
Microenterprise
Development
Elizabeth Wilson, Senior Director
Association for Enterprise
Opportunity
Introduction
“In summoning people to match
their talent and labor with small
amounts of credit, microenterprise 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
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9:00
Introduction to Microenterprise, New Directions,
Challenges to the Field
10:30 Break
10: 20 Program Design for 2009, Client characteristics,
Marketing
12:00 Lunch
1:00
Training and TA, Pew Practices in Client
Curriculum
Development
2:00
Microlending, Microfinance, Microequity
3:00
Break
3:20
Funding, Technology Support Services for MDOs,
Opportunities in the Stimulus Package for MDOs
4:00
Evaluation Services, Microtest
4:30
Q&A and Wrap up
5:00
Adjourn
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AEO’s Mission
AEO supports the development of strong & effective U.S.
MDOs to assist underserved entrepreneurs in starting,
stabilizing, & expanding businesses.
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AEO’s 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.
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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
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What is Microenterprise
Development?
An income generating
strategy that helps low
income people start or
expand very small
businesses
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Success Story: Noah’s Art
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Success Story: Noah’s Art
Digitally combining photographs and rough geometric shapes, called fractals, Noah Trembly creates and sells
original digital artwork. Noah’s 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, Noah’s 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
Ohio’s exhibit at Ohio University’s Multicultural Gallery. Two local newspapers have since written articles on Noah’s
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. “Today’s 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
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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.
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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.
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What are the roots of the MED
field in the U.S.?
In
the late 1980’s 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 selfemployment demonstration project.
CFED operated the Self-Employment Investment
Demonstration (SEID) from 1988 to 1992, testing selfemployment 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.
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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.
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What is a Microenterprise ?
 Retailers

craft shops, florists, used clothing
stores
 Service

suppliers
hairdressers, caterers, graphic design
 Manufacturers

carpenters, craft artisans, bakers
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Profile of a person served by a
microenterprise program:

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Working poor
People caring for families
People with disabilities
Public assistance
recipients
Immigrants and refugees
Recently unemployed
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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 nonpoor clients
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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
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Success Story: The Vintage Shoppe
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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.”
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MED Program Goals
Business
Development
Poverty
Alleviation
Employment
Creation
Empowerment
Community
Economic
Development
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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 > 50% of their client’s household income
was < 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
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color.
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.
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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.
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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).
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Typical Skills Expected to be
Learned by Clients of MED

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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
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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
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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.
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What Matters
Readiness
for business
Financial skills development
Training styles
Training markers
Ongoing support services
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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.
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Success Story: Big Cool
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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 doesn’t materialize and few
assets to use as collateral (a secondary
source of repayment).
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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 collateralbased lending;
The portfolio is made up of many loans
of small size, short maturities, and
more volatile delinquency.
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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.
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Success Story:
www.momswithspecialneeds.com
Kathy
George
Foster
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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.
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Step-by-Step Functions
1.
2.
Understand your clients and their need
for credit.
Design loan products that meet their
needs and acceptable risk as a lender.
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Step-by-Step Functions
3.
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
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Step-by-Step Functions
4.
5.
Manage the loan fund prudently
Periodically review program outcomes
and efficiency and revise and modify for
improvement.
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CASE STUDY
Toni of Toni’s Touch of Class Florist has completed your
organization’s 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 Valentine’s 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?

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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
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Funding MED Programs
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Funding Sources
Sources of Funding for MED
Program Operations
Other sources
3% Program Income
12%
Federal
Government
36%
Private Sources
27%
State
Local
Government
Government
16%
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Opportunity
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.
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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.
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The Stimulus Package

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
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
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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 Women’s
business Center, and CDFI
4) Other:
CDFI Stimulus request, and is also supporting the Rural
Economic Development Council’s request for funding
through the Farm bill at $21 million.
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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.
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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.
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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
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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.
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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
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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.
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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
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88%.
Opportunity
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
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than $763 per client.
Opportunity
Challenges &
Opportunities Facing the
Industry
From the Report of the
National Microenterprise Strategy Project
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Challenges

External Funding &
Competition
 Changes in public
finance
 Competition from
financial
institutions

Need for industryendorsed
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”
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Opportunities

New and expanded
markets for
microenterprise
 Awareness of
entrepreneurship as
a “public good.”
 The
emergence of
SMAs
 Technology
 Maturation of the
field
 Expanded
public
information
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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.
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Wrap Up, Evaluations,
Test!
& Shop Until You Drop
At the Micro Marketplace
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Contact Information:
Elizabeth Wilson
ewilson@microenterprisematters.org
404-344-2601
Thank you!
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