Teaching Business in the Developing World

Training programs for entrepreneurs in developing countries can be successful in increasing business longevity and promoting wealth creation.

By: Kate Murphy

Published: June 24, 2009; New York Times

Government agencies and international aid groups have long supported programs that train the world’s poor in how to start and run their own businesses. The training is seen as a way to end hunger and stabilize societies.

But interest in these programs has grown lately with the wider availability of microloans, or very small enterprise loans made to the poor. As with any start-up, these businesses are more likely to survive, advocates say, if the owners have basic operational skills.

“There’s been a realization in the microfinance community that loan recipients are more likely to succeed if they also receive business education,” said Bobbi L. Gray, research and evaluation specialist with Freedom From Hunger, a nonprofit organization in Davis, Calif., that provides financial education in developing countries.

Indeed, the nonprofit research group Innovations for Poverty Action in New Haven, Conn., published a paper in May that found that Peruvian villagers who had received microloans and had been randomly selected to receive business and entrepreneurship training performed significantly better than peers who had received loans and no financial education.

“Even those who reported having the least interest before getting the training had higher revenues,” said Dean Karlan, a professor of economics at Yale, a founder of Innovations and lead author of the study. He said the findings indicated that the positive effect of entrepreneurial education was not because of a self-selecting bias, whereby only the most motivated, and therefore more likely to succeed anyway, chose to participate.

From Botswana to Bolivia, entrepreneurship training has resulted in thriving microenterprises — like soap makers, cocoa processors and handicraft exporters — that would not have existed otherwise. Some programs may gather villagers in huts and use various baskets to demonstrate how to allocate capital. Other programs may focus on established but struggling businesses, giving owners DVDs that cover topics like pricing and distribution channels.

“A good intervention doesn’t treat everyone the same,” said Bruce McNamer, chief executive of TechnoServe, a nonprofit group in Washington that has worked with entrepreneurs in developing countries since 1968 to expand their businesses and foster economic growth in their communities. “How you help depends on the circumstance.”

Mr. McNamer’s group, which works with the United States Agency for International Development and the State Department, provides free business consulting services and also sponsors business plan competitions to identify aspiring entrepreneurs in developing countries. “These are usually people who have started a business but they just don’t know how to get from point A to point B,” he said.

An example is a cooperative of 50 farmers in northern Nicaragua that four years ago was just getting by while cultivating coffee, he said. But the cooperative, with assistance from TechnoServe, turned to other crops, like the starchy staple malanga, that increased their profits. The cooperative now has 250 farmers and has opened its own packaging plant, which employs 80 people. The plant’s products are exported as far as Miami.

Teaching financial literacy and entrepreneurial skills is seen as particularly important to the reconstruction of war-torn regions like Afghanistan and Iraq. “It doesn’t matter if you build roads if one in four kids dies by age 5” because of illness or malnutrition, said Ross Paterson, a self-described business coach and retired Army officer in Keller, Tex.

He has been to Afghanistan 10 times in the last seven years to teach entrepreneurship. It is more important, he said, to give Afghans the ability to build businesses that will provide the income to sustain them.

Occasionally fearing for his safety because of the continued Afghan fighting, Mr. Paterson says he primarily teaches leadership skills by helping the local residents to recognize and successfully work with different personality types, whether colleagues or customers.

While Mr. Paterson’s courses last only a few weeks and are limited to those who speak fluent English, other organizations emphasize the importance of finding and training local people to teach the fundamentals of running a business.

“You need people who are going to be there for the long term and who know what really works on the ground,” said Fiona Macaulay, founder and president of Making Cents International, a 10-year-old nonprofit organization in Washington that creates entrepreneurship courses for the disadvantaged and trains the people who teach them.

Continuing mentorship and support are crucial to helping entrepreneurs succeed, Ms. Macaulay said. Her organization also offers networking opportunities for its students. “At a business fair in Jordan, for example, we were able to connect a woman who made cakes with a woman who made boxes to transport the cakes,” Ms. Macaulay said.

Many of those who teach entrepreneurship in remote and impoverished areas say the biggest hurdle is persuading students to believe that there are opportunities beyond, say, selling fruits or trinkets in an open-air market.

“I’d say getting them to identify new approaches and opportunities is the hardest part,” said Harsh Bhargava, a business consultant in McLean, Va., who with his wife, Aruna Bhargava, a sociology professor at Rutgers, started the nonprofit group I Create in 1997 to teach entrepreneurship in India, their native country.

He says many of the people his organization works with are so downtrodden they cannot envision another way of life. He gave the example of an Indian woman who was so abused by her husband and in-laws that she lacked the confidence even to look anyone in the face. After a local I Create trainer persuaded her to take an entrepreneurship course, she left her husband and started her own grocery store.

Moreover, she successfully sued her husband and in-laws for the return of her dowry and for child support for her son. “She’s now studying to become a lawyer and hopes to work to protect women against dowry-related crimes,” Mr. Bhargava said. “It’s these kinds of stories that make what we do so gratifying.”

http://www.nytimes.com/2009/06/25/business/smallbusiness/25sbiz.html

The Power of Microfinance

As number of applicants for loans decreases, some researchers point to the increasing amount of red tape involved in starting a business.

AlJazeera

By: John Terrett

Published: May 31, 2009

There seems to me to be something almost spiritual about microfinance - as if the idea was handed down by a higher power for the greater good of mankind.

Can you think of another simple idea that satisfies so many human needs in one go?

A micro-loan helps poor people who wish to help themselves and allows the staff of a micro-bank to feel they are giving something back to society.

Meanwhile, a strong microfinance organisation can extend loans to people who go on to develop businesses that frequently increase the output of national economies.

Bangladesh success

Muhammad Yunus, the founder of Grameen Bank, said he first realised microfinancing could help poor people get on their feet when he met a group of desperately poor Bangladeshi merchants in the mid-1970s.

Yunus said these people lived in fear of money lenders who took nearly all their profits.

Collectively the outstanding loans came to just $27.

Yunus gave them the cash from his own pocket and set them free from the tyranny of the debt collector's thugs.

Today there are thousands of microfinance companies all over the world.

The basic idea behind microfinance is simple and tends to follow the Grameen example.

A small amount of credit, at a reasonable interest rate, is offered to people who are considered too risky by traditional financing sources.

Often the amount borrowed is around $100 - sometimes more, sometimes less - which is used to buy tools, or to decorate a shop, or to buy stationery or to take on a new member of staff.

Grameen also pioneered a unique model of providing micro-loans through peer lending.

This is where individuals who wish to take out a micro-loan recruit other potential borrowers to form a peer group.

The group provides its members with support and holds them accountable to one another, creating a powerful form of social collateral and a good reason to pay back the loan on time.

Here in the US rules and regulations make microfinance a little more complicated than it is in Bangladesh, Africa or parts of Latin America.

New York initiative

I have just visited the oldest microfinance company in New York.

Project Enterprise was founded in 1997 by a husband and wife team who wanted to do something for the one-in-four New Yorkers who live in poverty through unemployment, under-employment, very low paying jobs or ill health.

In the 12 years since, it has provided loans and business training to more than two thousand entrepreneurs who would otherwise have been denied access to start-up capital, or could only receive it at very high cost.

Project Enterprise currently has 450 members. Some are borrowers and many more joined to take advantage of the business training programmes on offer.

Seven years ago, Mustaqueem Abdul Azeem was behind bars at New York's infamous Rikers Island prison.

On his release day he felt the urge to use his personality to try his luck as a salesman.

As an ex-con, his chances of landing a full time position or a traditional bank loan to start his own business were zero.

But now he sells health and beauty products from a street vendor cart outside a coffee shop on 125th Street in New York's Harlem district.

"I started out literally with a little fold-up card table," he said, "and two products, a little bit of Shea Butter and a little bit of raw black soap."

Today, Mustaqueem employs five other people. He has a website, a van and a six figure balance sheet.

He's pulled this off in one of the city's poorest districts by working with Project Enterprise.

Catherine Barnett, the Project Enterprise interim executive director, said anyone with a flair for business is welcome.

"We title our programme small loans, big connections, so some people come for the small loans and some people come for the big connections which include the training and the networking," Barnett said.

Red tape

But in a country where 40 million people have no access to a bank account, the number of applicants for microfinancing is growing at a smaller pace than in developing countries.

One reason may be the red tape involved in starting any kind of business.
Lisa Servon, professor of Urban Policy at the New School in Manhattan, said: "In the US if you want to sell empanadas you have to have your kitchen inspected.

"You have to have a licence, there's a lot of things that go along with it and what the result of that is for the micro-enterprise development movement here is that there's a lot more training."

In the US microfinance organisations tend to be NGOs or non-profits relying on generous benefactors while the Grameen Bank of Bangladesh turns a profit each year from which it can lend to new borrowers.

Lisa told me that the recession and credit crunch has made raising funds for micro-loans in the US far more challenging.

"Given that they do survive though philanthropic dollars often times they are less of those dollars available now every foundation every corporate donor is cutting their grants," Servon said.

The fact that sub-prime housing loans given to poor people have been blamed for sparking the recession, the credit crunch might also make raising funds for microfinance in the US more difficult in the future.

There are also severe doubts about whether the microfinance business model can be sustained in America because a strong small business culture means microbusinesses are often overlooked on every level.

But don't tell that to Mustaqueem Abdul Azeem - he admits to feeling the recessionary pinch like everyone else - but he has just asked for another $6,000 to expand his health and beauty products business with a stall in a shopping mall in a rich town to the north of the city.

http://english.aljazeera.net/news/americas/2009/05/200953014457810800.html