By K. C. Soares, ContributorTODAY I will focus on the micro enterprise end of the small business sector. To start with, let me first define a micro-enterprise. A micro-enterprise is an entity with an asset base (excluding land and buildings) not exceeding US$10,000 (J$550,000), employs less than five persons and with an annual turnover of less than US$125,000 (J$6.8 million).
Micro enterprises are those entities at the lower end of the small business sector. The small business sector, as I have already pointed out, comprises businesses with asset base (excluding land and buildings) not exceeding US$100,000 (J$5.5 million), employ less than 50 persons and have annual turnover of less than US$1 million (J$55 million).
In terms of legal structure, micro enterprises are usually sole proprietorships. Small enterprises are normally registered entities such as partnerships, business names and limited liability companies. Micro enterprises are usually owner-managed, while small enterprises tend to have a mix of owner-managed, partnership and corporately structured enterprises.
Over the past few years a lot of emphasis has been placed on the development of the micro enterprise sub-sector. This is a good move as it is basically in response to the massive layoffs taking place for the past 10 or so years. The main thrust for development has been through the establishment of organisations to provide credit facilities to this sub-sector. The main organisations dealing directly with the micro enterprise sub-sector are the Micro Investment Development Agency (MIDA), Development Options Limited, JN Micro Credit ( recently renamed JN Small Business Loans) and Micro Enterprises Limited, a joint venture between the Bank of Nova Scotia, the Canadian International Development Agency (CIDA) and the Kingston Restoration Company (KRC).
The structure and operating guidelines of these organisations tend to reflect a mix of experiences drawn from other countries. One such experience, which seems to have a significant input in the structuring of these organisations, is the Grameen Bank experience in Bangladesh.
MUTUAL TRUST
For those readers who are not acquainted with this experience, let me briefly outline what this is all about. The Grameen Bank effectively reversed conventional banking wisdom by removing collateral requirement and created a banking system based on mutual trust, strict supervision, accountability and creativity. The bank provides credit to poor people in Bangladesh without any collateral. These were people who were kept outside the banking system on the simple ground that they were poor and hence not bankable. Similarly, here in Jamaica these institutions provide credit, referred to as micro-credit, to individuals with little or no collateral and who under normal circumstances would not have qualified for traditional bank loans.
The concept of micro credit being extended to individuals who cannot access funding from traditional lending institutions is good. From all indications, the programmes embarked on by the institutions involved have been met with reasonable success. In order to enjoy a greater degree of national success I would like to make a few suggestions.
The greatest demand for micro credit is among the less privileged in the society. These groups are mostly concentrated in what are termed inner cities. These areas tend to have a high percentage of persons who are not well educated.
In these circumstances, the participation of the organisations should not stop at the disbursement of funds but should include education and training exercises for the recipients involved. The granting of the loan should be used as an entry point in community development activities. In this respect, non-borrowers from the communities should be welcomed at any training and teaching session. Basics of accounting, economics and mercantile law should head the list of subjects to be taught. This will not only help the individuals and the institutions but also the national economy as a whole. Let me explain in simple terms.
With good record-keeping by loan recipients, the institutions will be able to keep track on what is happening in the enterprises. This will allow the institutions to make more and larger loans to the individuals. The enterprises will then be afforded opportunities to grow into larger businesses. Larger businesses are expected to employ more people, thus setting off a multiplier effect. In the long run the national economy will benefit from increased productivity and increased employment. From this simple process the standard of living for all is expected to improve.
One may ask who will conduct the education and training exercises. The answer is simple - the supervisors of the loan programme.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com.
