Bogota, Colombia – Although the phone rings incessantly,
Carlos Moreno is not distracted.
He continues to talk, not just about his life as a slightly
greying 78-year-old pastor but also about how he became what some consider to
be the world's first microfinance recipient. It wasn't as an entrepreneur.
"My life is dedicated to the Lord,' he says. Although
Carlos had launched a tea and spice business in the early 1970s, he hadn't
aspired to be an entrepreneur. That is the case with most microfinance
recipients.
Yet the movement that extends small, uncollateralised loans
to the poor to start businesses has marketed itself as being about
entrepreneurship. That is a mistake. While microfinance may have helped Carlos
start a business, it did not make him an entrepreneur.
Carlos' dream was to build a Protestant ministry. To get
there, he took out a loan in 1971 from the Institute for International
Development (IIDI), the precursor to Opportunity International, a Chicago-based
microfinance institution.
That transaction appears to be the first loan in modern
microfinance history, though as Centre for Global Development Senior Fellow
David Roodman notes, "people have been making small loans to help the poor
for 500 years".
Opportunity International was one of the first organisations
to experiment with making financial services available to the poor to help them
launch enterprises. Accion International began making loans in Latin America in
1973.
Nobel laureate Muhammad Yunus perfected the model and
succeeded in scaling up the movement with the launch of the Grameen Bank in
1976. All inspired millions to rally behind entrepreneurship.
What has held them back has been the ability to make a go of
those businesses. According to Inc magazine and the National Business Incubator
Association, 50% of new US businesses fail within the first five years. Lack of
capital is largely to blame.
In Africa, Latin America and many parts of Asia, banks are
unwilling to lend, and venture capital and angel investing are virtually
nonexistent. Microfinance can fill this gap, but it's often not enough to
sustain a business.
Moreno says that it is a mistake to believe that everyone in
the developing world is interested in running a small business. "Most
people just want a job."
In a country like Colombia, where there are limited
educational and employment options, that is hard. Everyone is forced, out of
necessity, to create his or her own livelihood.
Survival, not entrepreneurship
"Necessity entrepreneurs", as Professor Zoltan Acs
has dubbed them, rarely have the skills and resources to sustain, let alone
scale up, their ventures. The majority fail. Failed enterprise after failed
enterprise feeds into the continued cycle of poverty – and cynicism.
Al Whittaker, the former Bristol-Myers Squibb executive who
started Opportunity International, vowed to break that.
He - along with an associate, Ross Clemenger - had agreed to
experiment with extending loans to the poor to start businesses. They would
only lend to those they believed could succeed. Carlos Moreno qualified.
"I visited Carlos at his factory, which was his
house," Clemenger says. "What he was doing with his wife looked like
it worked well." He needed confirmation, however.
"I asked to see his books," he says. Carlos did
not keep any. "I gave him a scribbler, told him 'write down what you sell
over the next three months, then write down what you spend'." When
Clemenger returned, he was amazed to find that Carlos was "making money
hand over fist... That's when I told Al, 'let's go for it'."
It worked. Carlos scaled up his business to employ 16 people
and become the coveted tea and spice supplier to local butchers, grocery stores
and even one of Colombia's biggest supermarkets, Carulla.
After eight years, however, Carlos sold the business to
focus on his ministry full time. Continuing "would have been a distraction
from the church", he says. His business was a means to a better end.
That, many say, is exactly what microfinance is about.
"Microloans are often used to 'smooth consumption' – tiding a borrower
over in times of crisis," writes James Surowiecki in The New Yorker. It is
a stopgap that borrowers use for sustenance rather than to create the next
Google.
Reuben Abraham, executive director of the Centre for
Emerging Market Solutions at the Indian School of Business, says that that same
stopgap exists in the United States as well. "It's called the credit
card." Just like the credit card, notes Abraham, microfinance is
"useful for consumption smoothing" and "“cash flow
problems".
It is less useful to categorise it as a means to replicate
Silicon Valley's story. "People misdiagnose survival as
entrepreneurship," he says. "The guy selling tea in a shop outside in
Hyderabad has no intention of becoming the Starbucks of tea. He would prefer a
formal sector job."
That is exactly what Carlos says as he points to a
photograph on a mantle. "Those are my grandchildren," he beams. He
then excitedly details the work each one's parent does. One repairs radio
transmitters. His daughter works for the government. Another works in an
office. "“None are entrepreneurs," I remark.
"No, no they have good jobs with good salaries,"
he says. Entrepreneurship doesn't guarantee that. And a guarantee where there
is no other is precisely what microfinance is. That it is billed as anything
else is curious.
Microfinance is, above all, a development tool.
Entrepreneurship is not. While it can have great social benefits, ultimately it
is about business.
Entrepreneurs are immersed in the world of commerce,
competition and risk. To most recipients of microloans, this world is foreign
and even frightening.
Yunus made this clear when he joined protests against the
listing of an Indian-based microfinance firm on the Mumbai stock exchange last
year. "Microcredit is not about exciting people to make money off the
poor," he said.
Loans like the one Carlos received have pulled many families
up from poverty, yet they do little to build substantial businesses. "It's
our duty to help the poor," he says.
"Let business do its business."
- Reuters
* Elmira Bayrasli writes regularly about global innovations and entrepreneurship.