Microenterprise to SME: A Thought Exercise Pt. II

This is the third post of a threepart series on small- and medium enterprises.  It is the second of a two-part post.

Enterpreneurship training with Negros Women for Tomorrow

The other day I discussed six actions or programs a microfinance institution (MFI) can take to help clients convert their business from a micro-enterprise to a small- to medium enterprise (SME).  Today, I will cover the final six.

7. Assistance in the placement of the graduates of the livelihood trainings

Developing marketable skills is critical to finding employment.  Most of the poor served by microfinance do not have steady jobs.  Some have seasonal or contract work, but very few have a job with a paycheck.  But training is only one part of the equation.  Connecting program graduates with potential employers presents another challenge, particularly when the labor pool is large and the jobs are few.  Securing positions for clients is the critical next step after investing in training.

8. Creation of a mutual benefit association owned and managed by the clients to ensure the financial needs

In the developing world and the United States alike, sometimes life gives you lemons.  In the latter, it’s easier to make lemonade.  Unexpected medical emergencies, a death in the family, or a natural disaster can negate any upward progress.  In the U.S., all but 45 million of us have health insurance to cover the astronomical cost of a hospitalization.  For microfinance clients, that is not the case.  An MFI can create a mutual benefit association to provide insurance for its clients.  Clients pay dues to be a member of the association and, in exchange, are given low-cost insurance premiums.  The sheer size of the insured pool generates economies of scale and drives costs down.  CARD Bank, the largest MFI in the Philippines, offers these services to its clients through a subsidiary organization.  As of year-end 2009, the association serves 967,963 households, or 4.8 million people, and has 1.8 billion pesos ($40 million USD) in assets.  Here is the description from the website:

CARD-MBA is a mutual benefit association formed to promote the welfare of marginalized women; to extend financial assistance to its members in the form of death benefits, medical subsidy, pension and loan redemption package; and to actively involve the members in the direct management of the association including formulation and implementation of policies and procedures geared towards sustainability and improved services.

9. Linkage with Philhealth to augment their medical needs

Philhealth is the state-run health insurance program in the Philippines.  It offers a basic level of coverage – like Medicaid, if Medicaid only allowed you to go to the state-run hospitals and did not offer full benefits.  The problem is that a large percentage of the population – particularly poorer people living in rural communities and working in the informal sector – do not have access to the program.  Enrollment is voluntary, and some people cannot or will not make payments.  But microfinance institutions have access to these off-grid areas and connections with the unenrolled.  Formalizing the process will provide low-cost health insurance to millions in need.  This, in turn, will reduce delinquencies from medical emergencies and hospitalizations and will contribute to growth out of poverty.

10. Provision of accounting, auditing and consultancy services as well as business management advisory

When a company needs something done that it can’t do itself, it hires an expert, a business consultant that offers advice and guidance for a fee.  The same can be true for micro-enterprises, but on a more basic level.  Some of the ideas thrown out during this exercise were business idea generation, prototype production, pilot testing, business feasibility analysis, costing, tax awareness, and commercialization.  Giving clients a base knowledge of finance, marketing, accounting, and management pays dividends as their business grows.

11. Provision of electricity to far-flung places thru the use of renewable energy

I discussed rural energy delivery, distributed energy, and the use of solar lanterns during a previous post.  There are obvious economic benefits to electrifying a community.

12. Empowerment of the Indigenous Peoples (IP)

Microfinance institutions can offer a range of services designed to empower people to control their economic and financial destiny.  Through the formation of functional working groups and the extension of training activities such as livelihood training programs, leadership training, resource mobilization, advocacy and networking, and gender forum on violence against women, clients have more in the information they need to make the right decisions.

Those are twelve critical components of poverty alleviation through microfinance.  More specifically, this is how to turn a microenterprise into an SME.  The premise best be summed up in an equation given by the microfinance institution that presented this 12-point plan:

Financial Services + Values Formation + Capacity Building + Linkage = Poverty Alleviation

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