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Introduction to Microenterprise Development. Elizabeth Wilson, Senior Director.

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introduction to microenterprise development

Introduction to Microenterprise Development

Elizabeth Wilson, Senior Director

Association for Enterprise Opportunity

“In summoning people to match their talent and labor with small amounts of credit, micro-enterprise 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


Association for Enterprise Opportunity


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


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


Association for Enterprise Opportunity

aeo s mission
AEO’s Mission

AEO supports the development of strong & effective U.S. MDOs to assist underserved entrepreneurs in starting, stabilizing, & expanding businesses.

Association for Enterprise Opportunity

aeo s vision
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.

Association for Enterprise Opportunity

aeo organizational capacity
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

Association for Enterprise Opportunity

what is microenterprise development
What is Microenterprise Development?

An income generating strategy that helps low income people start or expand very small businesses

Association for Enterprise Opportunity

success story noah s art
Success Story: Noah’s Art

Association for Enterprise Opportunity

success story noah s art9
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

Association for Enterprise Opportunity

how med helps people
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.

Association for Enterprise Opportunity

what are the roots of the med field in the u s
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.

Association for Enterprise Opportunity

what are the roots of the med field in the u s12
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 self-employment demonstration project.
  • CFED operated the Self-Employment Investment Demonstration (SEID) from 1988 to 1992, testing self-employment 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.

Association for Enterprise Opportunity

what is a microenterprise
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.

Association for Enterprise Opportunity

what is a microenterprise14
What is a Microenterprise ?
  • Retailers
    • craft shops, florists, used clothing stores
  • Service suppliers
    • hairdressers, caterers, graphic design
  • Manufacturers
    • carpenters, craft artisans, bakers

Association for Enterprise Opportunity

profile of a person served by a microenterprise program
Profile of a person served by a microenterprise program:
  • Working poor
  • People caring for families
  • People with disabilities
  • Public assistance recipients
  • Immigrants and refugees
  • Recently unemployed

Association for Enterprise Opportunity

me client profile
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 non-poor clients

Association for Enterprise Opportunity

who provides med services
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

Association for Enterprise Opportunity

success story the vintage shoppe
Success Story: The Vintage Shoppe

Association for Enterprise Opportunity

success story the vintage shoppe19
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.”

Association for Enterprise Opportunity

med program goals
MED Program Goals

Business Development

Poverty Alleviation




Community EconomicDevelopment

Association for Enterprise Opportunity

med program profile
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 color.

Association for Enterprise Opportunity

med program profile22
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.

Association for Enterprise Opportunity

med program profile23
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.

Association for Enterprise Opportunity

what products services do med programs typically offer
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).

Association for Enterprise Opportunity

typical skills expected to be learned by clients of med
Typical Skills Expected to be Learned by Clients of MED
  • 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

Association for Enterprise Opportunity

typical skills expected to be learned by clients of med26
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

Association for Enterprise Opportunity

fast facts about training and technical assistance
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.

Association for Enterprise Opportunity

what matters
What Matters
  • Readiness for business
  • Financial skills development
  • Training styles
  • Training markers
  • Ongoing support services

Association for Enterprise Opportunity


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.

Association for Enterprise Opportunity

success story big cool
Success Story: Big Cool

Association for Enterprise Opportunity

challenges of micro lending
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).

Association for Enterprise Opportunity

challenges of micro lending32
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 collateral-based lending;
  • The portfolio is made up of many loans of small size, short maturities, and more volatile delinquency.

Association for Enterprise Opportunity

common pitfalls of new programs
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.

Association for Enterprise Opportunity

success story www momswithspecialneeds com
Success Story:




Association for Enterprise Opportunity

success story www momswithspecialneeds com35
Success Story:

Kathy R Foster Holmes-Bass is the founder of this company,  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.

Association for Enterprise Opportunity

step by step functions
Step-by-Step Functions
  • Understand your clients and their need for credit.
  • Design loan products that meet their needs and acceptable risk as a lender.

Association for Enterprise Opportunity

step by step functions37
Step-by-Step Functions
  • 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

Association for Enterprise Opportunity

step by step functions38
Step-by-Step Functions
  • Manage the loan fund prudently
  • Periodically review program outcomes and efficiency and revise and modify for improvement.

Association for Enterprise Opportunity



  • 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?

Association for Enterprise Opportunity

additional service economic literacy and financial education
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

Association for Enterprise Opportunity

funding med programs

Funding MED Programs

Association for Enterprise Opportunity

funding sources
Funding Sources

Association for Enterprise Opportunity

the stimulus package
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.

Association for Enterprise Opportunity

the stimulus package44
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.

Association for Enterprise Opportunity

the stimulus package45
The Stimulus Package
  • 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

Association for Enterprise Opportunity

the stimulus package46
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.

Association for Enterprise Opportunity

does microenterprise work what has the microenterprise industry achieved
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.

Association for Enterprise Opportunity

fast facts about business ownership
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.

Association for Enterprise Opportunity

empowerment community development
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

Association for Enterprise Opportunity

cost effective job creation economic development
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.

Association for Enterprise Opportunity

what is microtest
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

Association for Enterprise Opportunity

what is microtest52
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.

Association for Enterprise Opportunity

what does microtest tell us about performance
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 88%.

Association for Enterprise Opportunity

what does microtest tell us about performance54
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 than $763 per client.

Association for Enterprise Opportunity

challenges opportunities facing the industry

Challenges & Opportunities Facing the Industry

From the Report of the

National Microenterprise Strategy Project

Association for Enterprise Opportunity

External Funding & Competition

Changes in public finance

Competition from financial institutions

Need for industry-endorsed 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”


Association for Enterprise Opportunity

New and expanded markets for microenterprise

Awareness of entrepreneurship as a “public good.”

Expanded public information

The emergence of SMAs


Maturation of the field


Association for Enterprise Opportunity

  • 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.

Association for Enterprise Opportunity

wrap up evaluations test

Wrap Up, Evaluations, Test!

& Shop Until You Drop

At the Micro Marketplace

Association for Enterprise Opportunity

contact information
Contact Information:

Elizabeth Wilson


Thank you!

Association for Enterprise Opportunity