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Tuesday, December 11, 2007

Not Every Microborrower is an Entrepreneur

By Rob Katz

The Women of Akbarpura(Photo: The Women of Akbarpura, by Flickr user lecercle, used under a Creative Commons license.)

NextBillion readers often ask me why we don't cover the microfinance industry more closely. After all, microfinance is a slam dunk BoP success story: a business strategy that helps low-income communities access high quality, competitively priced financial services. So why not write about it more often?I typically give a two-part answer to this question. First, I tell readers that, if NextBillion covered every development in the microfinance industry - and we cover some of the more interesting ones - we would morph from a BoP-focused web site into a microfinance-focused web site. And there are many excellent microfinance sites out there already.

The second part of my answer is to say that not every microborrower is an entrepreneur; that our focus at NextBillion.net is more on entrepreneurial approaches to social and environmental issues; and therefore, we don't cover microfinance quite as much as some would like.

This stance is somewhat controversial, since many microfinance institutions tout their assistance to "local entrepreneurs" in fundraising materials and other external communications. Let me clarify: I am not saying that all microborrowers (microfinance clients) are not entrepreneurs; rather, I am simply pointing out that not all microfinance clients are entrepreneurs.

The importance of this difference is discussed quite nicely by David Stoker, a NextBillion ally and author of the Microfranchising Blog. In his entry last Thursday, he notes:
My field experience indicated that the typical microcredit borrower is not a good candidate to operate a franchised unit. A large part of it has to do with simple life-cycles: the typical microcredit borrower is a bit older, they have little desire or confidence to change businesses, or to start something from scratch. They are often illiterate and have no experience keeping business records. The children of microcredit borrowers on the other hand are better educated than their predecessors, they can read and write, are anxious for employment, and have the vitality and youthful optimism and drive to start a new business.
This is not a one-sided debate, and there's much more to it. For a longer discussion of the definition of social entrepreneurship, be sure to check out Roger Martin and Sally Osberg's article, Social Entrepreneurship: The Case for Definition, via the Stanford Social Innovation Review. Last year, the Wall Street Journal noted the difference between Nobel laureates' idea of entrepreneurship in an op-ed entitled Phelps and Yunus Offer Different Views of Entrepreneurship.

(Hat tip: Microfranchising)
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