> Posted by Christy Stickney, Independent Consultant and CFI Fellow
After decades of directing financial services to owners of micro-enterprises, many microfinance institutions are now finding themselves serving a growing population of small business owners. Thus, with increasing global attention directed to small and medium enterprises (SMEs) and their potential contribution to economic growth, it seems fitting to look more deeply into microfinance portfolios, and discover what can be learned from entrepreneurs whose businesses have arisen out of poverty and marginalization into what can be classified as emerging SMEs. My recent research as a CFI Research Fellow led me to delve deeply into the stories of entrepreneurs who have grown their businesses from micro-enterprises into SMEs.
As someone who has focused much of her career on pushing microfinance downward, towards smaller enterprises and those earning lower incomes, this focus on emerging SMEs both inspired and taught me a great deal. While the analysis of these stories is the focus of my report coming out next month, I’d like to share here two stories that inform our understanding of the nature, growth trajectories, and financial service usage of SMEs arising from within microfinance portfolios. They describe the experiences of two clients of Banco ADOPEM in the Dominican Republic – one of three microfinance banks I visited as part of this study. (All names have been changed to protect identities.) While these two stories may resemble the classic “client story” in that they show how people have moved up the economic ladder, pay attention to the markers of success – both financial and non-financial – that distinguish these clients from those that may have not grown.
Rising above the Floods
When the rivers rose and washed away their home and woodworking shop, built from scratch over 12 years of arduous labor, Laura, her husband, Miguel, and their three kids had to find a way to start all over. “Allí no se pudo sacar nada.” (We couldn´t salvage anything.)
Laura and Miguel had been borrowing from Banco ADOPEM for six years, and following the flood, they managed to piece together financing from ADOPEM and other sources to purchase property in a neighboring community of Santo Domingo. Gradually, they built a new home and much larger workshop.
As with many jointly-owned family enterprises, the effective division of labor between spouses is very evident in the woodworking shop. Miguel runs the workshop, having been raised working in his father´s own furniture shop, while Laura manages the administrative work, keeping the financial accounts and following up with customers. Their youngest daughter is studying to become a lawyer.
Now, 10 years after the flood, Laura and Miguel employ a team of seven workers in addition to Laura´s two older sons – employment for a total of 11 people. And Laura herself has recently returned to high school, with plans to pursue a university degree.
A Gift for Lost Savannah
“El mejor y más grande regalo para nuestra Republica es educar a nuestros niños y niñas” (The best and biggest gift for our country is to educate our boys and girls) – Quote painted on the front of the “Divine Angels Educational Center” in Santo Domingo.
Children’s chatter and laughter can be heard behind the high wall in front of Angelitos Divinos (Divine Angels), a small primary school in Sabana Perdida (literally Lost Savannah), a developing neighborhood of Santo Domingo. Angelitos Divinos is run by Esperanza, who started with a small after-school homework club for students struggling with learning disabilities. Esperanza was teaching at a public school when she and another teacher decided to offer afternoon tutorials in one of the rooms of her mother’s house. About five years later, she and four other teachers decided to launch their own school, transforming the remaining rooms of her mother’s house into classrooms. Esperanza resumed university studies when she launched her own school, and in 2007 she graduated with a degree in Educational Administration.
She and her staff of 12 now serve a total of 168 primary students. Esperanza’s mother runs the school cafeteria and helps care for Esperanza’s two young children, who are one and four years old. Her husband works in his own profession, as a press photographer. Esperanza attributes the success she’s had to the support she’s received from God and from her family, especially her mother, in addition to her “partners” – the teachers of Angelitos Divinos – and their commitment to quality education.
These stories are inspiring. But more important, they demonstrate patterns associated with microenterprises that grow to become small businesses. Here are a few of those patterns. For one thing, the change doesn’t happen overnight. It’s a long, incremental process requiring sustained effort. It helps to have a microfinance institution as an ally willing to support growth patiently, as well as an entrepreneur who knows how to leverage debt strategically.
From the first story, Laura expresses great appreciation for the financing received from Banco ADOPEM, particularly after the flood. She is also grateful for the financial education she received, which she says has helped her to watch out for unnecessary spending and avoid falling into over-indebtedness.
Laura and Miguel began borrowing from ADOPEM in 2000 with a loan of approximately $300. Last year they borrowed $6,700 to cover construction costs needed to build a second storey above their workshop, and the upstairs residence where they now live. Prior loans have been used to purchase lumber, woodworking machines and tools, and more recently the truck used to deliver finished products to their customers throughout the Dominican Republic.
Esperanza, around the time that she and the other teachers decided to launch their own school, began borrowing from Banco ADOPEM to help finance building classrooms in her mother’s house. She initially borrowed $600 in 2006, and has continued with a steady stream of loans since then, financing additional classrooms and improvements to the school infrastructure. Her last loan of approximately $7,800 allowed her to add office space, a library, and widen the playground.
Both of these stories also demonstrate the central challenge of finding the right space to do business.
For Laura and Miguel, their ability to grow has depended on rebuilding their home and workshop, and for the future, finding a prime location for sales. Laura and Miguel dream of building a store in a more commercial area of town to display their furniture and serve as a point for distribution and sales. They have their sights set on a piece of land not far from their home. As Laura says, all that´s needed is the financing.
For Esperanza’s school, increasing the student body requires building more classroom and playground space. Now Esperanza is eyeing the property next door, with plans to expand further and include courses in computer technology. “Mi visión es grande.” (My vision is big.) These experiences point to the importance of financial tools to assist in the acquisition and improvement of business premises.
Finally, these microentrepreneurs, unlike many whose businesses do not grow, have clear visions for their businesses and are taking active steps towards their goals. All these observations – and many more to come in the full report – are important for helping financial institutions select tiny enterprises with growth potential and craft financial and other support to foster that growth.
The full report on this research will be released next month.
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