Micro-finance is a growing movement around the world which suggests that it can solve the poverty issue. One major example is Grameen Bank and its founder Dr. Yunus who received the Nobel Peace Prize recently. In fact, my contribution to the WorldChanging book was on Microfinance.
Reuben Abraham, a friend with whom I worked with in Deeshaa, writes about his view on this. Reuben Abraham is the Director of the Base of the Pyramid learning lab at the Indian School of Business in Hyderabad, India. So he knows what he is talking about.
One of the widely-circulated and key ideas in the international development arena of late is the celebration of entrepreneurship among the poor in developing countries. The assumption seems to be that the poor could successfully run these small micro-businesses, if only the slightest amount of help could be offered, especially financial help. The thinking goes like this: Nagamma would be able to buy two cows if she had access to $200, then she would be able to supply milk to the community, make money, repay the $200 at 25% p.a., and have money left over to scale the business to a point where she can buy more cows, make it a viable business etc. This is the sort of thinking that forms the basis for the current hype for micro-finance and social entrepreneurship, though one most also add that real-world practitioners of micro-finance (some of whom are very good friends of mine) typically are free of any such delusions. I must also confess that I personally flirted with the ideas around micro-entrepreneurship for a while, before thinking through the problem and arriving at a different conclusion.
I think the fundamental problem with the thought process is the conflation of real entrepreneurship with micro-entrepreneurship. Entrepreneurs of the Nagamma variety are forced into entrepreneurship because they have no other alternative. In other words, survival becomes entrepreneurship. That does not mean, however, that Nagamma possesses the skills required to be a real entrepreneur. True entrepreneurship is a specialized skill which requires a very high degree of risk-appetite, and I’d argue that less than 1% of the population have these skill sets and risk appetites. I should know, having been involved in two start-ups in the mid-90’s. I was an entrepreneur because I don’t really like taking orders from others and I have always lived for the thrill of doing something very new. I am also extremely well-networked to knowledge, capital and people with solid management skills. To compare an entrepreneur like me with Nagamma is a bit absurd, isn’t it?
The fundamental problem in developing countries is the creation of employment, self or otherwise. The micro-finance movement revolves around the idea of self employment and as Reuben suggests this is not for everybody.
I think it is important to distinguish between the “entrepreneur” who innovates and the “small businessman” who runs a business.
What India and other developing countries need are programs where skills are provided to individuals which will enable them to secure jobs. One of the biggest learnings for me in coming to Australia was the education levels, skill sets and business ideas working in Australia.
Considering that Australia is a developed country the first impression would be that you would find highly educated people everywhere. But this was not true at all. People did have the basic schooling till 10th or 12th standard. This provided the literacy, numeracy and communication skills necessary in any field. However, after this period there is a very interesting development.
Australia has developed a skill training network of institutes called TAFE across the country. TAFE insititutes provide valuable skills in areas which are demanded by the industry. For example, from the TAFE in Queensland.
We offer over 800 programs covering areas such as business, engineering, construction, management, information technology, e-commerce, arts, media, tourism, hospitality, sport and recreation.
With over 120 years of history, a network of institutes and over 100 campuses, TAFE Queensland is the largest, most experience provider of vocational education, training and adult learning in Australia’s Smart State, Queensland.
You want to become a book keeper, you go to TAFE. An electrician, a cook, and what about a receptionist? TAFE provides a unique set of courses at rock bottom prices (subsidized by the govt.).
TAFE provides a practical way of learning skills which are valuable once you are out in the job market. It is helpful to the individual and the Institution, both. Discussing with people who are studying in TAFE and especially with people who have experienced both TAFE and university education; it is clear that TAFE education is superior in imparting skills. University is more about knowledge and understanding.
The most important part is that employers across Australia respect and value TAFE graduates. In India by contrast even the most menial of jobs require high qualifications. The outsourcing sector where I worked in India had business graduates from good institutions and even MBAs doing finance jobs which were performed by 10th or 12th standard educated individuals in the US. Not all jobs are that bad, but there is a tendency to go for high qualifications in India.
As Reuben provides the example of Cab drivers, a TAFE like institute can do that in India easily.
Reuben suggests in his blog post that real entrepreneurs are only 1% of a population. If you consider this; then the issues with micro-entrepreneurship comes to the fore.
In Australia, in terms of businesses, I have read that Australia has the highest franchises per capita. The franchising system creates a well oiled, successful system of business management created by one of those 1% entrepreneurs and anybody who is willing to learn and follow the system can run his own small business. This can actually generate self employment.
The international development community needs to look at Australia and other similar countries to create new systems in developing countries.