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From the late nineties to the present, the provision of non-financial services or
business development services to client-borrowers has become a component of the
various MFIs’ range of products and services. Notwithstanding this fact, however,
MFIs admit that only 1 to 2 percent of their client-borrowers with microenterprises
have been able to “graduate” their businesses into small- or medium-scale
enterprises. The rest or some 98 percent of the MFI clients’ businesses remain at the
micro level.2 A study by the United Nations Conference on Trade and Development
(UNCTAD) study echoes this finding: majority of micro and small enterprises in
developing countries fail to move to higher levels of enterprise activity that would
enable them to contribute to economic growth and job creation.3 Given that
microenterprises in the Philippines make up the bulk of enterprises in the country, and
have the potential to contribute significantly to employment generation and poverty
reduction, MFIs and development organizations (DOs) would like to find out: What
makes the few microentrepreneurs succeed? What factors facilitate the growth of
microenterprises into small- or medium-scale enterprises? At present, MFIs, DOs,
and other BDS providers have yet to find an effective and efficient business model for
providing BDS. As providing BDS is quite expensive per se, it has become imperative
for MFIs and DOs to come up with very strategic BDS interventions for its client
borrowers, strategic especially in terms of cost and quality.
Through a survey of literature this paper looks into the nature of microenterprises,
the challenges and barriers to successful entrepreneurship, as well as the key factors
behind the microenterprises that have successfully grown to higher levels of
enterprise activity. It focuses on the qualities or traits and skills of successful
entrepreneurs based on a content analysis of documented stories, case studies or
profiles identifying their traits and skills at various stages of the development of their
enterprises. The results of this literature review are expected to help identify the type
or kind of microentrepreneurs who manifest greater potential to grow their businesses
into SMEs. In turn, identifying their type should guide MFIs and DOs in crafting the
BDS interventions needed to bring these microentrepreneurs to the next level. The
findings from this paper are also expected to help draw up the variables that will form
part of the parameters for the research survey on successful client-borrowers of
participating MFIs.
Micro, small and medium enterprises (MSMEs) make up the vital engine of the
Philippine economy. Being largely poor and lower-middle class, the composition of
the Philippine population is vastly reflected in the makeup of the economy. According
to the National Statistics Office (NSO), 99.64 percent of all registered businesses
nationwide, which number 783,9236 are classified as micro, small and medium
enterprises. Ninety-one (91.02%) percent of these businesses or some 713,565 are
considered microenterprises. Small enterprises comprise 8.2 percent (64,501), while
medium enterprises account for 0.38 percent (2,980). Large enterprises make up 0.36
percent (2,865) of the total number of businesses in the country.
Second, most microenterprise activities are seasonal due mainly to the fact that
the supply of raw materials or the demand for their products is also seasonal, e.g.,
smoked and dried fish. When fresh fish are scarce, the demand for smoked or dried
fish goes up.
Third, microenterprises “have short cash cycles (from sourcing of money, to sale
of goods or services, to collection and to paying back of the money), [ranging] from
one day to several weeks.”
Fourth, “microenterprise activities are relatively easy to engage [in] and also to
exit from.” This is because the enterprise activity, as Chua pointed out and which one
could easily validate, is simply the poor’s attempt to utilize the resources available, for
them to earn an income.
Fifth, microenterprises, in general, show very high rates of return vis-à-vis the
low level of investment needed. A fish vendor, for instance, could realize a return of
25 percent per day, like if he buys five kilos of fish at Php80/kilo then sells this at
Php100/kilo. From such the vendor would earn Php100. Such high rates of return may
be the underlying reason for the microentrepreneurs’ choosing informal moneylenders
to be their source of capital despite the high interest rate charged by the latter.
Although microenterprises require little in terms of capital, skills, and assets, and
thus permit the poor to enter or exit the sector easily, microentrepreneurs actually
generate only small value added for each business activity. These same features tend
not just to foster intense competition due to the proliferation of microenterprises but
also limit the microenterprises’ potential for growth, Chua explained.13
There is no universal, or even national, definition that limits a micro business from
also being labeled as a small business, small businesses are identified as for-profit
enterprises that are independently owned and operated, but do not dominant their
industry or local market. Generally, they can staff anywhere from 500 or fewer
employees, and their assets total less than $1 million per year.
Unlike their micro business counterparts, small businesses tend to have less
difficulty securing capital loans or lines of credit, and recruitment as an independent
enterprise is met with less resistance as their companies are seen as more financially
solvent. That solvency comes at a price, however, as many small businesses when
registered as an LLC or corporation will find their taxes are assessed at a corporate
tax rate instead of a personal tax rate commonly used by micro businesses run by
solopreneurs.
Tax structure and recruitment process can also affect small businesses when it
comes to their payroll system. As companies grow, a small business’ in-house team
may require something more robust than a standard bookkeeping system to ensure
payroll taxes, corporate taxes and government fiscal policies are adhered to.
An internal payroll system, or outsourcing to an independent company that
specializes in payroll accounting, can help alleviate the problems that come with
increases in size and logistics.
Although all micro businesses are technically small businesses, the operating
costs and revenue collected is often significantly higher for a small business as it
scales up, even with the addition of only one new employee. Yet, with micro
businesses responsible for more than 41 million jobs in the U.S.’s private sector, it’s
important to not discount why entrepreneurs with a business of five or fewer
employees require their own market representation.
Dal LaMagna, in his humorous recent book “Raising Eyebrows: A Failed Entrepreneur
Finally Gets It Right,” leads with the foundational principle of micro-businesses, which
is to start small. This allowed him to learn enough from all his early mistakes to hit it
big with a global beauty tools company called Tweezerman. He offers several
additional principles as follows:
2. Be frugal. Don't spend money you don't have. Don't invest in anything
you don't need. If this means baking cupcakes in the local church
basement and delivering your signature pastries by bicycle to local
stores -- two dozen at a time -- do it. Take the money you make and put
it right back into the business.
3. Record every expense. From the dollar you gave to the homeless guy
on the way to meet a prospective client, to the new tie you bought to
look professional, write down every single penny. The key to launching
a micro-business is to keep expenses under control and fully accounted
for.
4. Keep a monthly profit-loss. For the first two years of your business,
complete a monthly profit-loss statement. This helps you stay on top of
where your business is going, where it could do better, and why it
fluctuates.
5. Find free stuff. Many items needed to start and run your small business
are available for free or next to nothing. Be creative. Use freecycle.com;
ask friends if they have an old computer or printer; or visit a thrift shop
for office furniture or office supplies.
7. Keep it simple. When Dal first started Tweezerman, he did nothing but
focus on tweezers and selling them to cosmetic counters, one store at a
time, which he did very well. If you can do one thing well, don't dilute
your efforts until you have been turning a large profit over a consistent
stretch of time.