Microfinance & microenterprise

Microfinance programs provide small loans, usually to disadvantaged individuals, to start or expand a small business. In the United States, microfinance is often part of a microenterprise program that provides business training and/or credit (usually $35,000 or less) to small businesses with less than five employees (). Microenterprise programs often specialize, selecting a focus based on local needs or funders’ goals, such as economic development, job growth, poverty alleviation, skills development, etc. (). In the US, microfinance often supports small businesses that provide services such as child care or maintenance whereas manufacturing is more common in developing countries ().

Expected Beneficial Outcomes (Rated)

  • Increased income

  • Increased business growth

Evidence of Effectiveness

There is insufficient evidence to determine whether microfinance and microenterprise training programs increase individual income or business growth. Available evidence from similar self-employment programs suggests that microenterprise training programs may increase the number of new businesses started by unemployed individuals (, , , ), but may not affect income or poverty rates overall (). 

Group lending and social pressure, components of most microfinance models in developing countries, may be less effective in the US due to a comparative lack of close-knit social structure and interdependence; social safety net services and the relative plenty of wage work removes the ‘starvation motivation’ present in many developing countries (). US regulations on microlenders may also introduce barriers absent in developing countries ().

In developing countries, microcredit is a frequently recommended strategy to decrease poverty and increase income for participants, as well as to increase the decision-making power of marginalized individuals, such as women, but there is insufficient evidence to determine its effectiveness in this context (, , ).

Impact on Disparities

Likely to decrease disparities

Implementation Examples

There are many different microfinance programs across the country. One example is Count Me In, which provides microcredit loans of $500 to $10,000 to women via online services ().

Implementation Resources

Count Me In - Count Me In. For women's economic independence.

Citations - Evidence

* Journal subscription may be required for access.

Schreiner 2003* - Schreiner M, Woller G. Microenterprise development programs in the United States and in the developing world. World Development. 2003;31(9):1567–80.

Michaelides 2012* - Michaelides M, Benus J. Are self-employment training programs effective? Evidence from Project GATE. Labour Economics. 2012;19(5):695–705.

Sanders 2004* - Sanders CK. Employment options for low-income women: Microenterprise versus the labor market. Social Work Research. 2004;28(2):83–92.

Schreiner 1999a* - Schreiner M. Lessons for microenterprise programs from a fresh look at the unemployment insurance self-employment demonstration. Evaluation Review. 1999;23(5):504–26.

Schreiner 1999b* - Schreiner M. Self-employment, microenterprise, and the poorest Americans. Social Service Review. 1999;73(4):496–523.

Sanders 2002* - Sanders CK. The impact of microenterprise assistance programs: A comparative study of program participants, nonparticipants, and other low-wage workers. Social Service Review. 2002;76(2):321–40.

Richardson 2009a* - Richardson M. Increasing microlending potential in the United States through a strategic approach to regulatory reform. Journal of Corporation Law. 2009;34(3):923–42.

NBER-Angelucci 2013* - Angelucci M, Karlan D, Zinman J. Win some lose some? Evidence from a randomized microcredit program placement experiment by compartamos banco. National Bureau of Economic Research (NBER). 2013: Working Paper 19119.

NBER-Augsburg 2012* - Augsburg B, De Haas R, Harmgart H, Meghir C. Microfinance, poverty and education. National Bureau of Economic Research (NBER). 2012: Working Paper 18538.

NBER-Duflo 2013* - Duflo E, Banerjee A, Glennerster R, Kinnan CG. The miracle of microfinance? Evidence from a randomized evaluation. National Bureau of Economic Research (NBER). 2013: Working Paper 18950.

Karlan 2011* - Karlan D, Zinman J. Microcredit in theory and practice: Using randomized credit scoring for impact evaluation. Science. 2011;332(6035):1278–84.

Citations - Implementation Examples

* Journal subscription may be required for access.

Servon 2006* - Servon LJ. Microenterprise development in the United States: Current challenges and new directions. Economic Development Quarterly. 2006;20(4):351–67.

Date Last Updated

May 6, 2014