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 (Servon 2006*). 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. (Servon 2006*). 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 (Schreiner 2003*).

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 (Michaelides 2012*, Sanders 2004*, Schreiner 1999a*, Schreiner 1999b*), but may not affect income or poverty rates overall (Sanders 2002*). 

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 (Schreiner 2003*). US regulations on microlenders may also introduce barriers absent in developing countries (Richardson 2009a*).

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 (NBER-Angelucci 2013*, NBER-Duflo 2013*NBER-Augsburg 2012*, Karlan 2011*).

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 (Servon 2006*).

Implementation Resources

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

Citations - Evidence

* Journal subscription may be required for access.

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.

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.

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-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.

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.

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.

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