The challenge of bridging the global income gap has increasingly become a topic of robust debate – from economists (Piketty) to policymakers (UN and the SDGs), to the C-suite (Davos attendees) not to mention the US Presidential campaign. Examining the role of microentrepreneurs and small and growing businesses – enterprises that are numerous in aggregate but often without a voice in the debate – offers a constructive response.
The voice of these entrepreneurs is not represented because they operate largely in the shadows of the formal economy – surviving but not yet thriving. Within this pool of millions of entrepreneurs, there is a group we identify as strivers – enterprises with two to 10 employees, operating in a fast-growing market segment and with the capability and ambition to push for greater market share and grow their business. This group is poised to thrive, but what do they need to do so?
Luz owns a beauty salon in Mexico City. She is passionate about her business and sharing her knowledge with others – and she knows her business and her customer base. What does she need to thrive? Luz knows her dream of opening additional branches and a beauty school means she must overcome stiff competition. Luz needs a larger customer base to be aware of her services, and she needs an edge that allows her to provide something her competition cannot. With the help of technology, training and business consulting, Luz has recently developed a two-prong approach to making sure she is the one that delivers the highest-quality service. First, she has learned how and when to run the most effective promotions and advertising campaigns. Second, she has connected with the technology to accept mobile digital payments, which means she can take her business outside the salon, and provide services directly at customers’ homes.
Luz is one of 8,000 strivers in Mexico participating in a pilot program aimed at helping entrepreneurs access the resources, skills and training they need to grow their businesses. The Center is partnering with FUNDES and INADEM, an agency under Mexico’s secretary of economy, to administer the program. The goal: test and validate interventions to unleash the full of potential of microenterprises around the world.
Serving strivers is deeply connected with the core mission of the MasterCard Center for Inclusive Growth to advance sustainable and equitable growth around the world. Why? Strivers make up many of the productive entrepreneurs operating in and outside the formal economy. Their inclusion is integral to building sustainable economies. Bridging inclusion demands that we find more effective ways to connect entrepreneurs to vital networks that harness their productive energies and talents to build vibrant and prosperous communities for the future.
Source: “Small vs. Young Firms Across the World: Contributions to Employment, Job Creation, and Growth”; World Bank Policy Research Paper, 2011
We know that as many as 345 million microenterprises in developing countries are operating in the informal sector, which means they have far less access to capital, training, and networking opportunities. Even those strivers acting in formal markets typically have less access to finance than their larger counterparts. The total unmet demand for credit across all micro, small and medium enterprises is estimated to be more than $3 trillion, with the need concentrated in developing economies. This financing constraint is often more pronounced for women-owned enterprises.
The goal is to deepen, expand, and strengthen strivers’ participation in the economies where they live and operate. This translates to market participation – more economic activity for the striver and hopefully on better terms. Existing market barriers are numerous, but they can be mapped and prioritized. This effort leads to targeted and effective interventions around the most significant striver “pain points”. Tackling these pain points can ease the way to market participation at scale, creating a more equitable value proposition for the striver to participate in the formal economy.
The enormity of underserved communities of entrepreneurs can seem overwhelming, but forward-thinking players like Enclude and Center embrace this challenge as an opportunity. These strivers don’t need to be “jump-started” and their businesses are not dependent on subsidy. Frequently, their businesses have been in operation for many years; and they know their products, employees, communities and local markets well. Because of this, they are well-positioned to take advantage of tools that drive sustainable growth. One key is to be sure the tools are actually needed by the entrepreneur. This is why we take a demand-driven approach to the question, focusing the intervention at the strivers’ pain point in order to gain more market share.
The MasterCard Center for Inclusive Growth is working to connect strivers with the tools they need to grow: information, training, capital and technology. Whatever the touch point, the goal is greater market participation for the striver.
Stay tuned to this blog series to learn more about the first of these efforts in Mexico and Nigeria, and join our discussion about how we can #ConnectStrivers so they can participate more fully in their local economies.
Laurie Spengler is the President and CEO of Enclude, an advisory firm working in partnership with the Center to help connect microentrepreneurs to the formal economy.