What is Micro-enterprise: Objectives, Features, Importance and Criticism

The history of micro-enterprises can be traced back to the mid-1970s in Bangladesh, which started with Muhammad Yunus, who established Grameen Bank to extend microloans to women and the underprivileged. This allowed them to initiate their business venture and maintain their livelihood. Several financial institutions globally have followed this model, especially in developing countries. If this history of micro-enterprise intrigued you to know more about it, keep scrolling!

The meaning of micro-enterprise is a small business that is established with a small amount of loan borrowed from financial organisations or banks and operates the business with a smaller workforce. Most micro-enterprises are experienced in offering goods and services for their locality.

An example of a micro-enterprise can be a woman in a developing nation who utilises microcredit to borrow a loan and use funds to buy a sewing machine. She can use this sewing machine to start a micro-enterprise that specialises in offering tailoring services. Through this, the woman can earn an income by providing tailoring services and gradually, she will recruit a few people to cater to local demands if required.

Micro-enterprises target beneficiaries from underprivileged sections and women and aim to uplift them financially. These small businesses create job opportunities in the backward and under-developed areas, encouraging development in those regions and contributing to overall national development. Overall, this improves the living standard of the underprivileged section, thereby bridging the economic divide in a country.

Take a look at the features of micro-enterprises that are listed below:

• Single business ownership where the control of managing such business rests upon the owner.
• Labour-intensive business
• Micro-enterprises can easily adapt to the changing business ambience.
• These small businesses cater to the regional and local demands  
• Micro-enterprises utilise natural resources available in the locality with minimum wastage.

Businesses that are considered micro-enterprises are as follows:

• Landscaping and lawn companies
• Carpenters
• Street vendors
• Independent mechanics
• Shoemakers
• Plumbers
• Small farmers
• Machine shop operators

Caterers, bakery owners, tailors, seamstresses and dry cleaners can also be considered micro-enterprises.

Besides creating the job opportunities and improving the quality of the underprivileged section,  here are some other benefits that micro-enterprises offer:

1. Integrate Dynamism into the Local Economy

Passionate and creative entrepreneurs run these small businesses and bring in new ideas to create various new products. This brings multiple product choices before the consumers, thereby adding dynamism to the local economic sector.

2. Increases Competition in the Market

The presence of small businesses in the market will break the monopoly of large firms and will increase market competition. Large firms cannot charge higher market prices for low-quality commodities with this prevailing competition in the market.

3. Offers Products at Low Prices

Several small businesses bear a reduced average cost because of a favourable cost structure compared to larger firms, whose internal diseconomies of scale affect their production cost. Thus, lower production cost also leads to lower prices of the commodities.

4. Supply Specialist Goods

Several micro-businesses supply specialist products (such as semi-finished commodities, raw materials etc.) and services to the largest corporations in the country. This becomes possible because of their small size, which adapts fast to the changing requirements of larger firms. Thus, it brings competition before the larger firms present in the market.

Though the development of micro-enterprises is essential for economic growth, several critics have something different to say.

They believe that creditors often charge a high-interest rate on loans offered to underprivileged individuals. This is because the debtor does not have any credit history or own collateral to be pledged and will take more time than usual to repay the credit.

Moreover, borrowing credit also forces people into a debt trap that they may not escape.

To conclude, micro-enterprise provides a foundation for becoming a large firm in future and is a less capital-intensive source of growing employment opportunities in the economy.