People talk a lot about the development ‘puzzle’ in reducing global poverty. The analogy refers to the fact that there are lots of different pieces necessary to building economies in the developing world. These pieces may be anything from the support of good governance to the distribution of malaria nets. For a while, it had been hoped that official development aid – loans or grants from rich countries to poor ones – could fund all these various puzzle pieces. However, decades of development aid have produced surprisingly small effects, and it is becoming clear that this aid on its own is not working.
Instead, many development efforts have now begun to focus on finding sustainable and locally driven solutions to problems. This means discovering ways that developing countries can build up their own economies, utilizing domestic resources in partnership with western assistance.
Because of this, local entrepreneurship has been becoming more popular as a theoretical driver of development efforts. The model is a traditional one – someone starts a business, makes some money, the business grows. They hire someone else (creating jobs), the business grows more, they hire another person, and so forth. It’s part of how a lot of countries (including America) got rich. So, it makes sense.
But starting a business, even in our country, isn’t that easy. Throw in the extra trouble present in the developing world – the lack of information, infrastructure, or start up capital, as well as the decreased ability to bear any risks – and you can see how true third-world entrepreneurship can be well near impossible to achieve.
Microfinance has helped with this somewhat, theoretically providing entrepreneurs with start-up funding that would be otherwise unattainable. But, microloans are much more often used to tide over existing businesses in rough times than to start new ones. This is partially because even if funding is available, there are still many steps to developing a business that microfinance doesn’t begin to help with. A more focused effort on assisting in entrepreneurship – the whole process from start to end, not just the financing of it – is needed. This is where MicroConsignment comes in.
MicroConsignment is the brainchild of Ashoka Fellow Greg Van Kirk and George Bucky Glickley, co-founders of Community Enterprise Solutions, a social enterprise based in Latin America. MicroConsignment is a development strategy still in its early stages, but growing rapidly. Briefly, the MicroConsignment model (MCM) is about creating job and business opportunities for people in the developing world. According to the model, development organizations work with local entrepreneurs, providing them with the training and products necessary to begin an income-generating business.
Unlike with microfinance, where the borrower bears the risk, under the MCM the development organization bears the risk. If the business is unsuccessful, it is at not at any cost to the entrepreneur. But when it is successful, the profits are shared between the entrepreneur and the development organization – and are then used to fuel more business growth.
The economic benefit of this model, when successful, is clear: jobs, income, and all that jazz. But these businesses can, and often do, have an added social benefit by creating access to products that benefit the community. By selling these new products, entrepreneurs are educating the community about solutions to what are often common health or educational problems.
Let’s look at an example. Most residents of Guatemala, just like us, experience deteriorating eyesight as they get older. Here, we pick up a pair of reading glasses for a few bucks at the grocery story, problem solved. There, with no eyeglasses available, they lose the ability to discern fine detail. In a region where weaving, which requires good eyesight, is one of the main sources of income for older women, these residents lose the ability to make a livelihood after they hit middle age. In many of the more remote areas of the country, they aren’t even aware that a solution exists for the problem.
In jumps the MCM. Across the western highlands of the country, local women entrepreneurs are being trained to measure the vision of the people losing their eyesight, and to prescribe and sell them reading glasses. It’s a simple and easy solution, but it changes the entire world for people who can suddenly see again, and can then return to making an income.
Here in America, we believe strongly in allowing people to “climb the ladder” on their own. In some of the poorer countries in the world, this ladder is simply out of reach. This is where strategies like the MCM can provide the access and tools necessary for one to get a handhold. Of course, just like the other pieces of the development puzzle, the MCM is not a panacea. But if it helps the poorest of the poor get themselves onto this ladder, it makes for a giant leap forward.