Tuesday, July 31, 2012

Technology and Microfinance Give Rise to the Micro-Entrepreneurship Economy

Jamie Wong, journalist turned micro-entrepreneur and now CEO of Vayable, has written a wonderful review on The Rise of the Micro-Entrepreneurship Economy. A micro-enterprise is a small business with five or fewer employees, and according to Field at theAspen Institute there are 20 million of them operating in the United States. The micro-entrepreneurship economy has been growing since the 2008 recession and encompasses a diverse class of citizens that can be best described as “The Creative Class”. Entrepreneurs in the creative class are empowered individuals who have either been neglected or laid off from the formal economy or are simply leaving corporate America to monetize their passions and take control of their work lifestyle. They are creatively using technology and micro-platforms to bring new goods and services to the market. 

Wong writes about the appeals of micro-entrepreneurship from the entrepreneur side and customer side and identifies the elements necessary for this economy to thrive. Wong’s factors contributing to success are: 

Trust: Trust in big business has been on the decline, but the collapse of the financial sector may have been the final straw for many (especially those who lost their jobs). As we shape the freelance economy, building and maintaining trust between buyers and sellers is critical to the success of its growth.
Collaboration: Even employees of large companies cannot always depend on them to provide for benefits, quality of life, and ensure that basic needs are met. Instead, we rely on each other, on our community. As the DIY economy grows, we will need to work with government to ensure that policy and practices take basic needs such as health care, disability, and retirement into consideration 

Accountability: New forms of accountability are required, instead of outdated accreditations, licenses, degrees, and other credentials that are increasingly losing relevance. People will accredit one another through reviews, repeat business, and other forms of reputation tracking and social buying.

Security: Both online security (secure payments, personal information) as well as offline safety are imperative to empower the growth of micro-entrepreneurship. 

Technology: This is really at the heart of the freelance economy. Continuing to fuel technological innovation and creative application of technologies is the most important thing for future growth and sustainability.” 

This is a solid assessment of the economic factors necessary to support micro-entrepreneurs, but there is one more:

Micro- Financing:  Micro-entrepreneurs have creatively used technology to bring their goods and services to market. However, they still need access to alternative financing, or micro-financing. The same recession that fueled the rise of micro-entrepreneurship has also led to a tightening of bank lending standards. Traditional banks are not in a position to finance micro-enterprises, which typically require less than $35,000 for startup capital. Microfinance institutions in the U.S. will play a pivotal role in the startup and growth of microenterprises as micro-entrepreneurs continue to seek alternative financing. 

Wong refers to technology as the “heart” of this new economy—which is true. New technology based markets for individual buyers and sellers such as Airbnb (vacation rentals), Etsy (handmade goods), and Wong’s own enterprise, Vayable (tours and activities) are accessible and inexpensive marketplace platforms for budding micro-entrepreneurs, but these micro-entrepreneurs often still need startup and expansion financing to earn a living off their enterprise.

Isha Webb, Accion San Diego micro-finance client, has two successful clothing lines offered on Etsy but in order obtain inventory capital, Isha took out a micro-loan from Accion San Diego in 2007 to purchase startup materials. As a micro-entrepreneur, Isha has continued to use Accion as her primary source of expansion capital and five years later she is still a client with a new equipment financing loan. 

It is estimated that 10 million micro-entrepreneurs in the United Sates are in need of micro-financing. A recent survey by the Field at The Aspen Institute shows how microfinance programs have helped grow and sustain micro-enterprises in the United States.Of clients surveyed the median contribution of draw from the microenterprise to household income increased from 52% at intake to 71% over five years. Incomes from microenterprises are rising as a result of microfinance programs. The average household income of micro-entrepreneurs increased by 17% one year after initial financing. 

If technology is the heart of this new economy, microfinance must be the lifeblood!

If you or someone you know are interested in applying for a small business loan in San Diego, visit www.accionsandiego.org or give us a call at (619) 795-7250 for more information. Visit www.accionusa.org for information about small business loans throughout the United States.

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