Microenterprise

Reviewed by Anjaneyulu | Updated on Aug 27, 2020

Introduction

The term micro-enterprise, also known as a micro-company, refers to a small business with a limited number of people working. A microenterprise typically operates with less than ten employees and is launched by a bank or other entity with a limited amount of capital advanced. Most micro-enterprises are specialized in providing goods or services to their local regions.

History of Micro-Enterprises

The concept of micro-enterprises and microfinance was established in Bangladesh in the late 1970s as a way of providing people in need with a means of financially and economically supporting themselves.

In 1976, Muhammad Yunus founded Grameen Bank to provide microloan financing for the underprivileged, mostly women. Several organizations have since developed microenterprise initiatives, many of which appeal to people in developing nations.

Understanding Micro-Enterprises

Microenterprises are financed by a unique credit facility, who have no collateral credit history or employment. Such companies serve a crucial role in improving the quality of life for people in developing countries.

Usually, they provide good or service in their communities, such as the production of clothing and footwear, or agriculture. Micro-enterprises not only help business owners boost the quality of life, but they also add value to the local economy. They raise purchasing power, increase sales, and also create jobs.

Microfinance aims to support microenterprises by lending these businesses small amounts of money. This helps moderate, low, or no income individuals or families to start their own businesses, earn income, and support their communities.

Many banks offer micro-credits to those in need, but organizations directly address people who want to start a micro-enterprise. Like standard loans, they are expected to pay back interest on the funds over time.

Types of Micro-Enterprises

Although limited in size and scope individually, micro-enterprises may collectively constitute a large portion of the economy and jobs. Examples of businesses known to be micro-enterprises include:

  • Street vendors
  • Carpenters
  • Plumbers
  • Professional mechanics
  • Machine shop operators
  • Shoemakers
  • Small farmers
  • Bakery owners and caterers