Micro-financial entities have not managed to fully approach the critical aspect of the economic viability of their pulverized customer base. How can they do so without jeopardizing their operation as financial institutions? The challenge lies not in adding more responsibilities but in seeking to develop synergies with organizations dedicated to repositioning micro producers in production networks that are more promising than the ones they tend to participate in. Which are those organizations? What catalyzing effects might be hence generated for micro producers and microfinance programs? What could be the role of micro- financial entities in these initiatives?There is a huge work field ahead that micro-financial entities have not yet fully approached: that of the economic viability of their customer base.
Micro-credit and the other microfinance products (debit cards, micro-insurance, utility bill payment, subsidy, retirement and pension collection, among others) are powerful development instruments. They are a necessary condition to help the various sectors at the bottom of the social pyramid leave their prostration; yet, they do not constitute a sufficient condition since, per se, they are not capable of removing all the restrictions explaining backwardness, poverty, inequality. There are many other variables involved, which should be mobilized in favour of small and micro-producers. It is clear that many of these variables escape the action of micro-financial institutions, such as major macroeconomic policies (government spending policy, fiscal policy, monetary and credit policy). Micro-financial institutions may offer opinions and comments about such public policies, but they neither control nor manage those variables.
Other variables, however, impact very directly on the economic viability of their customer base, and are closer to their sphere of activity. They are the ones related to how to make business knowledge of excellence available to small producers, how to facilitate their market access and, very specially, how to help them to articulate on better terms with the rest of the economic system they are a part of. This includes (i) how to make it possible for them to join –as suppliers or distributors–production chains that are more promising than those where they are generally positioned, which have very poor prospects, and (ii) how to benefit from the state-of-the-art business engineering that is already available and proven in the market so that they may adopt it and, hence, gain access to better opportunities.
What implications are derived from all this? That there is much ahead to be explored: fields and initiatives that, if properly designed and managed, might benefit greatly the customer base of micro-financial entities. Indeed, in principle, a microfinance entity cannot take care of these matters per se. The same thing happens when it is necessary to provide micro-producers with training and tutoring services. In those cases the involvement of specialized institutions, be the same private, public or civil society entities, is required. A micro-financial entity would not be able to carry out those duties without jeopardizing its own viability as a financial institution. Training and tutoring institutions and micro-financial entities focus on efforts that are complementary, but each of them has a specific mission, a separate team with converging though differentiated objectives, and uses work methodologies tailored to their respective functional purposes.
With that same approach, it would be ideal for a micro-financial entity to be complemented by a Local Business Developer, a new organization that the micro-financial entity may help create, but totally independent from the latter, both functionally and legally. A Developer is dedicated to strengthening the articulation of small and micro-producers (current or future customer base of the micro-financial entity) with the local economic system. Among many other possible initiatives, it may (i) work with leading firms in the production chain in order to develop small supplier programs so as to ensure their technological development and compensatory prices; (ii) foster the creation of franchise systems pooling small producers, today disperse, into medium-sized organizations capable of reaching higher thresholds of good opportunities; (iii) assist service centres that serve a large number of small producers; (iv) help establish export consortia in order to gain new markets for small production; (iv) organize small farmer production networks around certain “locomotive” agribusinesses; (v) create bridges with the scientific and technological communities (universities, research institutes, technical colleges, etc.) in support of small and micro-producers.
A Developer is a small-sized, socially and environmentally responsible, highly operational, knowledge-intensive (particularly as to how to take advantage of market opportunities using state-of-the-art business engineering) organization. It may strengthen the client base of a micro-financial entity both economically and organizationally by improving its credit profile and payment capacity. It finances its operation with success and management fees on the projects it promotes. Local institutions (private and civil society organizations, local governments) are in a position to contribute seed capital, adding to micro-financial entities funding.
Each Developer needs to adjust its profile as a knowledge and modern economic management facilitator to the specific circumstances of its diverse clientele. Its tasks include helping build bridges with those having the capacity to provide capital and business contacts to small and micro-producers.
I see here a new horizon of opportunities for the fullest development of micro-financial entities and the clientele they serve. Ultimately, it is a matter of generating synergies without losing the focus and the specialization each entity should preserve. It is also a more effective way of bringing solutions to the base of the social and economic pyramid at a time when economic initiatives are more knowledge-intensive and almost nobody works in isolation; instead, they are integrated into productive networks. Within this framework, micro-credit and the other micro-financial products continue to be essential, though insufficient, to solve such complex problems. However, by adding catalyzing elements to the micro-financial activity, the economic viability of small producers, and hence the sustainability of the micro-financial entity as well, are strengthened. Local Business Developers are one of those catalysts.