Opinion Sur
Mere financial intervention is generally insufficient to transform the micro-venture reality: we should ensure the coordination of micro-financial action with other critical interventions with a view to advancing its transformative action. Micro and small producers need to be ensured sustained demand at countervailing prices that may allow them to attain enhanced standards of living and embark on a sustainable development path. How can this be accomplished?The Productive Inclusion Challenge (Micro-Ventures and Inclusive Ventures) [[Lecture for the International Financial and Productive Inclusion Seminar, Lima, February 28, 2011, celebrating IDESI’s 25 years of activities in Peru.]]
The reality of a micro-venture is not one-dimensional: like any productive unit, it encompasses multiple dimensions. There is a financial dimension, and there are other dimensions as well, such as knowledge; relations and contacts with the surrounding social environment; production-technology; trade and access to buyers; management; the discovery of and the capacity or capability to seize opportunities. Besides, a micro-venture is also a household unit and, hence, dimensions inherent to a family’s life (such as food, education, health, security, domestic and social relations, beliefs, affiliations, degrees of resilience, attitudes, behavior) overlap with those of the productive unit. This two-fold nature of a single reality − the micro-entrepreneur’s family and their micro-venture − brings about tensions as to the use of the meager income, since both the bare essentials and business needs are required to be met.
This comprehensive, holistic approach to the reality of a micro-venture, warns about the limitations entailed in actions geared towards only overcoming one of the many restrictions that micro and small producers are faced with. One aspect is “worked out”; yet, as other ones that also have a bearing on its economic viability fail to be tackled, the impact is limited, or what is even worse, the effort may end up being futile.
In addition, it is difficult to simultaneously work to secure all the supports that such a challenging reality might require. Therefore, the intervention should focus on a set of carefully selected strategic actions which complementing one another may be capable of expediting the transformation of adverse circumstances. There is no point in believing that through one single action we will actually defeat poverty; we should, however, not fall into the trap of complex efforts entailing multiple actions that are hard to implement and coordinate. To link this reflection to our area of concern, we may say that mere financial intervention is generally insufficient to transform the micro-venture reality: we should ensure the coordination of micro-financial action with other critical interventions with a view to advancing its transformative action.
Economic Viability of Micro-Credit Borrowers
The micro-credit experience has been very valuable[[The valuable contributions of micro-credit are reviewed in many publications, including some published in Opinion Sur; therefore, they are not listed in this article.]], but further and different actions remain to be taken. Rather than a completed process, what has been accomplished so far is an open avenue in need of being explored, ventured into, and transformed even further. A process that crystallizes itself, loses its dynamic and fails to be transformed in sync with the new times, values and opportunities ends up wearing out in itself.
By financing micro-ventures, micro-credit irrigates the economy’s capillaries; the challenge also consists in improving the relationship between micro-entrepreneurs and the arteries of the economic system so that they may follow a sustainable development path. This calls for the coordination of microfinance [[It must be made clear that “coordinating” does not mean “managing”. Micro-finance entities would be doing a poor job if they added to their work scope and burden duties in relation to assistance in business engineering, corporate management, market access, etc. Instead, micro-finance entities are meant to take an active role in seeing to it that such critical factors are properly addressed.]] with other carefully selected strategic actions so that micro and small producers are ensured sustained demand at countervailing prices. Greater, sustained income might result in enhanced standards of living and ensure access to capital formation cycles whereby fragile micro-ventures may turn into sustainable productive units.
Reality shows that, in most cases, access to better opportunities is not achieved merely through small financing; that may be said to be a necessary, yet not sufficient, condition. Availability of other factors −equally or more critical than the financial ones− is required, such as knowledge of excellence, useful contacts, access to appropriate information, modern and effective management and, particularly, favorable macro and meso-economic contexts.
Since the immense majority of micro-ventures precisely lack all, or almost all, those critical non-financial factors, their economic viability is seriously jeopardized. Hence, if no ways are found for its clients to gain access to such non-financial factors, micro-finance programs would always be exposed to the vulnerability of a structurally unstable situation. Just like the over-indebtedness of middle classes led to the formation of speculative bubbles in the mortgage and credit card sectors, which, upon imploding, triggered the global crisis, it might well be the case that if the conditions for micro-venture viability were not secured, other bubbles might be in the making at the bottom of the pyramid. [[See the case of India in the article [Microcredit under Increasing Political Scrutiny->http://opinionsur.org.ar/Microcredit-under-Increasing?var_recherche=Microcredit%20under%20Increasing%20Political%20Scrutiny ].]]
In both situations, financial bubbles may be avoided via the creation of a more prudent balance between indebtedness and genuine income, which involves adjusting a large number of important variables to ensure the generation of additional genuine income: from macro-economic policies targeted to small producers (public spending to finance their social and production infrastructure, a non-regressive tax system, and a monetary policy capable of securing stability and credit access), to the responsible behavior of production chain leaders in relation to their production chain, to direct small production support actions. The aim is to transform the concentration-prone dynamics prevailing today in our Southern Hemisphere countries from two complementary perspectives: (i) re-distributing income and (ii) encouraging de-concentrated wealth generation, mobilizing the talent and productive capacity of the immense base of micro and small producers. [[See article [Social Inclusion: Redistributing Income and Generating Wealth in a Decentralized Manner->http://opinionsur.org.ar/Social-Inclusion-Redistributing?var_recherche=Social%20Inclusion%3A%20Redistributing%20Income%20and%20Generating%20Wealth%20in%20a%20Decentralized%20Manner.%28].]]
Many shortages are associated with small-scale ventures; therefore, increasing their scale is of the essence. These same shortages, however, make it practically impossible for isolated micro-ventures, save for certain exceptions, to accumulate, capitalize and enlarge their scale. That is why several forms of association have been tried, with dissimilar results: some have been successful, serving as examples and models, while others have failed, although they have been painfully valuable learning experiences about what mistakes should not to be repeated.
One Further Alternative Solution: Inclusive Ventures
The mere aggregation of small units driven by the need to attain greater scale does not bring about the qualitative change required to take advantage of better opportunities. It is not a question of “stacking up” small producers to raise their number. It is a question of creating efficient medium-sized economic organizations allowing micro and small producers to access critical non-financial factors. It will be necessary to envision, and then implement, ways of securing, for the benefit of clusters of small producers, knowledge of excellence, effective management, useful contacts, appropriate information. One possible modality is to secure a strategic partner capable of furnishing and transferring such know-how, complementing and catalyzing the great contribution that, in terms of talent and work, micro and small producers make to the production process.
Certainly, a strategic partner with such characteristics would be in a position to impose its greater relative power, and establish an inequitable relation (sometimes, exploitation) with the group of small producers. Hence the critical importance of structuring the new venture (its nature, operation and inter-party relations) with a view to ensuring that it will be a win-win initiative: a type of medium-sized inclusive venture bringing together a set of small producers and a strategic partner on equal footing.
But, who would be in a position to advance and establish this new type of economic player? Though not impossible, small producers are not likely to attain this by themselves, even if they manage to partner up somehow, precisely because they would need to have a larger base of contacts, knowledge, information, effective management, capacity to identify and seize better opportunities. Hence the proposal to create inclusive venture developers as a mechanism specifically tailored to foster this type of productive venture. An innovative tool customized to fit our circumstances, commissioned with the express mandate to productively mobilize huge population segments that are lagging behind, disadvantaged or excluded from a sustainable development path.
How they should be organized, what supports should be obtained, how they would operate, how they might attain financial autonomy so that they become local installed capacity with a spirit and capacity for permanence, has to be worked out on a case-by-case basis.
[[For an overview of the new tool, see the article [Inclusive Venture Developers->http://opinionsur.org.ar/Inclusive-Venture-Developers?var_recherche=Inclusive%20Venture%20Developers].]]
Possible Additional Roles of Inclusive Ventures
In closing this presentation, let us mention (an in-depth analysis will be left for another occasion) two possible additional roles of inclusive ventures.
On the one hand, inclusive ventures are gestated in territories having large numbers of micro-ventures. If properly structured, a significant portion of the multiplying effects resulting from inclusive ventures may be oriented to such micro-ventures, thus ensuring them sustained demand at COMPENSATORY ((countervailing)) prices for the goods and services they offer, which today is one of the biggest factors restricting their growth potential. The inclusive venture might work as another sustainable development locomotive of the base of the production system. By way of example let us mention a rural family-run inn franchise (the inclusive venture) that encourages and makes it easier for their passengers to use micro and small producers’ goods or services such as horseback riding, tourist guide services, cultural services (folk art, story telling, theater, local museums), fresh food supply to the inns, to mention but a few.
On the other hand, if the inclusive venture succeeds, it might embark on an accumulation process whereby its own capital formation might be reinforced, thus ensuring its sustained development. However, a part of the economic surplus might be used as seed capital for other inclusive ventures within its same value chain and, thus, act as an accumulation and investment node in complementary projects acting as drivers of the local economy and their community.
