Back To The Future… Leveraging Microenterprise Development for Growth and Social Impact

by: Scott Butterfield, CUDE, CUCE, CCUE

Today, a majority of credit unions offer some form of business products, many modeled on bank programs. For some, growth resulting from business products has been good, however, many have struggled to demonstrate that they can consistently compete with banks for business products.  The problem is that traditional bank models overlook the low-to-moderate income consumers and they lack cooperation. It’s ironic considering that credit unions, founded on cooperative principles,  are considered the first microenterprise institution in the world with more than 150 years of history. History proves that credit unions flourish when they make a meaningful difference in the lives of their members.

Significant opportunities exists for credit unions to collaborate with local and national partners to create a tightly integrated educational and financial service program. Products and services designed for entrepreneurs of low-to-moderate income that are capable of engaging successfully in microenterprises.. history…

Credit Unions Need Microenterprise!
Credit unions need microenterprise small business to generate long-term growth and sustainability. Credit unions are struggling to maintain minimal margins and compete for loans in the open market.  Many are scratching their heads wondering where they’ll find future membership, loan and revenue growth. Microenterprise small businesses are perfect for credit unions since they typically need less complicated financial products and assistance.

Communities and Microenterprise Small Businesses Need Credit Unions
Communities need microenterprises for job creation, revenue growth and future sustainability. The need for microenterprise development is high. Most of the communities served by credit unions are reeling from high-unemployment, shrinking budgets and a business sector that is struggling to survive.

Microenterprise consumers need credit unions for affordable access to credit, education, assistance and advocacy. Consumers are trying to make do with less and have little confidence that the economy will turn around anytime soon. Some are turning to microenterprise to supplement low wage jobs and meager retirement benefits. Consumers in each group are considering a microenterprise small business as their best hope for a better quality of life. Frustration with traditional bank products is high – evidenced by the National Bank Transfer Day which originated from a single frustrated microenterprise small business in Los Angeles, CA.

A Cooperative Model To Support Three Basic Needs
Education is the first basic need and designed to assist microentrepreneurs in developing the skills they need to plan, market, and manage their own business. Typical curricula includes training on subjects like personal budgeting, budgeting for the business, communication skills, goal setting, and personnel management. Technical assistance is the second basic need and covers a wide range of issues ranging from how to apply for a loan and personal one-on-one coaching. Finally, microenterprises need affordable access to credit ranging from $500 to $35,000, usually accompanied with basic checking and saving products.

Collaborative Partnerships = Successful Programs
Credit unions are partnering with local community and national partners –  each working together to meet the three primary microenterprise needs of financial education, technical assistance and access to capital. Local partnership examples include Small Business Development Centers (SBDC), local colleges and Women Development Centers – each playing a role in providing education and technical assistance. National partnership examples include the National Federation of Community Development Credit Unions, Community Development Financial Institution Fund (CDFI) and the Small Business Administration (SBA) – each providing program assistance, access to community development grant funds (up to $2 million) and guaranteed microloans.

Surprisingly, it is not widely known that credit unions are successfully receiving and leveraging sizable grant funds to support loan loss reserves, capital and operation expenses to support their microenterprise programs. In 2011, The National Federation of Community Development Credit Unions reported that credit unions received $28 million during the current year to support microenterprise development and other community development programs.

Microenterprise Makes a Meaningful Difference
According to the Aspen Institute’s 2005 FIELD Study on Microenterprise, entrepreneur’s household economic benefits include:

• Median household income increases 78 percent in two years; 91 percent over five years
• Movement out of poverty was 36 percent in two years – 42 percent over five years

Another study (the Five-Year Mark: Outcomes Reported by U.S. Microenterprise Clients) of microenterprise clients who received services over a five-year span (2002-2007) reports:

• Eighty-eight percent were still operating a business five years later and 70 percent reported operating their businesses full-time.
• Fifty-four percent of clients with a business at intake and survey reported an increase in median revenues from approximately $52,000 at intake to just over $82,000 at survey (a 60 percent increase).
• Seventy-eight percent of microentrepreneurs surveyed were operating a business at least one year after receiving services from a microenterprise program. Some of these entrepreneurs were in business when they came to the program; others were hoping to start a business.

Successful credit unions are taking a leadership role in their community. Best practices include $20 million Bethex FCU, $72 million Alternatives FCU and $291 million ASI FCU.

Microenterprise small business development programs are generating growth and income for credit unions scattered across the country. Credit unions large and small are focusing on microenterprise development to align their goals with the needs of their communities and consumers to stimulate growth, social impact and community goodwill.  Perhaps this is what credit union pioneer Roy F. Bergengren had in mind when he said, “The real job of a credit union is to prove, in modest measure, the practicality of the brotherhood of man.”

Scott Butterfield is Principal of Your CU Partner, a strategic solutions provider www.yourcreditunionpartner.com