The Great Debate

Stop conflating microfinance and entrepreneurship

Bogota, Colombia – Although the phone rings incessantly, Carlos Moreno is not distracted. He continues to talk, not just about his life as a slightly graying 78-year-old pastor but also about how he became what some consider to be the world’s first microfinance recipient. It wasn’t as an entrepreneur.

“My life is dedicated to the Lord,” he says. Although Carlos had launched a tea and spice business in the early 1970s, he hadn’t aspired to be an entrepreneur. That is the case with most microfinance recipients. Yet the movement that extends small, uncollateralized loans to the poor to start businesses has marketed itself as being about entrepreneurship. That is a mistake. While microfinance may have helped Carlos start a business, it did not make him an entrepreneur.

Carlos’s dream was to build a Protestant ministry. To get there, he took out a loan in 1971 from the Institute for International Development Inc (IIDI), the precursor to Opportunity International, a Chicago-based microfinance institution. That transaction appears to be the first loan in modern microfinance history, though as Center for Global Development Senior Fellow David Roodman notes, “people have been making small loans to help the poor for 500 years.”

Opportunity International was one of the first organizations to experiment with making financial services available to the poor to help them launch enterprises. Accion International began making loans in Latin America in 1973. Nobel laureate Muhammad Yunus perfected the model and succeeded in scaling up the movement with the launch of the Grameen Bank in 1976. All inspired millions to rally behind entrepreneurship.

What has held them back has been the ability to make a go of those businesses. According to Inc. magazine and the National Business Incubator Association, 50 percent of new U.S. businesses fail within the first five years. Lack of capital is largely to blame. In Africa, Latin America and many parts of Asia, banks are unwilling to lend, and venture capital and angel investing are virtually nonexistent. Microfinance can fill this gap, but it’s often not enough to sustain a business. Moreno says that it is a mistake to believe that everyone in the developing world is interested in running a small business. “Most people just want a job.” In a country like Colombia, where there are limited educational and employment options, that is hard. Everyone is forced, out of necessity, to create his or her own livelihood.

Does the Kony video point toward global problem-solving?

The  Kony 2012 director who was found naked in the street will remain in the hospital for several weeks. Danica Russell, Jason Russell’s wife, attributed her husband’s “reactive psychosis” to the “sudden transition from relative anonymity to worldwide attention – both raves and ridicules, in a matter of days.”

“Relative anonymity to worldwide attention” is an understatement. The Internet gives new meaning to Warhol’s observation about 15 minutes of fame. Russell is striving to bring Joseph Kony, the Ugandan leader of the violent Lord’s Resistance Army, to justice for crimes against humanity, and his video exploded onto the global stage. More than 100 million people viewed the video the first week it was online. Many of these people expressed support and donated money to Russell’s cause.

Of course skepticism also went viral. Some questioned Russell’s character, such as when he told a magazine last year that “If Oprah, Steven Spielberg and Bono had a baby, I would be that baby.” They also questioned how Russell was spending the money of the charity he ran, Invisible Children.