welfare is necessarily going to be relatively limited, even in the longer runÊ (Crépon, et al., 2011). This type of borrowing may lead to economic comfort but not economic growth. With little money saved and each dayÊs food reliant on revenue, the poor have little margin for error. This issue is further exacerbated by the complete lack of insurance or limited liability for the poor, who ironically need it the most. In order to instil some form of security they choose to sell basic goods such as food and clothing. This limits their market but venturing into unchartered waters is a risk not worth taking. Evidence of this can be found along any bazaar in the Middle East and South Asia where you will find rows upon rows of identical fruit, spice and meat vendors sitting side by side drinking tea and having a chat; surviving but not growing. Completely untrained and with very little education, like in Bangladesh where literacy is as low as 57% (UNICEF, 2011), skills required to run an efficient business, such as literacy, basic arithmetic and management skills are non-existent in the poor. Rather than a business strategy the poor run their businesses from instinct and intuition leading to bad resource allocation and an inability to supersede simple logistical barriers. Their businesses thus never realize their full potential. MicrofinanceÊs potential was based on the assumption that once you give the poor money, they would use it to escape poverty. Experience has shown that whilst credit may be necessary, it certainly is not sufficient. I would propose that the two missing ingredients are a Âmicro-MBAÊ and legal recognition. A Âmicro-MBAÊ allows the poor to make better use of their loans and legal recognition allows the poor access to better markets and safer transactions. What are the alternatives?
strategy, finance and marketing. Whilst these business school terms may not seem applicable to the typical businesses of the poor, even a fruit seller has to decide which fruits to sell, where to do so and what prices to sell at. Just as an MBA course allows highly educated people to utilize their skills on the ground; a contextually relevant and vocationally based course (which I call a micro-MBA although I donÊt expect them to get actual degrees) would do the same for the poor. This course could be administered by NGOs or charities much along the same lines as illiterate local women have been turned into local health workers in many developing countries. Even for those who donÊt finally own a company, a micro-MBA would have a positive impact by granting them access to higher paying jobs. Education on its own has its merits as shown in Kerala which has, since 1993, experienced a dramatic rise in literacy from 70% to 94% (Kerala, 2010) and reduction in poverty from 34% to 12% (Spend, 2013). However the specific course I propose would have even greater benefits, as shown by a break- through study recently published by Oriana Bandiera et al. (April, 2013). This study Âoffered a menu of possible business activities...coupled with complementary and intensive training in running business activity... [this] led to a 38% increase in earnings.Ê This remarkable finding illustrates the potential benefits a micro-MBA coupled with capital from microfinance could create. However, credit and capabilities alone will only go so far. In order for these businesses to grow beyond their communities they need legal recognition and protection. Hernando De Soto is the leading expert of the restrictions this causes and in explains these in his book ÂThe Mystery of CapitalÊ (2001). He concludes that in developing countries becoming a legal resident, land or business owner is simply not feasible. For example in the Philippines to legally purchase land for a business Âcould necessitate 168 steps, involving 53 public and private agencies and taking 13 to 25 yearsÊ As a result, Â57 per cent of city-dwellers and 67 per cent of people in the countryside live in housing that is dead
The poor cannot optimally use their loans, lacking fundamental skills in business
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