A critical part of the microfinance movement is educating new business owners about how formal finance works; how savings and insurance can protect a business; how credit and loans work together to grow a business. Several challenges to new business owners remain, and should be addressed through financial literacy education. How should, and can, money obtained through MFI loans be used, when living expenses are not being met and inadequate housing is creating a safety issue? And how can the changing nature of global e-commerce be understood and used to develop microbusinesses?
The wrong outcome of a microfinance initiative is to worsen personal debt for people living in poverty, and to increase market saturation and competition for small businesses in a community. When people think about a business venture, they often think of something they know how to do, and have seen locally. A tea and fresh juice vendor, for example, might decide to set up a stall in a market and start the business with minimal capital outlay. But if the marketplace already has a number of street food vendors offering drinks, and other, more established tea shops, cafes, and street stalls are already offering something similar, the new business is at risk of never obtaining any market share.
Market share is a concept that new business owners of whatever size need to understand. This concept impacts everyone from a freelance seamstress to a global commodity foods company. Either a business has to find a product no one else is providing, or they need to find a unique part of the market. There are very few opportunities in the world for something truly new and original. For the new business that is joining other similar businesses, a key element of planning needs to be finding a unique market share.
When we look at the changes happening in global ecommerce, the significant impacts are related to the long tail. Long tail economics, related to global ecommerce, means that rather than finding a product that is going to be a good fit for the majority, businesses can find a number of smaller niche markets, and meet their needs. The number and value of the smaller niche markets taken together add up. These niche markets also help businesses find their market share.
Another challenge for a new microbusiness besides finding market share is meeting safety and basic needs for food and shelter while a new income generating enterprise is being established. This is of particular concern for a population that is undergoing rapid social change, such as happened in South Africa when economic opportunities opened after Apartheid ended. Meeting basic needs to sustain life should not be the purpose of microenterprise loans, and care should be taken to ensure that these needs are being met through other ways. Without the income generating potential of business, the use of loans to cover living expenses, housing, and education expenses may end up making the financial security of a family worse.
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