Microenterprise and U.S. Foreign Assistance (CRS Report for Congress)
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| Release Date |
April 12, 2001 |
| Report Number |
RL30932 |
| Report Type |
Report |
| Authors |
Curt Tarnoff, Foreign Affairs, Defense, and Trade Division |
| Source Agency |
Congressional Research Service |
Summary:
Microenterprises - businesses operated by the poorest of entrepreneurs - have been targets of
U.S.
Foreign assistance for many years. Microentrepreneurs face a number of obstacles to improving their
productivity and standard of living, including a lack of accounting and managerial skills and an
inability to obtain financial services - savings and credit. While more research is needed, existing
studies have found positive impacts on business and household income, education, and employment,
especially among women, when assistance is provided to give better access to savings and credit.
In FY1999, roughly $154 million was used by the Agency for International Development (USAID)
to assist microentrepreneurs in U.S. aid recipient countries.
Foreign aid has played a major role in the development of microfinance institutions that have
emerged in large numbers since the late 1970s. Many of these institutions seek to operate on
business principles, charging a rate of interest that might cover costs. Because the poor cannot
provide collateral, these institutions often require entrepreneurs to form solidarity groups to take on
each other's obligations. Their repayment rate is often above 97%.
Although many other bilateral and multilateral donors have contributed to the development of
microfinance institutions, USAID has been the leader in financing and developing programs
supporting microenterprise. Congress has strongly endorsed this effort in appropriation bills, by
directing a specific level of funding in the FY1988-1992 period and recommending support in report
language thereafter. Some Members collaborated with USAID in the development of a
Microenterprise Initiative announced in 1994. In October 2000, the 106th Congress approved the
Microenterprise for Self-Reliance Act of 2000, authorizing microenterprise support programs ( P.L.
106-309 ).
In FY1999 more than two thirds of USAID funding for microenterprise went toward technical
assistance and capital for microfinance institutions. Fifty-eight percent of such funds supported poor
people who received poverty loans - mostly loans in amounts of $300 or less, and 69% of clients
were women.
Congress has authorized a $155 million funding level for FY2001 and 2002, but achieving that
goal depends in part on the overall foreign aid account as well as amounts made available for
economic growth objectives versus other priorities sharing the same pot of funds. Some argue that
funds should be dedicated to "poverty lending," i.e., aimed at the very poorest of the poor
microentrepreneurs by keeping loan levels low. Others argue that the most positive benefits from
microfinance accrue to those near the poverty line, not well below it. A number of challenges face
microenterprise implementors, including making programs sustainable while broadening their
outreach to the poorest, commercialization of microfinance, use of new technologies, and the impact
of crises and HIV/AIDS.
