As a New York Times (NYT) March 2008 article titled Missing Middle noted, microloans had become an important element in alleviating poverty. For example, the microfinance pioneer Muhammad Yunus won the Nobel Peace Prize in 2006, while celebrities like Natalie Portman and companies like Benetton have become fervent microloan advocates. Even ordinary Americans can individually make microloans at sites like Kiva.org and Kickstart. This important trend has created many microbusinesses–which aren’t looking to employ more workers. The vast majority have only one paid employee: the owner. As the economist Jonathan Morduch has put it, microfinance “rarely generates new jobs for others.” The New York Times article further states that this matters, because businesses that can generate jobs for others are the best hope of any country trying to put a serious dent in its poverty rate. According to the NYT, due to the lack of “angel” and venture capital investors, the challenges are even larger to establish this Missing Middle where small to medium enterprises can really create employment in developing countries.
An early observer of this need, TechnoServe launched in January 2006 “Upscaling,” a unique entrepreneurship development program to help high potential micro enterprises overcome barriers to growth. The 18-month project aimed to systematically identify and enable best-in-class micro entrepreneurs to move up to the next level: building growth-oriented businesses. After surveying more than 250 micro-enterprises in concert with local Kenyan banks who agreed to potentially fund the most qualified microenterprises’ growth, the UpScaling portfolio consisted of 17 micro and small enterprises (MSEs) in manufacturing and services.
The conclusion of the 18-month UpScaling program confirmed the initial hypotheses that growth-oriented MSEs with the potential to graduate to the next level of business are indeed a select group. And even with financial partners, it is challenging to identify those micro-enterprises that operate in high-potential sectors with high-potential entrepreneurs. Even those high-potential entrepreneurs lack business skills, have difficulty setting appropriate targets, and struggle to develop linkages that enable growth. However, TechnoServe demonstrated that targeted interventions (e.g. around process improvements or in the area of marketing) do unlock value and facilitate access to financing, although not yet at the level of slightly more readily available small and medium enterprise financing. For examples of the Upscaling client portfolio please view in Kenya Successes: Aspen Orchards & Dairies, Canan Gardens honey products, Mountain Top Institute, and Springsand Bakery.