Sabrina Axster conducted research on youth entrepreneurship in Nairobi’s informal settlements. The following article is based on her findings and observations.
Development is and always has been a highly contested field. In the quest to find a solution to the issues of global poverty, approaches within development aid range from large scale schemes to smaller scale grass-roots programs while questions regarding legitimacy, effectiveness and aid use are the norm. With the increasing popularity of microfinance the advocates of such grassroots schemes are becoming more and more vocal, often promoting a micro-level focus on enabling the poor as a silver bullet. However, a strategy focusing solely on the micro-level option is not sufficient to achieve economic and social wellbeing.
Microfinance has been one of the most celebrated approaches in development practice over the recent years. It has become so popular that its founder Muhammad Yunus was awarded the Nobel Peace Prize in 2006 and that the year 2005 itself was termed the ‘Year of Microfinance’. The concept’s key idea is that the poor are not poor because they are unable to achieve economic wellbeing but because they lack the resources to help themselves and fight the poverty trap. Closely linked to other similar micro development concepts microfinance relies on the use of social capital by the poor, as well as their relational ties within their community that help them to achieve progress, serve as a form of security and enable them to gather crucial information. Most of the micro enterprises promoted by microfinance are situated within the informal economy and are small or medium enterprises with often not more than one employee. The key notion is that the poor do not need other help than resources in order to start their business and thrive to achieve personal well-being. A successful micro-funded business enables them to support their family and educate their children. These micro approaches focus strongly on local capacity building and local self-reliance and are able to fill the gaps (pdf) that result from the hollowing out of the nation state.
Buzzwords such as grass-roots approach and bottom-up development are meant to assure that the poorest of the poor are addressed and have come as an alternative to other approaches that have failed, as Portes & Landolt put (pdf) it, “microenterprises have become the poster child of an economic policy that celebrates informality”. Such approaches are closely linked to the Washington Consensus because they give the economic policies of the Bretton Woods twins a human face and enable global capitalism to access areas it could not reach before. Focusing on the capabilities of the individual poor and the assets they can use to assure livelihoods and economic well-being does further away with the need for state interference and can be used as a justification for the hollowing out of the nation state. Even though microfinance founder Muhammad Yunus actually rejects the current notion of neo-liberalism for its inequality in power relations, he still champions less state interference and basically demands a market driven society based on enterprises that run the state. Such an approach strongly links to the classical neo-liberal idea that markets can regulate themselves. Whilst prominent players in development, such as the World Bank, have wholeheartedly adopted microenterprise and microfinance concepts, critics argue that these are yet another form of neo-liberal policies and warn of the danger of an overemphasis on micro approaches.
The consequences of the commercialization of microfinance also shed a different light on the miracle cure. Interest rates of up to 200% per annum combined with a growing use of microloans for personal rather than business needs put many lenders into difficulties when repaying, leaving them with no other option than to take out new loans in order to repay existing ones. As a result a high number of suicides – particularly in India – have been reported as lenders are caught in debt circles and face psychological and physical harassment by microfinance institutions that are not following Yunus’s initial concept of empowerment but are primarily concerned with their repayment rates.
A close look at youth entrepreneurial groups in Nairobi’s informal settlements puts these micro approaches into perspective and exemplifies some of the issues that actors in the microsphere face. These youth groups were formed by young men and women as a response to high unemployment and the dire living conditions they face. Many of them not only have to support themselves but already have to care for their own families. The lack of any formal income often leaves them with no other option than to make a living by day-to-day hustling. Kenya’s population consists (pdf) of roughly 9,1 million youths which total 32% of the whole population, but employment opportunities are not sufficient to absorb the young people entering the labor market. According to the Ministry of Home Affairs, Heritage and Sports (pdf) roughly 75% of all Kenyan youths are currently facing unemployment and many of those who have been lucky enough to gain formal employment are underemployed because their employment does not match their qualifications and skills. Current World Bank statistics state (pdf) that 54,4% of youths in Kenya are living under $2 a day.
These groups engage in a variety of informal entrepreneurial and economic activities, ranging from garbage collection to tailoring or running catering services and restaurants. Despite their ambitions and hard work most of them are not able to support themselves and many thrive for formal employment, using the youth groups as their ladder into the formal sector. Whilst these informal groups serve as a security back-up most youths regard them as temporary and would prefer the security and regular income a formal job offers. Especially those that have been able to work in their trained profession within their group do not aim at staying in informal businesses but try to develop their self-help groups into professional and formally registered companies.
Apart from that, the groups face a variety of issues relating to their economic activity and output. The needs derived from these challenges can be divided into the three sub-categories of entrepreneurial, financial and material needs. Within each of these sub-categories further divisions have been explored which also link to the level the needs address. Looking at the different needs within each sub-category it can be clearly seen that each has a macro and a micro dimension to it. The attached figure offers a basic outline of these micro and macro level needs. It shows that the micro level needs affect the business directly through the immediate surroundings of the entrepreneurs, whilst the macro level needs occur within the broader framework in which the entrepreneurs operate and can only be addressed within the wider institutional framework.
Looking at the two dimensions of needs and at the fact that most youths seek formal employment it becomes clear that an approach based on microfinance and microenterprises can only solve some of the problems they face. In order to improve their situation as entrepreneurs they need a variety of factors and support pertaining to both the micro and macro level. Aiming to change their situation as individuals these micro approaches serve as poverty alleviation tools and to generate wellbeing but they are not sufficient to improve the general living conditions of these youths. An insufficient infrastructure, the lack of appropriate housing and education – all these are macro issues that need to be addressed by the state. Successful microenterprises may lead to economic wellbeing and enable parents to send their children to school. But all this is rendered largely irrelevant if macroeconomic policies do not enable suitable employment opportunities. Thus, in order to achieve sustainable development action on many economic and social fronts is required that equally needs to address the micro-, meso- and macrostructures. Otherwise intervention will not be successful.
In sum, regarding microenterprises as a tool for sustainable economic development that will eventually turn into social development might not only overstretch the capacities of such micro-level approaches, an over-emphasis on micro approaches can also be dangerous as it might lead to a reduction in government budgets or a shift towards microfinance rather than other crucial and equally important poverty alleviation methods. It is far more realistic and suitable to see them as tools for poverty alleviation on a personal level and treat them as such. The case of youths in Nairobi exemplifies that in order to improve general living conditions, economic wellbeing and entrepreneurial activity, micro approaches can only do half of the job. The acknowledgement of their potential as part of a coherent strategy that combines macro- and microelements is needed.
Bateman, M (2010) Why Doesn’t Microfinance Work? The destructive rise of local neoliberalism, New York: Zed Books
Dichter, T. and Harper, M. (eds) What’s Wrong with Microfinance, Warwickshire: Intermediate Technology Publications
Yunus, M. (2007) Banker to the Poor, New York: Public Affairs