A rich ecosystem for micro-entrepreneurs in Peru, Columbia, Chile

Some market-oriented countries, particularly Peru, have created a lending climate supportive of micro-enterprise, not only opening financing channels but including advisory and incubator services. This can help create employment opportunities for educated youth.

Fernando Prada of FORO writes,

“A thriving crop of young entrepreneurs are creating business opportunities by targeting low-income families that have benefited from economic growth. This is particularly the case in more market-oriented countries like Peru, Colombia, and Chile, where a competitive financial sector provides entrepreneurs with several financing options. Peru, now considered the world’s best climate for microfinance, has been successful at expanding access to credit to thousands of small and medium business enterprises (SMEs) throughout the country. Yet this has been a step-by-step progress. During the 1990s, most microcredit was provided through NGOs with international cooperation resources, informal sources, microfinance institutions, and a few commercial banks that timidly breached the market. By the end of 2010, credit had multiplied and commercial banks were competing with microfinance institutions to finance SMEs. Although interest rates remain high, commercial banks have also expanded their services to compete and increase their market share.

Some of these institutions now provide consulting on accounting, marketing, administration, and business strategy, along with their traditional credit services. For example, MiBanco, a commercial bank that specializes in microfinance, has partnered with private foundations and other investors and received a syndicated loan from the Inter-American Development Bank to provide counsel and better loan terms to female entrepreneurs.”

Implications

With a bulge of unemployed youth, many South American countries must help create and improve employment opportunities, and micro-enterprise is a powerful market-driven mechanism. Promoting private-sector collaboration will be key.

FORO writes,

“All these developments are certainly having an impact on young entrepreneurs’ ability to participate in labor markets…Markets can be powerful instruments for improving youth labor conditions, particularly in the case of self-employment and jobs in family businesses. Commercial banks have identified a segment where they can expand their market share in SMEs, while reducing the risks of default by boosting these same small firms' performance… The main challenge is in creating favorable conditions for private sector collaboration in the effort to improve the quality and productivity of the labor force."