Entrepreneurs by Opportunity vs. Necessity

April 30th, 2011 by Dave Leave a reply »

Small fishing boat in Lombok, Indonesia

Interesting article posted by Forbes challenging the widespread use of the general term “entrepreneur” to describe both Bill Gates and a poor street fruit seller in a developing country.

In reality, there are entrepreneurs by necessity (because you have to eat) and those by choice or opportunity.

Forbes argues that we do a disservice to not distinguish between these two types.  If you ask most necessity entrepreneurs what they aspire to, most would much prefer a salaried job rather than to run their own business.

On the other hand, opportunity entrepreneurs love not having a boss and thrive on creating a new, growing business.

This doesn’t mean we should stop providing micro-loans to the necessity entrepreneurs because without those loans most would indeed be worse off.  But we must also consider other investments which ultimately create more jobs in the local economies to employ many of these people over the longer-term.

Lending to the Small Enterprise

Loans of a few thousand dollars to small businesses (vs. a few hundred dollars to self-employed micro-entrepreneurs) is very rare in most developing countries.  The microfinance banks view this as a much riskier proposition then spreading their risk across 10 times as many individuals with a group guarantee methodology.  The traditional banks are looking for either hard collateral or proven cash flow to lend against, hence they are not interested.

In Asia, you are starting to see MFIs like Swadhaar in India starting to experiment with so-called “micro-enterprise” or individual loans as the regulators start heavily regulating microcredit.  And in Indonesia, you are starting to see banks like btpn creating new products for this segment as a growth strategy.  But, I think you are also going to start seeing more new specialized finance companies like Vistaar Finance which are focused exclusively on innovative financing for this segment.

I believe that this new sector of micro-enterprise lending is a new frontier opportunity to help generate millions of jobs for the poor over the coming decade.

Related Posts with Thumbnails
Advertisement

2 comments

  1. Tara K. says:

    I think this is a very interesting article and I too believe not everyone is an entrepreneur of opportunity. Some people are because they do not have the means to be employed anywhere else and the most optimal situation for them. I think it is still wrong to discount these people as entrepreneur even if it is by necessity.
    As an intern with a microfinance organization (Opportunity International) this summer, I have fully become aware of the inner workings of the microfinance industry. Many stories from clients can be seen on their website at opportunity.org. These stories have made me aware that even those who had ventures which seemed to be out of necessity created real change for themselves and their communities. In effect, they became entrepreneurs of opportunity along the way when their business kept on growing to a level beyond what they had originally anticipated. This is of course not the case for all the clients, but it is a reoccurring story I see, and one that I think is important.

  2. Dave says:

    Tara, I agree with your comment. Thanks for sharing and interning with Opportunity International.

Leave a Reply