Micro-enterprise facts for kids

A micro-enterprise is a very small business. It usually has nine or fewer employees. These businesses also earn less than a certain amount of money each year. The words "micro-enterprise" and "microbusiness" mean the same thing. Often, when a small business gets a special small loan called microcredit, it's called a micro-enterprise. If it doesn't get such a loan, it's often called a microbusiness.

Around the world, most micro-enterprises are family businesses. They might only have one or two people working. Owners of micro-enterprises usually want to earn enough money to support themselves and their families. They might only make their business bigger if their life changes and they need more income. In the United States, micro-enterprises make up 95% of all companies.

How Micro-Enterprises Started

The idea of micro-enterprises and microfinance began in 1976. It was started by Nobel Prize winner Muhammad Yunus. He founded the Grameen Bank in Bangladesh. This bank was created to give small loans to poor people, mostly women. The goal was to help them become financially independent.

The main idea of Grameen Bank is that getting a loan is a human right. This plan worked very well. The bank grew very quickly. In 1980, it had fewer than 15,000 borrowers. By 1998, it had 2.34 million members. By the end of 2008, it had 7.67 million members, and 97% of them were women. Today, it has 9.4 million members.

How Different Countries Define Micro-Enterprises

The term "micro-enterprise" means different things in different countries.

India's Definition

In India, a micro-enterprise is a business that makes or sells things. It must have an investment of "Not more than Rs 1 crore" (about 10 million rupees). Its yearly earnings must be "not more than Rs 5 crore" (about 50 million rupees).

Australia's Definition

In Australia, a micro-enterprise is bigger than a business run by just one person. But it has up to 5 employees.

European Union's Definition

The European Union (EU) has a definition for "micro-enterprises." A business must meet two of these three rules for at least 10 years:

• Fewer than 10 employees.
• Total money on its balance sheet is less than EUR 2 million.
• Yearly earnings are less than EUR 2 million.

United Kingdom's Definition

In the United Kingdom, official records show that businesses with 1 to 9 employees are micro-businesses. In 2013, a report was published about helping micro-businesses grow in the UK.

United States' Definition

In the United States, a micro-enterprise or microbusiness has 1 to 9 employees. These are the most common type of business. They are a part of small businesses. Their sales and assets are usually worth less than $250,000 per year. They generally have fewer than five employees, including the owner.

Also, these micro-enterprises often need less than $35,000 to start. They usually cannot get loans from regular banks. The idea behind micro-enterprises in the U.S. is about starting your own business. It recognizes that people can use their skills and hard work to improve their lives.

Special programs help these micro-enterprises. They give business advice and small loans. These programs often focus on people who don't earn a lot of money. Many of these business owners are minorities, new immigrants, women, or people with disabilities. They might have trouble getting regular loans and other help.

Armenia's Definition

In Armenia, starting in 2020, micro-enterprises are free from paying sales tax. This applies to individual business owners who do certain activities. They can also hire an unlimited number of employees. They only pay a personal income tax of 5000 ADM each month.

How Micro-Enterprises Help the Economy

Micro-enterprises are important for a country's economy. They create jobs and help people earn more money. They also make things cheaper and shopping easier.

Getting Money for Micro-Enterprises

Micro-enterprises often cannot get loans from regular banks. So, they often rely on "micro-loans" or microcredit. Organizations that offer microfinance often give these small loans. This is especially true in poorer countries. People who start micro-enterprises are called entrepreneurs.

Government Help for Micro-Enterprises

Governments help micro-enterprises in different ways. In the United States, the Social Security Administration has a program called Plan for Achieving Self Support (PASS). It helps people with disabilities save money to start a micro-enterprise.

In Australia, the NEIS (New Enterprise Initiative Scheme) helps unemployed people start their own businesses. Many of these businesses are micro-businesses.

Micro-Enterprises in the United States

The idea of micro-enterprises in the United States started about twenty years ago. Before, businesses were just called large, medium, or small. The U.S. Small Business Administration (SBA) says a small business can have up to 500 employees. In 1991, the SBA recognized micro-enterprise as a separate type of business.

Micro-loans can be used for business costs. This includes money for daily operations, inventory, furniture, and equipment. They cannot be used to pay the owner, buy land, pay off old debts, or for certain non-profit groups.

During the 1990s, the micro-enterprise field grew fast in the United States. Many non-profit groups started helping entrepreneurs. Now, there are over 800 organizations that help business owners. They offer microfinancing or business development services.

Special organizations called Community Development Financial Institutions (CDFI's) also offer loans for micro-enterprises.

Anthony Hilb, who wrote a book about micro-businesses, said that technology helps them a lot. With the internet and apps, micro-businesses can sell products and services to many more people.

Micro-Enterprises in Developing Countries

A young Syrian refugee holds a basket that she decorated for sale. Making and selling small crafts or clothes is a common form of micro-business for women.

In developing countries, micro-enterprises are the most common type of small business. This is because there are not many regular jobs available for poor people. So, many people start their own small businesses.

Aneel Karnani explained that most people who get microcredit don't choose to be micro-entrepreneurs. They would rather have a factory job if they could get one. The International Labour Organization (ILO) calls these people "own-account workers." This means they work for themselves.

Paper to Pearls is another micro-enterprise program. It is based in the United States but helps women in northern Uganda.

The International Fund for Agricultural Development (IFAD) helps in Vietnam. Between 2002 and 2010, about 1,000 saving and credit groups were formed. Over 17,000 members got access to microcredit for small farm activities.

In Poland, in 2012, there were 1.7 million micro-enterprises. They employed 3.5 million people.

Women in the Dominican Republic

In the Dominican Republic, a study in 1992 showed that 330,000 micro and small businesses created jobs for 26% of the working population. A large part of these businesses (38%) were run by women.

It is believed that micro-enterprise programs help women's households more directly. This is because women tend to spend more of their income on their families than men do. So, it is suggested that training programs should focus more on the specific needs of women's businesses.

See also

In Spanish: Microempresa para niños