For those living in extreme poverty in developing nations, even the most entrepreneurial people face challenges. While in recent years, the rise of microloans and microcredit programs have certainly done some good, there are new ideas cropping up about ways to create sustainable change using education, business planning skills, and technology. To learn more, we spoke with Richard Beresford and Jalu Wardana, who work at an organization called MicroAid.

A succinct description of the organization is that MicroAid facilitates acquiring the skills required to run viable businesses in small communities, instead of just jumping in and taking out a loan. The idea is that a person who knows how to run their business and is supported—not necessarily with a chunk of startup capital, but with business planning and resources for running and managing their business—will have more success over the long term.

What are the risks to the status quo in efforts to eradicate poverty? MicroAid uses the example of a loan for livestock on their website. What if one of your animals dies? Do you know how much to charge for the milk, cheese, or wool? If one receives a loan and purchases livestock without any previous funding for hands-on training and market research regarding this business, they can quickly end up back to the drawing board and in debt when missteps or unforeseen events occur.

Beresford and Wardana note that with the right business idea, a poor entrepreneur in a developing country “can increase their family income and eradicate poverty themselves.” They point out that MicroAid does not actually provide start up capital, but focuses on facilitating opportunities to learn or improve a home enterprise or small business skill.

What is unique about MicroAid’s approach to eradicating poverty?

Teaching a person to fish:

This is the stated motto of the organization, and Beresford and Wardana say this is really where business planning factors into their mission as well. They note that capital is a scarce resource for these entrepreneurs, but market knowledge, production skills, and a business plan can be made accessible to everyone. MicroAid provides entrepreneurs the opportunities to try out their business ideas to make sure they are profitable and viable, allowing them to plan appropriately going forward, and apply the skills they’ve learned to a project with high odds of success.

Information asymmetry:

“E-learning of basic entrepreneurial skills is a vital tool in the global fight against poverty.”

In addition to skills directly related to business planning and running a business, MicroAid has even created a library of information to provide those looking to start microenterprises (defined as small and home-based businesses) with the details they need. This is to address an issue they refer to as “information asymmetry;” essentially, that most of the world’s population has access to the internet, libraries, and a veritable wealth of information and knowledge, while a large population of the world’s impoverished people simply do not.

To that end, Beresford says “e-learning of basic micro-entrepreneurial skills is a vital tool that is starting to emerge in the global fight against poverty. Each home enterprise learning activity, when considered successful and profitable, can be shared and replicated online.” Working to give people a better education on business is helpful not just for the individual, but also for their families and communities as the tools and skills are shared.

True experts: Work with poor families and community leaders directly

A beneficiary named Fransiska stands with her children by their successful MicroAid project growing and selling vegetables.

Who else is going to know more about what a poor family needs than the poor family themselves? Who else has a better idea of what catches on quickly in a culture or what is culturally appropriate than a local community leader? Whether it’s selling cookies or learning to grow vegetables, MicroAid takes the approach that has been proven successful: you have to reach outside of your own organization and get out into the community. As Beresford notes, “There is no success in this world without involving someone else.”

One way they’ve improved the lives of members of a community was to help solve the problem of fuel efficiency for cooking in a small town in Kenya. If you have to walk long distances just to get wood for your stove, a huge portion of your day is going to be spent on this task. By leading a class on creating a “fireless cooker” (a container which can hold briquettes), MicroAid provided a simple solution that allows people to free up hours of their day, and provides safety to women and children who are often traversing long distances in potentially dangerous areas.

As Blake Mycoskie, founder of TOMS shoes, has said “Ask questions, truly listen, and then tailor your gift so that it is more impactful.”

Looking to the future: The opportunity at the bottom of the pyramid

The “bottom of the pyramid” is a reference to the impoverished populations of approximately three billion people who live on less than $2.50 a day. Many entrepreneurs have been exploring ways to connect with this demographic, including the Harvard Business Review discussing sales strategies for this group. Beresford and Wardana believe that with an expanded knowledge base, outside organizations working with locals to help get things jump started, and the entrepreneurial spirit of the people, there are big opportunities at the bottom of the pyramid, as consumers and small business owners alike.

MicroAid’s advice for those seeking microloans or considering donating a microloan:

With microloans and microcredit programs receiving so much media attention in recent years, I asked the representatives from MicroAid if they had some tips to share.

For recipients of microloans, they stress that a loan is only a good option when you are certain that your business is viable, you have the skills required, and you have a thoughtful business plan prepared. You don’t want to accept a loan only to later default on it. They recommended LivePlan, our online business planning software.
For donors of microloans, they suggest that you make sure the person being approved for the microcredit has a solid business plan in a format that the financial institution can easily access, such as online. This way, you can be sure that the loan is going to helpful and productive, not landing someone in debt that they’ll struggle to repay.

MicroAid’s tips and tools for business planning and management on an extremely limited budget:

Observe before you act. Before you start, take in what’s happening around you in your community. Look to what’s working and what’s not among small business owners in your area.
Choose wisely. Carefully consider the products you’ll make or service you’ll provide. There are certain things that people need to do everyday, from wearing clothes to using transportation. This can be an even greater opportunity in rural areas; what do people in your area have difficulty finding, or what common product could you make a higher quality version of?
Make a business plan. If you have a good money-making idea, really think it through and test its viability. What will you charge for your product or service? Is the market competitive? Creating a business plan will help you answer these questions.
Work together. Especially for those at the bottom of the pyramid, join together with other families or communities working in the same field. You can build a network of allies and mentors in your area, and learn valuable information from those who’ve gone before. Eventually, this could even improve your bargaining power in your supply chains since you’ll be conferring as a group.
Share internet access. Along these same lines, MicroAid suggests sharing internet and phones, for example, if one friend or family member has a phone or computer. You can use the internet to look up information such as MicroAid’s library of business skills, or our own library of sample business plans, to help expand your knowledge base.
Get the word out. Set aside some money and time for marketing and promotion. This can be counterintuitive when funds are so low, but people can’t buy from you if they haven’t heard of you!
Finally, Beresford and Wardana say, “Use your talents.” They stress that your skills and knowledge will contribute a great deal to the success of your business.

Are you an entrepreneur in a developing country having a similar kind of experience? Have you ever donated a microloan to someone? I’d love to hear your story and perspective! You can tweet us, or share in the comments below.