Social Enterprise Grants for the Common Good

by Highland Support Project
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Social Enterprise Grants for the Common Good
Mar 20, 2023

Investing in The Common Good

Workshop in Quetzaltenango
Workshop in Quetzaltenango

Philanthropic organizations have become increasingly prevalent in the United States in the 2000s.  In 2016, the U.S. nonprofit sector employed 12.3 million people, roughly 10% of the workforce.  By 2019, the nonprofit sector accounted for  5.6% of the U.S. GDP.   Much of this sector provides philanthropy internationally; in 2015 49% of US foreign aid flowed through nonprofits through grants and contracts.  

In 2006, the Nobel Peace Prize in Economics was awarded for research about the efficacy of granting small businesses micro-loans, leading many nonprofits and policymakers to embrace micro-loans as an effective tool for economic development.  In Guatemala, many U.S. nonprofits have begun micro-loan economic development campaigns.  These nonprofits act as intermediaries between individual donors in the U.S. and businesses in Guatemala to provide loans to Guatemalan entrepreneurs.  

The proposed benefit of these micro-loan campaigns is to help Guatemalan entrepreneurs acquire enough capital for startup procedures, technology, and training to successfully maintain businesses in increasingly globalized markets.  Proponents argue that these loans can also improve gender equality by increasing female participation in the formal economy.  In practice, however, micro-loans have been ineffective in provoking their desired effects.  

In 2021, Guatemala’s GNI per capita — measured in PPP, 2022 international dollars — was $9,580, well below the world average ($18,624), and the United States ($70,480).  This income disparity positions new entrepreneurs in Guatemala at a marked disadvantage.  For instance in 2019, in the United States, the cost of business start-up procedures was roughly 1% of the U.S. income per capita, compared to Guatemala, where business startup costs equaled 17.3% of income per capita — i.e the cost of registering a new business poses a much greater financial burden for Guatemalan entrepreneurs.  

Due to multiplying nonprofit campaigns aimed at empowering women’s entrepreneurship through micro-loans, over 7% of adult females in Guatemala have borrowed to start, operate, or expand a business (compared to roughly 2% in the U.S.).  However, for female entrepreneurs in Guatemala, starting and maintaining a business may pose a far greater financial risk.  In 2017 World Bank surveys, 62% of adult women in Guatemala could not come up with emergency funds (equal to 1/20 of local GNI per capita) in one month if needed, in comparison, 31% of female respondents in the U.S. could not come up with emergency funds.        

Insufficient capital and no financial safety net have discouraged women in Guatemala from starting businesses.  Economic resiliency requires innovation in diverse markets — innovation that can take shape through empowered small business owners.  While micro-loans provide the necessary capital to start a business, they do not relieve any financial risk or liability for female entrepreneurs.  

Additionally, loan repayment agreements are often far too rigid to promote risk-taking and innovation. Typically repayments are due immediately and without much flexibility.  To stay on top of loan repayments, businesses need to bring in consistent weekly cash flow, a difficult ask for new entrepreneurs who are testing business strategies.   

Essentially, if an entrepreneur takes a micro-loan and her business fails, she will likely not only lose her personal investment but also still owes payments on the loan.  Without sufficient emergency funds, the consequences of failure can be dire.  Micro-loans, then, may not relieve financial insecurity and could even promote risk-aversion in female entrepreneurs — an environment not conducive to empowering women’s economic agency or wealth creation.    

Ample economic studies have agreed that micro-lending has produced marginally positive effects, but has been far less transformative than anticipated. While micro-loans have produced some positive short-term effects such as increasing business activities, they seldom lead to profit increases in existing businesses.  Additionally, micro-lending has not proven to increase income or consumption in the long run for the average borrower.    

One problem with providing micro-loans to risk-averse entrepreneurs has been the oversaturation of markets.  As economist Dean Karlan puts it: “Often low-income households own businesses that are relatively undifferentiated in a saturated market, such as owning a small shop in an outdoor market. Given that many other entrepreneurs are similarly employed, a large increase in profits for any one entrepreneur is unlikely.”   When borrowers have limited resources and knowledge to expand a business, their safest option is often to duplicate existing business models — until the economy is oversaturated with similar products and services.  Without sufficient demand, these businesses can’t grow.  

Nonprofit philanthropy should contribute more than marginal economic improvements.  A more holistic approach is needed for transformational outcomes, enabling marginalized groups to sustain their own economic prosperity.  Through micro-investment, partners are in a cooperative partnership, rather than a lender-borrower relationship, with small-business entrepreneurs.                                   

HSP had been in the process of forming a co-op holding company to facilitate micro-investment in Guatemalan small businesses.  In addition to direct investment, the co-op will supply personalized training, technology, and administrative support. Steps such as integrating e-commerce for these businesses would expand demand by opening access to markets in the U.S. and internationally.  Cooperative investment divides financial risks, empowering entrepreneurs to take chances tweaking business plans and developing skills to boost their income in the long run, a more sustainable approach to long-term wealth creation. 

In the past three months, HSP has initiated workshops in five locations educating entrepreneurs on investment strategies and the benefits of utilizing the franchise structure and joining together into a unified business strategy. For example, in one of our first workshops, business owners started brainstorming a strategy that benefits producers of natural products such as honey, eggs, yogurt, etc., in a natural cosmetics business venture.   

Implementation workshop
Implementation workshop
Workshop in San Marcos
Workshop in San Marcos
Worskshop in Solola
Worskshop in Solola
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Organization Information

Highland Support Project

Location: Richmond, VA - USA
Facebook: Facebook Page
Twitter: @HighlandPartnrs
Project Leader:
Alyssa Ondarza
Richmond , VA United States
$3,550 raised of $425,000 goal
3 donations
$421,450 to go
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