Lessons from the case study

The case study on human development and microfinance in the north-east of Brazil illustrates that combining the perspectives of innovation economics and the human capability approach can be very helpful in getting a more comprehen-sive analysis of the strengths, problems and challenges of micro-entrepreneurs and social businesses. The analysis of the social business Instituto Estrela shows how interactive learning between clients and microfinance agents as well as sys-temic learning within an MFI can lead to business success and better adaptation to the demands and needs of the clients. It also shows that the desire to empower other people and provide them with economic freedom certainly has the poten-tial to be a driver of economic competitiveness and support sustained success of a business. The Estrela Institute can be considered a successful social business which manages to provide microcredits (with comparatively low interest rates) and business advice to the poor in a financially auto-sustainable way, helping the micro-entrepreneurs to help themselves.

The study also indicates that once people are provided with the basic capa-bilities and opportunities to be active agents of development they are able to innovate and make qualitative changes in their lives and those of their families.

Many micro-entrepreneurs function as local efficiency enhancers and some can even be seen as local Schumpeterian entrepreneurs, introducing local innovations into their city or villages and changing their lives for themselves, their families and their district. Microfinance and innovation at the BoP can and actually do foster human development, as seen in the case region. Microfinance expands the human freedom of people by opening up new occupational choices and providing the opportunities to realize their own businesses. However, also a set of insti-tutional challenges and problems must be addressed to make the microfinance work for the poor and expand human development. First, there is a threat that the competition between MFIs for the business of micro-entrepreneurs may burden people with debt as they accept various different credits from different groups and from different institutions. Second, although the population has broader access to education and health services, the quality of these services is still in need of sub-stantial improvement. Third, the inability of micro-ventures to upgrade into small and medium enterprises is not rooted in a lack of market opportunities, demand or entrepreneurial motivation, but is rather due to the lack of organizational skills, finance and information. Fourth, better coordination between the MFIs,

the Brazilian small business promotion programmes and the local government is necessary to facilitate learning processes between the various agents in the local production and innovation systems and to help the micro-entrepreneurs excel. Of course, these findings cannot be generalized to all less developed regions in which microfinance is applied. Each region, its agents and networks, problems, strengths and opportunities are different. However, interviews with experts from regional development agencies and SEBRAE confirm that analysing the relations between human development and local innovation is highly relevant and applicable for many other parts of north-east Brazil.

6.6 Chapter conclusion

This chapter has presented the concept of ‘entrepreneurship as capability enhancement,’ as a complementary perspective to the traditional entrepreneur-ship theories (see Section 6.1). Typically, economics views entrepreneurs as an input factor for economic growth that enhances efficiency, solves coordination problems, or introduces innovation and new dynamics into the system (Gries and Naude 2010). However, entrepreneurship can also contribute to the human devel-opment of the entrepreneur and other persons. The evaluation of entrepreneurial action is then not based on its contribution to economic efficiency and growth, but on its contribution to human development and welfare.

Micro-entrepreneurship and social entrepreneurship are two of the key areas of interest for the ‘entrepreneurship as capability enhancement’ approach (see Sections 6.2 and 6.3). Micro-entrepreneurship is widespread in less devel-oped regions, often as a result of the lack of decent employment choices and the need of the poor to gain more money: it is often an indication of unfreedom and a lack of choices rather than human agency. Nevertheless, if a person cannot attain a decent job, micro-entrepreneurship can be an option by which to become active, to raise the standard of living for the family and perhaps even intro-duce qualitative changes into their local environment. Furthermore, becoming a micro-entrepreneur – even when initially an obligation – can change into a valued functioning role. This is why the approach of entrepreneurship as capabil-ity enhancement can provide a useful evaluative framework for the role of micro-entrepreneurship in poverty reduction and human development, beyond the mere judgement of its role in overall economic development. Social entrepre-neurship deliberately aims to increase the human capabilities and/or well-being of other people. This approach matches the concerns and ideas of the Sen meets Schumpeter paradigm, as social entrepreneurs create networks and introduce innovations leading to qualitative change in socioeconomic structures.

These theoretical concepts have been tested within a case study on micro-entrepreneurship and microfinance in north-east Brazil. Most importantly from a theoretical perspective, the study reveals that microfinance and entrepreneur-ship can be understood from the ‘Sen meets Schumpeter’ perspective. Social innovations, such as access to microfinance, together with entrepreneurial spirit, can lead to qualitative change in the lives of the poor and their immediate

socioeconomic environment. The success stories of some micro-entrepreneurs lead to demonstration effects and imitative behaviour by their neighbours and friends, and consequent changes in the entrepreneurial culture and local economy.

The case study also illustrates that technological learning and innovation is not significant only for the high-tech level in industrialized settings, but is also crucial for the success of micro-entrepreneurship and social businesses in less developed regions. But co-evolutionary institutional changes and concerted policies are also necessary to promote the success of the local entrepreneurs and allow them to engage in trial and error activities. This implies the need to create a prolific network of supportive institutions, diffusing information, promoting interactive learning and also competition between the different agents and enabling high quality entrepreneurship that contributes to both economic diversification and human development.

Notes

1 In 1981 Bill Drayton founded the non-profit organization Ashoka which identifies and supports leading social entrepreneurs through a social venture capital approach.

Currently [December 2011] Ashoka operates in over 60 countries and supports over 2000 social entrepreneurs; http://ashoka.org.

2 Original version: ‘Desenvolver o mercado de micro-crédito com foco em sua con-tribuição à expansão e à garantia das liberdades individuais (Sen), compreendendo os atores integrados como agentes de mudança e não como beneficiários passivos.

Empoderar a liberdade de oportunidades econômicas dos empreendedores podados de possibilidades de crédito por meio do sistema bancário convencional, tendo nosso escopo de atividades como um veículo para mudança social e financeira, emancipação cidadã e ambiental.’ (www.institutoestrela.com.br, retrieved on 21st October 2011).

Previous chapters have shown how the human capabilities of people are deeply affected by economic diversification within their country and the networks they are embedded in. One key achievement of the basic needs and the human devel-opment approach has been to convince policy-makers that focus of develdevel-opment policies should not be on economic growth as an ultimate goal of development, but should rather focus on empowering people, making them agents instead of patients of development. But neither should politics focus on human capabilities and neglect economic development and competitiveness. Paul Streeten, one of the most influential proponents of both basic needs and the human development approach, wrote:

[W]e should never lose sight of the ultimate purpose of the exercise, to treat men and women as ends, to improve the human condition, to enlarge peo-ple’s choices. …[A] unity of interests would exist if there where rigid links between economic production (as measured by income per head) and human development (reflected by human indicators such as life expectancy or lit-eracy, or achievements such as self-respect, not easily measured). But these two sets of indicators are not very closely related.

(Streeten 1994, cited in Ray 1998, p. 7) This statement implies that there is a certain disconnection between economic production and human development. This book has addressed this divide and shows various possible ways that economic and human development can be integrated, both theoretically and methodologically. The main political impli-cations are that sustainable human development policies must go hand in hand with proper economic and structural change policy. Several examples of direct and indirect links between economic and human development have been illus-trated. The theoretical proposition has been to introduce structural features linking both dimensions, rather than concentrate on the role of income or pro-duction expansion for human development. Taking entrepreneurship, social capital and economic diversification into consideration enables a better under-standing of the complex feedback between economic and human development.

The theoretical analyses and empirical applications described in this book have