Self-help and mutual aid: re-thinking microfinance

Self-employment in the UK has doubled over the past 30 years. Support for the self-employed is vital for a healthy economy. Too often, the sole trader without employees is dismissed as a ‘lifestyle’ business, not a ‘proper’ one.

The sole trader sector is and always has been the very glue of local economies. Through their heterogeneous skill base and flexible ways of working, the self-employed contribute to the stability and rich diversity of local communities that is so treasured. Self-employment now in fact provides more jobs than British manufacturing. More than one in five (6.4 million workers) in the British workforce are either self-employed or supported by a self-employed person. Among many ethnic groups and in some rural areas, self-employment is double the average UK rate.

Low-income sole traders and community-based entrepreneurs face difficulties in both accessing and affording appropriate services to support their business activities. Many self-employed people work exceptionally long hours and have no holiday-pay entitlement. In Britain, the self-employed endure the longest working week as well as contributing additional unpaid work from family members to the economy. The average median earnings in the UK for self-employed people is 20 per cent below the median for waged workers. Despite their growing importance, they are not well catered-for by the welfare state. They do not benefit from statutory sickness benefits and they cannot access the state second pension. Seven in ten self-employed people have no employees, but as workers, they have few statutory rights and far less social protection compared to those in conventional jobs.

As their businesses are generally unincorporated, the self-employed are part of the informal economy. In the EU as a percentage of the workforce, they represent one in ten workers in northern Europe and up to three in ten workers in southern Europe. In the developing world, the self-employed sector comprises typically nine in ten workers. This research has explored how self-help and mutual aid mechanisms for women in business might be extended further through the development of a large-scale mutual organisation set up at national level to provide a more comprehensive range of advice, support, professional and financial services for the micro-enterprise sector. International microfinance experience in developing countries shows how this can be done. Such mutuals for women have been developed by innovators in the microfinance sector in India. The most well known practitioners are the Self-Employed Women’s Association (SEWA) and the Working Women’s Forum (WWF). A hypothesis tested through this research has been to explore the scope to transfer this learning from the ‘South’ and adapt it to the ‘North’.

Success with such a challenge would advance microfinance practice well beyond the narrower support needs of enterprise advice and microcredit where most current programmes focus their intervention work and assistance. Both SEWA and WWF have perfected a network model for service provision which includes advice and support, savings and loans, and advocacy. Their ‘social protection’ model of microfinance works especially well in both urban and rural areas for low-income women in self-employment.

For many years in the UK, the number of men setting up in business yearly has been double that of women. If this difference could be overcome nationally, the Government estimates that an additional 750,000 businesses could be established. Recent research evidence shows that the main barriers faced by women to become self-employed are fear of debt, fear of failure, fear of a loss of benefit income and other real financial risks. A revised microfinance model with a social protection mission like SEWA and WWF could potentially mitigate all these risks.

The research fieldwork was conducted in four diverse subregions of England and Wales to test demand specifically for a new mutual services organisation with the capacity to support in a comprehensive way both the social and economic needs of low-income, self-employed women and community-based entrepreneurs. The research areas included two urban subregions: London, and Coventry and Warwickshire and two rural subregions: Devon and Mid-Wales. The model tested by the research did not make a clear differentiation between the self-employed and community enterprises (also known as microsocial enterprises) as, from a holistic perspective, both groups appear to have similar needs. This was borne out by the research findings.

The proposed self-employed mutual had widespread appeal both amongst the interviewees and among a larger survey sample. The appeal of the mutual appeared to be higher for the lower–income group of women in business, although better-paid women often liked the idea and were willing in some cases to help to establish local networks to make it happen. It was apparent from the research that disadvantage was the common thread linking demand for the mutual from a highly diverse range of people.

From the research findings, the main business advice and support services needed by the women in business were:

• Marketing networks.
• Access to finance.
• Tax advice and tax credit guidance.
• Pensions advice.
• Contact through social events with others in the same business.
• Personal advice and support.
• Discounts on goods.
• Legal advice.

Participants also identified an overriding need for a national advocacy body to raise the needs of the self-employed up the political agenda. The idea of a trade union for the self-employed, as is the practice in India and in a growing number of other EU countries, had strong appeal in the two urban areas. In Devon there was strong support for a strong advocacy body to help change Government policy to address the neglected needs of this growing and largely invisible sector of the labour force, but some women disliked the name ‘trade union’ to describe such a body. Overall and repeatedly, participants expressed a preference and need for face-to-face contact over internet-based services, although many said that they would value and use internet support.

The focus groups organised in each subregion tested annual membership rates for a new mutual. A basic rate and a somewhat a higher-cost ‘network rate’ were both accepted as sound and affordable by the focus group participants. For a mutual to be successful, the focus group participants could see the need for it to operate both at a national coordinating level and at regional levels. They felt that the mutual should cater both for the needs of the self-employed and for those involved in setting up social enterprises.

The research confirms that a grass roots approach, similar to the SEWA and WWF models of integrated mutuality, is most likely to appeal to the lower-income self-employed market and to succeed in addressing their very diverse business and personal needs. This social protection model of microfinance should be piloted and the Community Banking Partnership network in England and Wales could provide a delivery framework to do so. If a viable model through these pilots can be found, this revised approach to microfinance could find the missing solution to the demand-related problems that most UK Community Development Finance Institutions (CFDIs) have been experiencing to date.

Given the size of their contribution to employment and their community resilience, so called lifestyle businesses need to be given serious policy attention. This is both important and timely as the threat of climate change is leading to growing public recognition of the need to relocalise economies for social and environmental reasons.

In this regard the report findings and recommendations should be of interest to local authorities in England and Wales as they are charged under the Sustainable Communities Act 2007 to find new ways to support local enterprises and to develop their capacity to provide growth in respect to:-

• local jobs and production within a 30 mile area;
• more local and organic food;
• green energy within a 50-mile regional radius;
• provision of local services (e.g. health, housing, banking, public eating places, etc.);
• measures to increase mutual aid and community projects; and
• measures to increase community health and well-being.

There could be scope for a mutual to link different self-employed trades together to assist local authorities in England and Wales to find creative solutions to the challenges posed by the sustainability agenda.

Significant resources have rightly gone into supporting British business over the post-war decades. This report shows that there is a wellspring of imaginative and entrepreneurial energy within the self-employed sector which can be released and will thrive if the ethos of self-help is supported through a mutual aid system and strategy.