The recently announced bipartisan agreement on new markets and renewal communities could be the unexpected - and increasingly necessary - jolt to spur the inner-city microenterprise programs that are essential to long-term social and economic development.

This proposal by President Clinton and House Speaker J. Dennis Hastert could enable microenterprise programs to make a difference in African-American and other inner-city communities.

In general, microenterprise programs in the United States, particularly where they are credit-led as opposed to training/technical assistance-led, have bypassed African-American entrepreneurs or inadvertently caused them to fail.

For example, credit-led microenterprise programs often operate under the myth of reaching a self-sufficiency that may or may not be achievable in Bangladesh or Latin America but does not exist in a free market economy. As the seminal book on microenterprises ("Bootstrap Capital" by Lisa Servon) contends, self-sufficiency has not occurred in the United States and probably is not possible.

"Nearly 88%" of microenterprise operating budgets, she wrote, "will need to be generated from external sources [such as bank grants]; at present, 94% of program budgets come from these sources. … Even if you look at microenterprise development as a contained program, it will never be self-sustaining."

Unfortunately some prominent credit-led programs, whose rationale assumes the truth of the myth of self-sufficiency, have been compelled to do inadvertently what Congress is now decrying as predatory lending.

Unable to ensure self-sufficiency, some enterprise lending programs engage in what many leaders consider predatory practices. Small inner-city start-ups are often charged as much as 16% annual interest, 5% up-front in origination fees, and penalties of up to 20% for being 30 days late. Being late on payments is almost inevitable for those going from welfare to work or those without capital or health insurance.

How can such micro businesses, saddled with high interest rates, compete with white-owned small businesses that secure prime interest rates without origination fees?

They can't. But the New Markets initiative could change this and do so in a bold way that could alter the direction of microenterprise programs and allow inner-city training/technical assistance programs to flourish.

The New Markets initiative, according to Mr. Clinton and Mr. Hastert, could spur $15 billion of inner-city equity investments by allowing a 30% tax credit. In addition, the Department of Housing and Urban Development would be permitted to guarantee up to $1 billion of low-cost loans, and the Small Business Administration would be able to guarantee $150 million of loans and supply $30 million of operating assistance grants, including the technical assistance many consider essential to microenterprise growth.

Combined with the New Markets zero capital gains proposal, microenterprise programs could expand and enable African-American and other minority entrepreneurs to participate effectively in our free enterprise system.

Using the New Markets incentives, we propose a $550 million Microenterprise Fund - a sum 100 times greater than the annual lending of the nation's largest credit-driven microenterprise program.

The fund could consist of $150 million of equity investments and $350 million of low-interest guaranteed loans from HUD, the SBA, and the Treasury's Community Development Financial Institutions Fund. And it could be paired with $50 million of technical assistance grants, half from the New Markets initiative and half from foundations and banking companies such as Citigroup Inc. that have in the past made microenterprise loans and grants under their Community Reinvestment Act commitments.

Such a program could create up to 100,000 new microenterprises a year, avoid potentially predatory lending practices, and provide the technical assistance and equity capital essential for start-up businesses to survive, much less expand, in a highly competitive society.

Microenterprise loans generally range from $3,000 to $25,000. The example shown schematically in the accompanying graphic contrasts the difference in costs under the credit-led model and the New Markets initiative. In summary, it demonstrates that first-year financing costs could be reduced by more than 70%, for a saving on a $10,000 loan of nearly $1,700. As important to microenterprise owners as the prime interest rate and equity investments is the training and technical assistance that might be part of this initiative.

The technical assistance could include financial and business literacy training, business planning, centralized accounting and legal services, and the financial discipline and business acumen that are often required for any venture capital investment program. Technical assistance could also include child-care centers and health benefits through a national microenterprise health-care program.

Today in San Francisco two enterprising African-American women bankers are developing just such a program, as is the chairman of the National Federation of Filipino-American Associations, representing a minority long ignored by corporate America.

Microenterprise as an equity/technical assistance model, along with other capital investment issues for all minority businesses, from micro to large, will be a central theme of this year's National Black Chamber of Commerce Conference Aug. 17-19 in Washington.

Mr. Jordan is former president of the San Francisco Black Chamber of Commerce. Mr. Canty is chairman of the National Monetary Fund, which helps meet the capital needs of underserved communities. Both work closely with the Greenlining Institute of San Francisco.

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