Microenterprise/Entrepreneurship (Type 2)

Self-employment through microbusinesses is a reality in the developing world, and is the predominant form of employment in many low-income, rural economies such as Laos or Nepal. Entrepreneurship refers to the set of innovation and management skills to create businesses and, hopefully, enable them to grow. The reality of much self-employment for the poor in the developing world is that it enables only survival with limited income growth. How to support viable micro and small businesses is thus a highly relevant policy question across all developing country income levels.

Sound macroeconomic conditions and a good business environment, including roads, regulations and good laws, are needed to enable entrepreneurship to lead to sustainable businesses, and thus to jobs. Entrepreneurship or microenterprise programs are intended to help reduce constraints and enhance the productivity and skills of small-scale entrepreneurs along with the right combination of national conditions. A diverse range of microenterprise programs can be found in develop - ing economies of all income levels, with different emphases on any of a range of labor market factors needed to help make a business viable: credit, management skills, marketing, technical skills. Evaluation studies have been limited and conclusions are not consistent about what is effective for whom and in what contexts. We do know that available credit is a dominant constraint, and that entrepreneurial skills and traits are strongly related to the success of a business. Cho and Honorati conducted a meta regression analysis of 37 impact evaluations, not all of which explicitly concerned self-employment programs.23 They did reach some interesting conclusions. They found that a package of support promoting skills and financing support had larger labor market impacts and that vocational and business training worked better than financial training. There were big differences in gender, with the largest effects overall coming from providing women with access to credit.24 What has been learned is how tailored to local market needs and norms is enterprise development. Labor intermediation services have their roots and design in formal labor markets; they may not have the specialized personnel and access to all the tools to be the best provider of this type of employment support program. A study of the institutional delivery of entrepreneurship for women in rural India found different results and different service needs as a result of different social norms for women, according to whether they were upper or lower caste Hindu women or Muslim women, even within the same village.25

Public employment services in developing countries or their public-private variants differ as to whether they have microenterprise training as a service menu option, but few are able to offer the full range of non-labor services needed to make such microenterprises viable - credit, technical advice, and marketing. Entrepreneurship programs particularly for young people are routinely offered in the Middle East and North Africa, but rarely, according to the World Bank, by public employment services.26 Latin American public employment services often have microenterprise training as a menu option but typically these are one-shot training courses without the wider set of complementary services of credit, marketing and supervision. Some Ministry of Labor programs are tasked with approving individual business plans and small credits (such as for carpentry supplies), but by staff with often no training or business experience or mandate to follow the business over years.

Public-private labor intermediation services need to look very closely at the range of needs and national experience for viable microentrepreneurship; and, from that, what provider(s) and services package are the best option for that country context. India has pioneered the self-help model for microenterprise development in rural areas. Self-help groups have then been connected with first informal and later formal credit institutions. Particularly when self-employment is the only local employment option, only these adapted models have the ability to identify local constraints, be they social, infrastructure, or market-related. An impact evaluation of rural delivery mechanisms for microenterprise training in rural Indian self-help groups reached very context-specific conclusions.27 It found that training increased assets but not income. It found that underlying conditions that enabled female microentrepreneurs to benefit from training were good (paved) village roads and the linkage model chosen, specifically banks providing loans and NGOs the organization, or banks financing NGOs to provide loans.28 Use of government training organizers had poorer results. A labor intermediation services role in rural, self-employment-dominated economies would mostly likely only be relevant as an information base and for those seeking urban employment. In analyzing private versus public sector delivery of entrepreneurship programs, Cho and Honorati found better performance over the long term from the private sector.29 This is particularly useful in providing business counseling and market contacts. As these programs are already offered by a range of NGO, private and public providers, labor intermediation services should consider their value-added as a referral service if they do not have the experienced personnel or ability to deliver the range of services needed to make such programs viable.

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