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Challenges of Microenterprise Development

This article discusses the challenges faced by microenterprise development institutions in reaching and supporting more microenterprises, increasing incomes and generating employment, and providing effective and sustainable services.

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Challenges of Microenterprise Development

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  1. Challenges of Microenterprise Development By Prof. Ronald T. Chua Asian Institute of Management

  2. Challenges of Microenterprise Development • Microenterprises: Growth and Contribution to the Economy • Profile and Characteristics of Microenterprises • Challenges to Microenterprise Development Institutions • Strategic Choices

  3. Microenterprises: Growth and Contribution to the Economy • Share of Total Employment • Numbers and Value Added • Contribution to Household Incomes • Role During Crisis • Response to Positive Economic Developments • Employment in Microenterprises

  4. Share of Total Employment • Non-agri Microenterprises employed a significant number of people (1993) • 8.757 Million Workers • 36% of total Employed Workforce • 66% of Non-agricultural Employment • 80% of Total Private Sector Employment Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households, Census of Small Establishments - 1988; Survey of Household Operated Activities - 1988

  5. Numbers and Value Added • Microenterprises accounted for over 98% of Philippine enterprises in 1988 • Microenterprises had low gross value-added • Household Operated Activities Accounted for 12.7% of 1988 Gross value Added • Household Operated Activities Value Added per Enterprise: Ps 33,000 to Ps 7,120 (1988)

  6. Contribution to Household Incomes • Microstudies showed that microenterprise income accounted for significant share of client and household income • 48% of client income in rural area • 52% to 58% of household income • Many of the Poor relied on microenterprises as important source of income

  7. Role During Crisis • Microenterprises served as Safety Net during hard times • 1991 to 1993 GDP Growth rate: negative 1.3% • Net non-agri employment increased by 2% but was result of: • 3% decrease in enterprises w/ 10 or more workers • 4% increase in microenterprises (9 or less workers)

  8. Response to Positive Economic Developments • Microentrepreneurs responded positively to conducive economic climate • 1993 to 1995 GDP growth rate 1.1% • No. of Employers grew by 11% • No. of Self-Employed people grew by 4%

  9. Employment in Microenterprises • Non-wage and salary employment accounted for 52% of microenterprise employment • Urban microenterprises accounted for 67% microenterprise employment • More males (55%) than females (45%) employed in microenterprises

  10. Employment in Microenterprises • Higher share of females (over 60% vs. over42% for males) in non-wage microenterprise employment, mostly self-employed • Trade sector dominated by self-employed microentrepreneurs (over 60%) followed by transport, mining and manufacturing

  11. Microenterprise Employment by Class of Worker(Non-Agricultural, 1993) Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

  12. Microenterprise Employment by Sex by Area Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

  13. Microenterprise Employment by Sex by Class of Worker Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

  14. Employment in Microenterprises by Industry Sector(Non-Agricultural, 1993) Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

  15. Microenterprise Employment by Sector by Worker Class(Non-Agricultural, 1993) Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

  16. Profile and Characteristics of Microenterprises • Classification of Microenterprises by Growth Potential • Microenterprises: A 2nd Look at Risks: Not Really Risky! • Microenterprise Characteristics • Context in Broader Economic System

  17. Classification of Microenterprises by Growth Potential

  18. Microenterprises: A Classification by Growth Potential

  19. Risk Factors Market Technology Skill Capital Investment Individual : Character Decision Household Vulnerability External Factors Government Policy/Regulation Force Majeure Microenterprises: A 2nd Look at Risks: Not Really Risky!

  20. Mostly into trading/buy and sell Short cash cycle Short planning cycles: daily, weekly Can be seasonal High return on capital invested (in % but not in peso terms) Microenterprise Characteristics • Ease of entry and exit • Very little or no asset requirement • Low skill requirements • Low capital requirements, mostly working capital

  21. Challenges to Microenterprise Development Institutions • How to reach more microenterprises • How to increase incomes of microenterprises • How to generate more employment through microenterprises • How to ensure provision of effective, relevant, and responsive services • How to do it in a sustainable manner

  22. Strategic Choices • Who is Target Client? • What level of intervention? • Develop Microenterprises or Improve Access to Microfinancial Services? • Promote or Provide Services?

  23. Strategic Choices • What is Range of Services? • How Design Services – Standardized vs. customized • How structure? • How Expand Outreach?

  24. Who is Target Client? • Poverty Groups or Microentrepreneurs? • Start-ups or Established Microenterprises? • Formation vs. Expansion vs. Transformation • Urban or Rural Clients?

  25. Who is Target Client? Factor to Consider: • Differing microenterprise types mean differing needs • Risks involved, capacity to absorb risk, capacity to minimize risk • Add’l inputs needed/ not needed

  26. What Level of Intervention? • Direct Service Provision – Enterprise Level • Industry/Subsector Level • Policy, Regulatory, or Institutional • Support Services for Service Providers

  27. Microenterprise Development or Microfinance? • Microenterprise Development • Access to Markets, Skills, Information, Finance, etc. • Microfinance Promotion: • Improved Access to Financial Services

  28. Promoter or Provider? • Promoter: • Roles include Building User/Client Managed Structures and Institutions • Provider: • Role is Responsive, Efficient and Sustainable provider of Services • Vision for Client System - Cost and risk reduction structure or grassroots organization?

  29. Range of Services • Range of Services • Single dominant service • Integrated package of services? • How Expand Outreach? • Setting up Branches • Setting up Independent Organizations

  30. Com-plex Institution Builder Service Provider Role Service Delivery Institution DELINEATION OF SERVICE DELIVERY TASKS Service Provider Clients Single Money Lender Pawnshops Simple ROSCAs RANGE OF SERVICES STRUC-TURE Multi-ple Lending Investor NGO Cooperatives Low High Client Skill Level Required

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