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Challenges of Microenterprise Development

Challenges of Microenterprise Development. By Prof. Ronald T. Chua Asian Institute of Management. Challenges of Microenterprise Development. Microenterprises: Growth and Contribution to the Economy Profile and Characteristics of Microenterprises

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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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