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Challenges of Microenterprise Development

By Prof. Ronald T. Chua

Asian Institute of Management

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Challenges of Microenterprise Development

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Microenterprises: Growth and Contribution to the Economy

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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

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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)

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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

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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)

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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%

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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

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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

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Microenterprise Employment by Class of Worker� (Non-Agricultural, 1993)

Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

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Microenterprise Employment by Sex by Area

Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

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Microenterprise Employment by Sex by Class of Worker

Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

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Employment in Microenterprises by Industry Sector � (Non-Agricultural, 1993)

Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

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Microenterprise Employment by Sector by Worker Class� (Non-Agricultural, 1993)

Sources: 1993 Yearbook of Labor Force Statistics; Integrated Survey of Households

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Profile and Characteristics of Microenterprises

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Classification of Microenterprises by Growth Potential

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Microenterprises: A Classification by Growth Potential

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Microenterprises: A 2nd Look at Risks: Not Really Risky!

  • Risk Factors
    • Market
    • Technology
    • Skill
    • Capital Investment
    • Individual :
      • Character
      • Decision

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    • Household Vulnerability
    • External Factors
      • Government Policy/Regulation
      • Force Majeure

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Microenterprise Characteristics

  • Ease of entry and exit
  • Very little or no asset requirement
  • Low skill requirements
  • Low capital requirements, mostly working capital

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  • 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)

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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

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Strategic Choices

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

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Strategic Choices

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

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Who is Target Client?

  • Poverty Groups or Microentrepreneurs?
  • Start-ups or Established Microenterprises?
    • Formation vs. Expansion vs. Transformation
  • Urban or Rural Clients?

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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

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What Level of Intervention?

  • Direct Service Provision – Enterprise Level
  • Industry/Subsector Level
  • Policy, Regulatory, or Institutional
  • Support Services for Service Providers

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Microenterprise Development or Microfinance?

  • Microenterprise Development
    • Access to Markets, Skills, Information, Finance, etc.

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  • Microfinance Promotion:
    • Improved Access to Financial Services

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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?

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Range of Services

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

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DELINEATION OF SERVICE DELIVERY TASKS

 

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Service Provider

Clients

RANGE OF SERVICES

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Single

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Money Lender Pawnshops

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ROSCAs

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Simple

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STRUC-TURE

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Lending Investor

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NGO

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Cooperatives

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High

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Client Skill Level Required

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Com-plex

 

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Service Delivery Institution

 

Low

 

 

Service Provider Role

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Institution Builder

 

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Multi-ple

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