Mapping the Shift in Business Development Services: Making Markets Work for the Poor

Citation

Ugbe, U.P. (2006), "Mapping the Shift in Business Development Services: Making Markets Work for the Poor", International Journal of Emerging Markets, Vol. 1 No. 4, pp. 348-352. https://doi.org/10.1108/17468800610703397

Introduction

It is important to set a historical context to the themes discussed in the 181‐page, book Mapping the Shift in Business Development Services. The cause of western economic liberalism has been emboldened in the last 15 years following the end of the cold war. Free market proponents claim credit for the unprecedented global economic “development” in the post World War II era, pointing out that the spread and intensification of free markets have yielded unprecedented wealth and prosperity for some people and communities. However, critics point to deepening inequality gap between the rich and the poor all over the world. Not only are more people poorer now than three decades ago, the poor are more desperately so. In fact, the global concern about the spread and intensification of economic poverty was a key subject of discussions at a recent G8 Summit in Scotland. World leaders, national politicians and development practitioners have been seeking for effective ways of reducing poverty and promoting economic self‐reliance among the world's poor. It is in this context that microfinance and non‐financial services in the small‐ and medium‐scale enterprise (SME) sector have gained global acclaim in the past 20 years as effective, people‐based, bottom‐up tools with which the poor can work themselves out of poverty and dependence, into economic self‐reliance.

Although the poor have organized informal self‐help savings and loans mechanisms for centuries in various parts of the developing world, the proof of commercial viability of microfinance emerged only in the last 20 years through the pioneering work of the Grameen Bank in Bangladesh and similar micro‐lending institutions in Latin America. It is now generally known and accepted that there are financially sustainable strategies for extending credit to the unbanked poor who would otherwise lack access to formal credit. Data have also shown that access to financial capital (whether in the form of credit or loans) enables the poor to successfully build and manage micro enterprises, gain a measure of economic self‐reliance and become contributors to community economic development in their locales.

This and other success stories have convinced conventional commercial banking to invest in “downstream” markets where 15 years ago they would not. Microfinance and its social technology of group lending taught the banks how to make money from uncollaterized, tiny‐size loans. But, as Malcolm Harper points out in the introduction to this book under review, small enterprises need both financial and non‐financial inputs: they need credit, but they also need business management skills, information, individual advice, marketing channels, raw material supplies, book‐keeping, business planning, collective bargaining and advocacy on local policy issues. These non‐financial services constitute what has become known in the SME lingo as business development services (BDS).

What the book is about

Mapping the Shift in Business Development Services has 18 chapters, contributed by different authors. In the introduction, Harper harps on an underlying theme in the book: firstly, is it realistic or consistent with a developmental paradigm to expect SMEs to fully pay for BDS in the same way as poor people are paying for microfinancial services? Secondly, should BDS be compared to microfinancial services in terms of market pricing of services as well as in the push for financial sustainability of service providers? These questions underlie most of the chapters in the book. However, in an excellent overview of the respective chapters, Jim Tanturn (who also authors Chapter 7), aptly points out that “the book is not really about BDS per se, or even about markets” but rather about questions and reflections on issues, many of which apply to development practice in general.

Chapters 1 by Pradeep Kashyap, and Chapter 2 by Walsh, Kane and Nelson, are republished 1991 case studies from Kenya and India, respectively, and both illustrate the traditional approach whereby BDS were extended free of charge or subsidized to SMEs by government or nonprofit organizations. In the India case, the provincial government intervened in the marketing of rural products in order to increase women's access to urban markets and eliminate exploitation by middlemen. The Kenya case is about an NGO intervention in the provision of business training to women's groups.

Chapters 3, 4, 5 and 6 by Keith Marsden, Hubert Schmitz, Thomas Dichter, and Jim Tanburn, respectively, question the traditional approaches and point to market‐based alternatives for providing BDS to SMEs. For example, in Chapter 3 which is the republished 1992 findings of “a survey of modern African entrepreneurs”, Marsden reports (p. 36) that the study participants suggested that “market networks are more effective mechanisms for the transfer of know‐how than technical assistance networks composed of public institutions, NGOs and government departments.” Similar views are conveyed in the fourth, fifth and sixth chapters, albeit in different arguments by the respective authors.

Chapter 8 is, perhaps, the most interesting and thematically most important section in the book in terms of provoking the reader's thinking about the book's core theme. The chapter is essentially a collection of back‐and‐forth personal letters between Alan Gibson and Malcolm Harper, reflecting what may be characterized as Harper's pro‐poor views versus Gibson's pro‐profit or neo‐conservative views on the provision of BDS to SMEs. Written in intimate, conversational and unequivocal diction, the chapter offers the reader access and insight into the thoughts of two luminous intellectual beacons in the field of micro‐enterprise development, and the respect that they have for each other's views on BDS for the SMEs. A deeper moral of the letters is that one can disagree in principle with a colleague and still maintain an open, courteous and friendly tone while getting serious argumentative points across.

Chapters 9 and 10, by Akiko Suzuki and Alexandra O. Miehlbradt, respectively, focus on the demand and supply issues that practitioners face in designing BDS programs. Suzuki addresses the question: what should be the role of donors in a BDS market that is “characterized by ‘uneducated’ potential customers on the one hand, and skeptical suppliers on the other?” Miehlbradt examines how developed various BDS markets are, the similarities and differences between the markets, how to apply market assessment information to BDS program design, and on the basis of these, whether market development intervention should be supply‐side or demand‐side. Miehlbradt chimes a familiar mantra: programs which are designed to address context‐specific complexities and problems identified in a market assessment will be more effective than programs which push towards standardizing a particular “product” across many locales.

Chapter 11, by David A. Phillips, evaluates the World Bank's “matching grant funds” as an approach for BDS market development. Three experienced practitioners, namely Marshall Bear, Alan Gibson and Rob Hitchins present a pro‐market perspective on BDS market development, making Chapter 12 one of the most important and interesting. Their position paper proposes a ten‐step process for mainstreaming BDS in the competitive market. Kate Philip, in Chapter 13, raises doubts on the market development approach to BDS. Philip, like Harper, essentially argues that the approach proposed by Bear et al. in Chapter 12 will shunt poorer, informal microenterprises from the BDS demand curve, as services will gravitate towards the formal businesses which can pay up.

Kate McKee, in Chapter 14, discusses an expanding definition of BDS, how to retain the focus on microenterprises while making BDS more relevant to the interests of the donors and service providers. Milford Bateman, in Chapter 15, presents a critical perspective on the Business Support Centers (BSCs) which were promoted by western donors in the transition economies of Central and Eastern Europe during the 1990 s. Bateman highlights a number of problems spurned by a microeconomic policy intervention that was driven by a neo‐liberal ideological exuberance in the wake of the collapse of communism. In Chapter 16, Jim Tomecko presents and discusses three case studies to illuminates on market development interventions for BDS “in an environment where donors and government are still subsidizing a large amount of services to enterprise … ” (p. 153) in other words, weaker markets.

In Chapter 17, Jeanne Downing examines the gender‐differentiated patterns of enterprise growth, and addresses the question: “do female and male entrepreneurs have different interests in their business strategies and display different patterns of growth?” Downing also examines the factors contributing to entrepreneurial diversification, the typical conditions under which female and male entrepreneurs diversify rather than specialize, and how such conditions differently affect female and male entrepreneurs. Chapter 18, the last in the book, is authored by Daniel Kobb, based on a survey of about 600 informal sector entrepreneurs in Dar es Salaam, Tanzania. The objective of the survey was “to compare incomes of project beneficiaries with those of a suitable control group.” Kobb uses the results to discuss some of the challenges of measuring informal sector incomes in Tanzania, and the methodological insights from the research process. Practitioners involved in the evaluation of poverty alleviation projects in African countries would find this article useful and relevant.

Concluding remarks

Overall, the articles in Mapping the Shift fall under four broad categories: the first comprises of pro‐market, pro‐profit perspectives on BDS; the second represents perspectives that are pro‐poor and skeptical of neo‐conservative approaches to BDS in the SME sector; the third category focuses on issues relating to program design on the basis of market assessments; and the fourth focuses on impact evaluation. Together, the 18 chapters would appeal to a wide spectrum of readership within the poverty alleviation industry.

The book offers a variety of interesting chapter topics, all of which loosely tie into BDS in the SME sector. However, the book may not address the needs of readers who are seeking for a more elementary and fuller debate on whether BDS to micro enterprises should, or should not, be subsidized. Unfortunately, that primary debate has been overtaken by the neo‐liberal wave that has already turned the foreign aid arena into an orgy of contractors, some of who appear to care less about poverty alleviation than about making operational profits.

Can still rewind: many practitioners do not share the view that microfinance is as beneficial to the grassroots borrowers as it is to the lending institutions. The profitability of informal micro enterprises is difficult to evaluate because some of the costs are often discounted from the cost profile. Furthermore, most microfinance evaluations are still conducted by the lending institutions themselves or other stakeholders who may have reasons not to be objective. It is true that the poor are borrowing and paying back, but this could be due to the effectiveness of the loan product design, such as group lending or compulsory savings, and not necessarily due to the success of the borrowers' micro enterprises: for, in some cases, one loan is repaid with money that is borrowed from another lender; and on, and on, the poverty circle goes.

On the issue of market pricing and full payment of BDS by SMEs, one may ask: have big business corporate agriculture, the steel industry and the airline companies not received bail‐outs or subsidies in one form or another in developed countries? So why, and in what way is it bad for the economy to bail out the poor and facilitate their re‐entry into the market demand curve? Many of the college‐educated enterprise development consultants who advocate are today die‐hard advocates of the privatization of the aid industry, who are out to marketize BDS to SMEs, may themselves have once been beneficiaries of public scholarships or other forms of entitlement programs which enabled them to become useful and productive members of the society. What is the guarantee that some BDS contractors (service providers) will not use their positions of influence to undermine a real positive change in order to keep the contracts coming? Just because contractocracy has worked well in the construction of highways and other physical infrastructure does not mean that it can work well in development aid, where the contractor's loyalty and accountability is to the funder rather than the intended beneficiary.

It is neither wasteful nor shameful to subsidize the poor, especially the poor who are striving to build and manage businesses and produce economic goods and services. Nobody truly fully pays their way to the top. Bailing out the poor with creatively designed and targeted subsidies is good investment because once they are helped out of poverty and into self‐reliance, people who were once poor become active producers and consumers of goods and services in the market. To neo‐conservatives, the package of public subsidies, bailouts and favorable policies which make the markets to work for the big corporations are simply “supportive mechanisms and an enabling environment”, whereas a similar gesture to the poor would be “government interference in the market”.

But it need not be viewed that way, since an investment in the poor is a way of correcting the imperfections of the market, thereby making the market more efficient. Targeted subsidies to the SME sector can be market‐enhancing. One can go to the extent of asserting that the notion of “freedom of the market” is an illusion because no market is actually free. Economic exchange was evolved by humanity to serve humanity, and not the other way around. With particular reference to BDS in the SME sector, it is healthy to keep this primary topic of the debate alive and accessible to all practitioners.