Small scale industries in developing countries : empirical evidence and policy implications

This paper, based on studies conducted in 12 countries of manufacturing and repair firms employing fewer than 50 persons, provides an overview of small firms (their magnitude, composition, input structure, and growth) and examines the determinants of the demand for and supply of the goods and services they produce. Findings reveal that small firms account for the vast bulk of industrial employment, are most often located in rural areas, and very often employ just one person, usually the owner, who in many cases is a woman. These one-person enterprises are usually a part time activity financed almost wholly out of personal savings. Attempts to reach small firms through credit programs are most successful when loans are small, short-term, are provided by local institutions, and supply working (rather than fixed) capital. Non-financial assistance works best when it is tailored to a particular product group and location and is provided by pre-existing institutions. The policy environment can promote small firm success by removing tax and credit inequities and by increasing the agricultural income which can be spent on small firm products. A 9-page bibliography is included.