Toward more cost-effective nonfinancial assistance : case studies in subsector-based MSE [micro and small enterprises] development

However, excitement over successful financial service delivery has eclipsed the need to develop solutions to other non-financial constraints faced by MSEs. In addition, the cost-effectiveness and appropriateness of nonfinancial assistance have been challenged in a time of shrinking development resources. Part of the difficulty of developing sustainable nonfinancial services results from the diversity of nonfinancial assistance activities; the term "nonfinancial assistance" means different things to different people, and often many disparate activities are lumped together under its rubric. Thus, cost-effective methods for providing MSEs with nonfinancial assistance must be developed. This paper reviews approaches used by the Institute of Socio-Economic and Technological Research (Ecuador), TechnoServe (Ghana), Yayasan Dian Desa (Indonesia), and Rural Advancement Committee (Bangladesh). Each of the institutions has used a subsector approach, which focuses on firms that share a common product or input (e.g., the woodworking subsector in Ecuador or the poultry raising subsector in Bangladesh) rather than on all firms or MSEs in a given region. A basic premise of the subsector approach is that entrepreneurs operating in a particular subsector are likely to face common constraints, whereas entrepreneurs from many sectors may face very different constraints. This similarity of concerns within a subsector makes it easier to assist many MSEs with fewer actions. The approaches the four institutions took led them to interventions that reached many MSEs quickly and effectively. Their cases show that: (1) MSEs need to be treated as clients rather than as beneficiaries (MSE service institutions should provide demand-driven services that clients are willing to pay at least part of the costs for); (2) cost-effective service delivery can benefit from diagnostic market research to assess subsectors that hold considerable opportunities for MSE growth; (3) identifying opportunities and constraints for entrepreneurs within viable and dynamic subsectors yields higher payoffs than a nontargeted approach; (4) MSE service institutions should focus on systemic interventions that can affect many firms with a single intervention; and (5) concentrating on specific subsectors seems a useful way of identifying systemic interventions more quickly and effectively. While the subsector approach is a valuable way to assess which of a set of interventions can reach the largest number of MSEs, it reveals little about whether the intervention is cost-effective. In order to improve on the sustainable delivery of nonfinancial assistance to MSEs, work remains to come up with market-driven approaches and better measures of impact. (Author abstract)