Micro and small enterprises (MSEs) allow the rural and urban underserved markets – including some of the most marginalized and vulnerable strata such as women, youth, Veterans and the landless – to diversify their incomes, create new sources of economic growth and generate additional employment (including self-employment) in rural areas. The same strata may also be reached through MSE support to small-scale local entrepreneurs, whose business expansion can create new jobs for the rural poor. Core issues that shape the justification for and design of investments in MSE development concern:
The policy and institutional environment. A country’s legal framework, current business practices, government policies such as tax breaks or seed grants for MSEs, bureaucratic and administrative procedures, etc. may all act either to encourage or impede MSE development.
The availability and strength of local financial services. Commercial banks, micro-finance institutions, micro-leasing companies, etc., also non-financial service providers such as business counseling, must be adequate to support MSE growth.
The business opportunities and evolving demand in the project area. Agriculture-related (agro-processing, input selling, food trade) and non-agricultural MSE opportunities (carpentry, metal-working, transport, shops, handicraft, other amenities) should be present, together with government commitment to an identified target clientele. There should be general indications that financial returns from typical MSEs are attractive to this clientele.
The institutional mechanisms for MSE promotion. Support needs of potential MSE entrepreneurs require identification. Business development services such as entrepreneurship training, management and planning advice, and improved market information and access, are likely to be needed. Assistance in making loan applications and advice on dealing with financing agencies will also be required.
Micro and Small Enterprise Units (MSEs) may need setting up if institutional mechanisms are inadequate. Such units may also incorporate teams of rural business advisers (RBAs) to strengthen links between MSEs, producers or producer organizations, other market intermediaries such as traders, processors or transporters, and rural or urban businesses.
Related infrastructural needs and constraints. Means may have to be found to address non-commercial constraints to MSE growth such as the poor quality of the rural roads needed to link MSEs to markets, inadequate water and electricity supplies and ineffective communication networks.