Pro-poor Development of BDS Markets for Micro/small Enterprise: Kenya Voucher Program Experience Presentation to Pro-poor Market Development Seminar Series.

Pro-poor Development of BDS Markets for Micro/small Enterprise: Kenya Voucher Program Experience

Presentation to

Pro-poor Market Development Seminar SeriesSocial Capital Thematic Group

by

William F. SteelSenior Adviser, Private Sector

Africa Region, World Bank May 14, 2002

W. Steel: Pro-poor Market Devt 2

Outline

I. Demand-driven Approach to Business Development Services (BDS) for Micro/Small Enterprises (MSEs)

II. Kenya Voucher Program; Performance

III. Impact and Lessons Learned


I. Why Business Development Services (BDS) for Micro/Small Enterprise (MSE)?

MSEs play important role in: Poverty reduction and economic growth by

generating employment and incomes Empowerment of low-income workers Development of entrepreneurship & skills

BDS can raise MSE productivity by addressing key constraints:

Low skill levels Weak management, financial accounts, marketing Low level of technology Weak linkages and support systems


Some Examples of BDS

Training Technologies

Information Consultancy

Advice Communications

Linkages Networking

Non-production inputs from external supplier:


What Is Market Development?

“Market” refers to transactions between willing demanders and suppliers

Demand: What do targeted clients really want and are willing to pay for?

Supply: More service providers & products focused on target group

Information readily available (needs assessment, services offered, quality)


Vision for Demand-Driven Approach to Developing BDS Markets

Diverse range of services adapted to meet demands of large share of MSEs affordably

Decentralized, sustainable provision, largely by private service providers


Old Supply-driven Approach

Provider looks to government/donor

Government/ Donor

BDS providers (public agency; donor program)

$$$

Beneficiaries

Most private providers left outPrivate BDS providers


Shortcomings of Previous Approach to MSE Assistance

Old Supply-driven approach: Intervene with services provided or contracted

directly by donor project or government agency Train x number of people in z years

Shortcomings: Potential private providers are crowded out Services not adapted to real needs of clients No sustainability when subsidies run out


New Demand-led Approach

Facilitation of both demand and supply

Gov’t/ Donor

Training providers

$$$

Clients (MSEs)

Facil-itator

Funds

Subsidy (voucher)

Upgrading

Information


Advantages of Demand-Driven Market Development Approach

Increased willingness to pay Better leverage for subsidies

Providers have to adapt methods & content to targeted clients Make services affordable

Services can be sustained and expanded with minimal subsidies


Why Vouchers? Demand-driven

Trainee chooses and pays with voucher Encourages private sector to respond

Fills information gap Directory of providers and services

Incentives Reduces cost to clients Reduces risks and raises profits to providers

Transparent way of delivering subsidy to jump-start market development


II. Kenya Voucher Program for Jua Kali (MSE) Sector

Started just for training in manufacturing: Upgrade skills & productivity in existing micro-

enterprises; mainly self-employed Also: Give women technical skills to start up

Shifted to market development approach Introduced upgrading for training providers

(vouchers for training of trainers) Added vouchers for BDS (mainly small ent’s) MSEs’ own Jua Kali Associations acted as

voucher agents, received capacity-building and training to start savings & credit co-ops


Implemented Mainly through Private & Non-gov’t Agencies

Management• Needs assessment• Standards• Prequalification/directories• Voucher issuance/redemption• Validation• Evaluation

AssociationsNGOsBusiness

consultingfirms

Privateallocation agencies• Applications• Sell vouchers to

Private trainers,

firmsCraftworkers Public training

institutions

Micro and smallenterprises

VouchersVouchers

VouchersVouchers

Training and business development

service providers

PCO

Ministry


Kenya Training Voucher Program:Performance 1997-2001 37,606 training vouchers issued,

about 32,606 trained (60% women) [total MSE market in manufacturing estimated at 172,000]

Retarded by slow, delayed flow of budgeted funds, partly due to frequent changes of Ministry & Permanent Secretary (6 in 4 years) Severe delays paying service providers Trainers won’t offer new courses (in

program) till paid for previous ones


Demand Response, 1997-2001

Appli-cation forms

issued

Applica-tions

received

Vouchers issued

Training/services

provided

Training programme

85,835 65,000 37,606 32,606

Technology/ BDS programme

2,000 1,100 638 608


Supply Response, 1997-2001

Allocating Agencies

Number of Applicants

Number Selected

- Training VP 1007 212

- Technology/BDS 400 77

Service Providers

- Training 3400 745

- Technology/BDS 1200 306


III. Kenya Voucher Programme:Impact Very positive for those trained Significant increases in employment,

assets and income for enterprises 80% grew their business (13% control group) 61% added business assets (21% control) 59% of women seeking to enter had started a

business Increased willingness to pay cash directly

to providers for subsequent training


Kenya Voucher Programme:Unanticipated Benefits Skilled craftworkers (themselves

Jua Kali) emerged as leading training providers: Most-demanded by voucher clients Adapted apprenticeship system to a

more convenient format Some have added training as a

business line Already conducting training outside

voucher program


Kenya Voucher Programme:Benefits to Private Sector

Jua Kali Associations empowered Provide members with useful information &

vouchers Many have formed SACCOs to help address

financing needs from own resources MSEs recognized as market for BDS

BDS providers in program have formed National Association for Technology Transfer and Enterprise Training


Drawbacks of Vouchers Complex, costly to set up

SME Dept. has assisted in preparing operational & training manuals for easier replication in other countries

Can distort true market by subsidizing the transactions Better to subsidize needs assessment, market

information, monitoring Subsidies can be used to jump-start market, but

need exit strategy to phase out; however: Subsidies addictive, hard to phase out


Lessons Learned Administer in private sector, not through

Government Ministry Provide training-of-trainers and other support to

upgrade TPs, especially those from SME sector Market development works, but takes time

Demonstration effect: Clients willing to pay for further training (=> need to reduce subsidies)

Need exit strategy:• Providers may become oriented toward vouchers rather

than developing better products for mass market • Slow payment in Kenya forced TPs to cater more to the

market, not subsidies

Pro-poor Development of BDS Markets for Micro/small Enterprise: Kenya Voucher Program Experience Presentation to Pro-poor Market Development Seminar Series.

Documents

propoor market devt

market developmentw

potential private providers

microsmall enterprise

mse productivity

service providers products

private service providersw

outprivate bds providersw