Introduction

1.1 Background

The poor are still with us – more so today than ever, in fact. Around one-fifth of the world's population lives in absolute poverty and global disparities in wealth are growing. To those with access to capital and technology, the process of globalization promises rich rewards. Those without, in the 'excluded' portion of the world economy, are in danger of being left ever further behind. With the global economy being driven by the needs of industry and consumers in its richer segment, 'the form and direction of technical change is racing off at a trajectory that is further and further away from the needs and capabilities of the "excluded majority"' (Barnett, 1995).

This is the world with limited access to financial capital, modern technology, and external markets where the dominant form of production is at the micro and small scale. It is where most basic needs – for food, shelter, domestic and production equipment and many services – are met not by the trade-driven global economy, but by local small-scale producers. It is where a growing proportion of the world's population, and especially of its poor, will live.

For several decades, governments and international aid agencies have recognized the importance of directing their attention towards this segment of the economy. Support to small producers has been seen as a key element of policies to alleviate poverty. Furthermore, with small firms demonstrating great dynamism and innovation in the industrialized world, increasing interest has been shown in the small-scale sector as a potential motor of economic growth.

Recent years have seen a significant shift in the nature of support to small producers. Much of this has conventionally taken the form of business development services, such as technology development, marketing assistance, business management training, vocational training, and so on. Such services, however, have largely fallen out of favour in recent years. They have generally come to be seen as expensive, limited in their impact, unsustainable and tending to be supply driven.

Today, the dominant instrument of small producer support has become minimalist credit – that is; where credit is the only service provided. In many respects, this approach has been highly successful. Assistance has been effectively delivered to large numbers of poor, small producers. Moreover, many schemes have been able to generate sufficient revenue to cover a high proportion of their costs, and several may even have achieved full financial sustainability.

Beyond credit?

So can the core problems of small producers now be considered to have been solved? Replication of group-based lending schemes (such as, most famously, that of the Grameen Bank) has enjoyed considerable success. Is the principal function of small producer support henceforth to be limited to the refinement and further replication of such schemes?

This paper argues that this is not enough: that credit on its own, in fact, fails to address many of the constraints faced by small producers. This is not to argue that credit is unimportant in helping the poor to lift themselves out of poverty. Rather, it can be seen as a necessary but not sufficient condition. Indeed, central to the argument here is that the effectiveness and impact of credit schemes are likely to be significantly enhanced if other, complementary tools are available.

The aim then – through a broad trail of relevant literature and the presentation of a number of case studies – is to suggest that credit provision is but one among a number of services that are required by small producers if they are to break out of the cycle of poverty in which they are all too often trapped.

This is decidedly not to argue for a return to blueprint, formulaic approaches or to large-scale, integrated packages of assistance, typically delivered by large, inefficient institutions. Any study into business development services must begin with an acknowledgement that to date they have frequently been expensive and limited in their impact. However, as a review of the British government's aid programme's small enterprise activities argued: 'it seems clear that the lesson to be drawn from this is that there is much to be learned about designing, delivering and paying for such services – not that they are unneeded or prohibitively expensive' (Grierson, 1994).

This paper can be seen as a response to that challenge: an attempt to map out the known terrain, as well as that which remains to be explored, in the development of cost-effective, high-impact support services for small producers. Specifically, our aims are fourfold:

1 to describe the limitations of minimalist credit as a strategy for small producer support;

2 to demonstrate the need for business development services, particularly those of a technological nature, if small producers are to enhance their capacity and productivity;

3 to identify the factors underlying high-impact, cost-effective business development services; and

4 to identify ideas and innovations in service design and delivery that are worthy of further exploration.

1.2 Layout of the paper

Chapter 2 briefly reviews the rationale for support to small producers and traces the evolution of minimalist credit as the principal support mechanism currently employed.

Chapter 3 provides an analysis of the available evidence on the impact of minimalist credit programmes.

Chapter 4 identifies binding constraints on small producers other than access to credit and makes the case for a more complementary approach, with an important role for business development services.

Chapter 5 presents case studies of a wide range of projects in Africa, Asia and Latin America which illustrate the potential benefits to be had by looking beyond minimalist credit. These include both projects which adopt a complementary 'credit plus' approach, comprising financial and business development services, and those in which there is no financial component but where there is evidence of interesting innovations in cost-effective, high-impact service delivery.

Chapter 6 examines trends and patterns emerging out of the case studies which underlie the emergence of high-impact, cost-effective business development services.

Finally, Chapter 7 attempts to identify outstanding gaps in our knowledge where further research and project-level experimentation are necessary.

Small producer support and the emergence of minimalist credit

The rationale for support to small producers rests on the premise that the wider social and economic benefits of a well functioning support system will exceed the returns to private...