Introduction

JONATHAN DAWSON, SUNITA KAPILA, DONALD MEAD1

Research context: The business development services debate

In recent years, increasing attention has been devoted to business development services (BDS) for micro- and small enterprises (MSEs), recognizing that credit alone is not enough to result in sustainable increases in productivity and income. 'Business development services' refers to support other than credit. Non-financial services include training; giving technical and managerial assistance; developing, adapting and promoting new technology; assessing markets and giving marketing support; providing a physical infrastructure; and advocating policy.

Many early business development services were in the form of training provided with microcredit by a microfinance entity. This training was driven by supply rather than demand and was often required as a condition for a loan. These early BDS projects were often characterized by high cost per client, limited outreach and impact, and low cost recovery, needing continued donor subsidy.

The past decade has seen important developments and innovations in the design and delivery of business development services in an attempt to make them more cost effective and sustainable. Some of these innovations drew on the experience of the microcredit pioneers. Three aspects of the microcredit experience have proved especially valuable. First, microcredit schemes built on existing informal credit and savings practices among the poor. They strengthened, rather than replaced, traditional systems. Second, they demonstrated that low-income people could pay commercial interest rates on loans. Good practice could prompt repayment rates of 95 per cent or more. The best microfinance programmes showed they could be sustainable. Third, the minimalist credit model was demand driven because it left decisions on loan use to the entrepreneurs. All three principles have affected recent developments in business development service design and delivery.

Systems theory has also been important in forming new ideas for the design and delivery of BDS initiatives. Subsector analysis or value chain analysis has been a core tool in new BDS approaches. These approaches help to identify 1) sectors in which large numbers of entrepreneurs are active, 2) bottlenecks or constraints on the economic development of these entrepreneurs, and 3) measures to remove these constraints.

Evidence is growing that recent BDS innovations have in fact improved impact and outreach, improved cost effectiveness and enhanced sustainability. However, a clear picture has yet to emerge about the precise nature of these achievements and the key factors underlying them. Several recent initiatives have sought to throw light on these questions.

In 1995, the Committee of Donor Agencies for Small Enterprise Development agreed on a framework for donor support of microfinance. The framework proved influential in encouraging donors to support microfinance programmes that were moving toward more businesslike approaches and greater cost recovery. In 1997, this committee turned its attention to the more complex task of reaching agreement on good practices for providing non-financial services to small enterprises.

The committee sponsored regional conferences in Harare (1998), Rio de Janeiro (1999) and Hanoi (2000) to discuss ways to achieve greater outreach, cost effectiveness, impact and sustainability of business development services. In late 2000, it released a set of guidelines called 'Business development services for small enterprises: guidelines for donor intervention'. These guidelines emphasized developing vibrant private sector markets for BDS and urged donors to offer subsidies for activities that help to develop the capacity of private providers of BDS.

In response to questions being raised in the donor and practitioner debate on BDS for small enterprises, the International Development Research Centre (IDRC) of Canada developed a collaborative research initiative with five major NGOs in early 1998. The research focused on methodologies for the design and delivery of high-impact, cost-effective business development services for small producers. This global project drew on experience from Africa, Latin America and Asia and described factors that appear important in good BDS design and delivery. This book presents the findings of this research initiative.

Research partners

IDRC provided funding to bring together representatives of five major NGOs engaged in providing business development services to small producers, and covered the research expenses. The NGOs provided substantial in-kind support for the studies. Each NGO identified projects that they felt represented 'good practice' in providing BDS to small producers. Case studies were commissioned, examining seven projects in detail. Independent consultants hired by IDRC did most of the studies.

The case studies were reviewed by a steering committee, which included a resource person and representatives from IDRC and the five partner NGOs. Since the steering committee included BDS practitioners, considerable attention was given to project design and management, as mistakes can often occur at the design stage. On the other hand, one main finding of the case studies is that good business development support is evolutionary in nature, modifying in response to changing circumstances as well as a changing understanding of the needs and opportunities for the clients.

Five NGOs participated in the project:

• EnterpriseWorks Worldwide, a not-for-profit development assistance organization whose mission is to generate economic growth and alleviate poverty through business development programmes. Its headquarters are in Washington, D.C., with field offices in Africa, Asia and Latin America. EnterpriseWorks supports local partners and small-scale producers of agricultural and other commodities to build more competitive enterprises.

• Intermediate Technology Development Group (ITDG), an agency that works to provide practical answers to poverty. Founded in 1966 by economist Dr E.F. Schumacher (author of Small Is Beautiful), its vision is of a more equitable and just world in which technology enriches and benefits the lives of poor people in a sustainable way. ITDG, through its offices in seven countries in...