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3.3 Supporting entrepreneurship in micro and small enterprises: Working Out of Poverty

Written by: International Labour Organization

Article Overview: Small enterprises constitute a large and growing share of employment in the developing world, and are generally more labour intensive than larger firms.

3.3 Supporting entrepreneurship in micro and small enterprises: Working Out of Poverty

Small enterprises constitute a large and growing share of employment
in the developing world, and are generally more labour intensive than larger
firms.In many countries, a business with more than ten workers is already
quite large, while in others an enterprise with fewer than 50 employees is
considered small. In Latin America, small businesses with fewer than 20 employees
accounted for 51 per cent of total urban employment in 1998, up
from 48 per cent in 1990.In Thailand, 90 per cent of all private establishments
employ under 20 persons. Informal enterprises provide work for
seven out of ten people in non-agricultural employment in India.

Furthermore, between 60 and 70 per cent of workers in the nonagricultural
parts of the informal economies of the developing world are selfemployed,
in effect one-person businesses. Home-based workers and street vendors make up the largest groups in urban areas, but many workers
are employed in small workshops, often in or adjoining dwellings, making
garments, processing food and engaging in other forms of small-scale manufacturing
and assembly work. Categorization of the women and men involved
in such businesses is an invidious task. Some work for somebody else,
others on their own account, while still others employ people as well as
working themselves. Many may pass to and fro through these categories during
their working life. Often the business unit is the family, with perhaps
three generations working together and pooling earnings.

Not all workers or employers in the informal economy are poor; but
many are, or live with the constant risk that some event may push them into
poverty. ILO research in Latin America suggests that most of the selfemployed
workers in the informal sector are essentially unemployed, and
venture into any business activity just to survive. Many of these selfemployed
persons operate at a very low level of productivity. Only about 15
to 20 per cent are active in micro-enterprises which, for one reason or
another, are not part of the formal economy, but offer employment to the
working poor and have the potential to grow.

The size of the small business sector depends, amongst other things, on
the “birth” and “death” rates of enterprises. Both statistics are high, varying
according to the rate of economic growth and the availability of other employment
opportunities. If the conditions for small businesses to escape
from the struggle to survive and start to grow were improved, their employment-
creating potential could become a key component of a pro-poor
growth strategy.

Since most women and men earn their living in micro and small enterprises,
in self-employment and as homeworkers, improved policies, regulations,
business training, market development and organization building can
have a major impact on poverty reduction.By improving job quality in
small enterprises, increasing economic opportunities for women, promoting
association building of employers and workers in the sector and upgrading
employment for workers in the informal economy, the goal is to unlock the
potential for creating more and better jobs in the small enterprise sector.

For micro and small businesses, acquiring the management skills to survive
and grow is vital. The ILO assists partners in building national and local
capacity in cost-effective and sustainable business development services,
such as management training, access to finance, information on technologies,
export and domestic market access, and inter-firm linkages. The ILO
“Start and improve your business” (SIYB) methodology is used in more than
80 countries. By following an institution-building strategy, working with existing
local and national organizations to train trainers from partner organizations,
who in turn train the micro and small-scale entrepreneurs, the
programme reaches large numbers of people and is sustainable.

The marginalization of small enterprises is often the result of insufficient
institutional support and limited interaction with other economic
actors and labour market institutions. In working with individual small enterprise
and worker associations, federations and support organizations, the
ILO has developed an approach that is based on the following principles:
●
building on existing networks and self-help initiatives;
●
identifying associations through partners that have local roots and enjoy
trust;
●
resource sharing right from the start;
●
allowing group-building processes the time they need;
●
making provision for addressing gender issues;
●
seeking long-term commitments from partners and support agencies.

The SIYB programme thus reaches large numbers of entrepreneurs
and, when donor funding stops and pilot projects are phased out, local and
national institutions continue delivering the support small businesses need.
A module on improving job quality has proved that increasing productivity
helps businesses survive and grow and offer better conditions of employment.
To help overcome urban poverty, a special programme supports the
development of local public-private partnerships between municipal governments
and the private sector through a participatory planning process.

In most developing regions of the world, about two-thirds of workers in
the non-agricultural informal economy are women, mostly self-employed
street vendors or home-based workers. Women face many of the same problems
as male entrepreneurs, but even more acutely. For example, women
have difficulty in obtaining access to finance, and when they do, they receive
smaller loans than men. In addition, many women wanting to start or improve
their business are overburdened with looking after their families,
earning an income and overcoming the many social and cultural obstacles to
successful entrepreneurship.

Networks and associations of self-employed women and femaleheaded
small businesses can provide much-needed support for new and
emerging women entrepreneurs, that takes account of women’s reproductive
and household responsibilities, as well as existing gender relations and roles between women and men. Better relations with such networks provide
a great opportunity for representative associations such as employers’ organizations
to increase their women’s membership. Women’s mobility is restricted
in that they often have to work close to home, have limited access to
transport and need to take personal safety considerations into account. Initial
experience with programmes in several countries shows that support
services specifically designed to help women can have an important impact,
especially where they tie in to women’s small business associations or
women’s sections of associations open to both sexes.

Support to micro and small business is most effective where the legal
and regulatory environment provides both security and opportunity. ILO research
in Chile, Guinea, Pakistan, Peru, South Africa, the United Republic of
Tanzania and Viet Nam is aimed at informing a policy action programme to
create a new, more effective balance of incentives and disincentives for small
businesses. A policy and legal environment that lowers the costs of establishing
and operating a business, including simplified registration and licensing
procedures, appropriate rules and regulations, and reasonable and fair taxation,
will help new entrepreneurs to start in the formal economy and existing
informal businesses to enter it. Furthermore, the security that formality provides
will facilitate access to commercial buyers, more favourable credit
terms, legal protection, contract enforcement, appropriate technology, subsidies,
foreign exchange and local and international markets. A coherent
legal, judicial and financial framework for securing property rights, especially for women, to enable “hidden” assets to be turned into productive capital
through sale, lease or use as collateral is a high priority in many countries.

Related Articles
  5.0 Micro Enterprises - What are they?: Entrepreneurship and Small Business Enterprise Growth in Uganda
  18.0 Conclusion: Entrepreneurs and entrepreneurship in Africa
  9.0 Conclusions: Entrepreneurship and Small Business Enterprise Growth in Uganda
  4.2 The profile of growth-oriented women: Support for Growth-oriented Women Entrepreneurs in Tanzania, 2005
  1.7 Promoting entrepreneurship: Working Out of Poverty

Article Tags: agricultural employment, assembly work, business activity, business unit, categorization, developing world, dwellings, garments, informal economy, informal sector, labour, latin america, micro enterprises, person businesses, private establishments, small businesses, street vendors, three generations, urban areas, women and men



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