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

1. Pro-poor Development of BDS Markets for Micro/small Enterprise: Kenya Voucher Program Experience Presentation to Pro-poor Market Development Seminar Series Social Capital Thematic Group by William F. Steel Senior Adviser, Private Sector Africa Region, World Bank May 14, 2002

2. Outline • Demand-driven Approach to Business Development Services (BDS)for Micro/Small Enterprises (MSEs) • Kenya Voucher Program; Performance • Impact and Lessons Learned W. Steel: Pro-poor Market Devt

3. 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 W. Steel: Pro-poor Market Devt

4. Some Examples of BDS Non-production inputs from external supplier: W. Steel: Pro-poor Market Devt

5. 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) W. Steel: Pro-poor Market Devt

6. 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 W. Steel: Pro-poor Market Devt

7. Old Supply-driven Approach Provider looks to government/donor BDS providers (public agency; donor program) Government/ Donor $$$ Beneficiaries Private BDS providers Most private providers left out W. Steel: Pro-poor Market Devt

8. 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 W. Steel: Pro-poor Market Devt

9. New Demand-led Approach Facilitation of both demand and supply Gov’t/ Donor Upgrading Funds Facil-itator Training providers Information Subsidy (voucher) $$$ Clients (MSEs) W. Steel: Pro-poor Market Devt

10. 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 W. Steel: Pro-poor Market Devt

11. 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 W. Steel: Pro-poor Market Devt

12. 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 W. Steel: Pro-poor Market Devt

13. Implemented Mainly through Private & Non-gov’t Agencies W. Steel: Pro-poor Market Devt

14. 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 W. Steel: Pro-poor Market Devt

15. Demand Response, 1997-2001 W. Steel: Pro-poor Market Devt

16. Supply Response, 1997-2001 W. Steel: Pro-poor Market Devt

17. 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 W. Steel: Pro-poor Market Devt

18. 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 W. Steel: Pro-poor Market Devt

19. 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 W. Steel: Pro-poor Market Devt

20. 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 W. Steel: Pro-poor Market Devt

21. 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 W. Steel: Pro-poor Market Devt