India has always exhibited an amazing mosaic of colours, cultures, contrasts and contradictions. This contrast can also be seen in the coexistence of the mighty business conglomerates and the micro businesses that survive together. As big business houses in India have launched a spate of mergers and acquisitions across the globe, the micro and tiny business sector has also witnessed a boom like never before. These seem to be extraordinary times where educational degrees and higher incomes mean more opportunity; at the same time, there is business at the bottom of the pyramid for micro-enterprises.
There is recognition and acceptance that micro-enterprises in India need to expand and also be strengthened. This recognition is on account of the realisation that they offer employment opportunities, help in poverty reduction and also lead to a healthier economy. A micro-enterprise provides an opportunity for income generation to those who cannot find wage employment which would provide a livelihood, and are thus forced into self employment, and to those with genuine entrepreneurial aspirations to run their own businesses. As micro-enterprises grow and expand, they generate additional jobs for others in the community, thus multiplying the benefits of the initial donor investment.
Micro-enterprises contribute to private sector development. However, the development of this sector is largely hindered by its limited access to formal credit, which has been a persistent criticism of the financial system around the world. This limitation has raised concerns, both among policymakers and regulators. The last decade has seen the emergence of active financial and other assistance to micro-enterprises by both formal and informal financial institutions.
Numerous statistics show that even during the years of economic crisis and recession, the one robust sector providing economic growth, increased productivity and employment has been that of micro, small and medium-sized enterprises (MSMEs). They are the driving force of most economies with a capacity to innovate and to generate new ideas and technologies.
Within the MSME sector, the small sector serves as a green field for nurturing of entrepreneurial talent and helps the units to grow into medium and large ones. The promotion of MSMEs, therefore, becomes a major area for policy focus, both in developed as well as developing countries. For clarity, micro-enterprises may be distinguished from small and medium enterprises (SMEs). micro-enterprises are legally not required, like SMEs, to register under government legislation. They operate in unregulated and competitive markets characterised by free entry and exit, and many engage extensively in sub-contracting activities. They rely largely on indigenous resources, and use labour-intensive and adapted technology with skills mostly acquired outside formal schooling. In household-based units, a large number of part-time and piece-rate workers are women, on contract for large factories or middlemen. The sub-sector also contains self-employed women, in such businesses as tailoring, leather working, traditional cosmetics and print shops.
An overall analysis of the micro enterprises revealed many interesting aspects about them. An important characteristic is their concentration in a few areas of activity. Most employees in this sector are found in activities related to commerce and services. Most of the activities in this sector are oriented towards the domestic market, and so the goods and services generated in this sector are targeted toward local demand.
High cost and difficult access to credit is another important aspect of their operations. It is difficult to obtain credit from the formal financial sector, and MSMEs are thus forced to resort to informal sources of credit such as non-governmental organisations (NGOs), high-interest individual lenders and aid programmes.
But on the positive side, they have a high degree of adaptability. Given the lack of resources, this sector has shown great creativity in adapting to the available resources. And they also exhibit a high degree of diversity. Medium-sized businesses coexist with subsistence activities undertaken by people who have lost their jobs or who cannot work in the formal sector of the economy. It is worth noting that women are the majority group in subsistence activities.
But they are also weighed down by other factors. There is a serious problem of skills in the labour force in this sector, since there are high levels of illiteracy and low levels of schooling. Vulnerability is yet another drawback as the sector is characterised by weak management and lack of knowledge of administrative capabilities, which are essential for business survival. And to add to the complexities is the stiff competition, including from large enterprises.
An analysis derived from the study of the target segment can help to understand the needs of the micro-enterprise sector, and also in preparing the design of the micro-enterprise programme model. The role of information and knowledge in the analysis mentioned above, as well as possibilities of utilising tools to resolve problems of MSMEs, serves as an interesting and challenging area of work.
Designing the micro-enterprise programme model is a complicated exercise. The traditional two-pronged micro-enterprise development model consists of capital (grant or loan) for the purchase of assets to set up the business and support from business development services to assist the entrepreneur with the start-up and operation of his/her business. And design of the micro-enterprise programme model involves a number of steps including the assessment of conditions in the selected area, identifying the needs profile of the target group, survey of potential business opportunities and the available alternatives in the area, selection of local NGO or government partners, programme design and approval, public announcement of the programme, initial screening of applications, background checks with partner NGOs , interview of screened candidates, preliminary evaluation together with local community advisors, to check for reliability and to produce a first applicant profile, conduct of aptitude tests and assessment of results, development of small business training curriculum, training of a pool of small business advisors/trainers, business planning for screened applicants, information sessions on local business opportunities, business idea generation workshops, market research by applicants, business training sessions, preparation of business plans by applicants, assisted by business advisors and assessment and approval of business plan by a selection committee comprised of the executing agency, a micro finance institution or bank, the local NGO partner, and a representative of the community business advisory panel.
Selection criteria will include business viability, number of jobs created, guarantees available (if loan) and the applicant’s reliability, business start-up and operation, monitoring and ongoing business counseling/technical assistance and loan repayment The application of this model should be situation-driven, and may need to be modified to suit different circumstances.
The program model establishes that the flow of microcredit is a push factor for the promotion of micro-enterprises. This is evidenced by the fact that self-help groups (SHGs) are the purveyors of major credit requirements of new micro entrepreneurs and also existing micro entrepreneurs. The majority of the micro entrepreneurs lacked necessary skills in the chosen trade/activity. This is evidenced by the fact that some micro entrepreneurs have shifted their operational activity due to lack of necessary skills. Most of them started from the cadre of daily wage labour to become small business entrepreneurs. The majority of the entrepreneurs operated with narrow margins and their enterprises have low entry and exit barriers.
The SHGs are still in the process of consolidation and their sustainable development depends on a number of factors, which are both internal and external to the organisation. Leadership must be built up from the grassroots level. The majority of the micro entrepreneurs, though illiterate and unskilled (with no specific occupational skills), have to be transformed.
The fact is that several women have used this system to come out and join a mainstream activity. In many areas, women have gained a voice and been able to use this space to come out of their traditional roles into a more proactive business space.
The writer is professor at the Welingkar Institute of Management, Bangalore