Enhancing Entrepreneurship through Livelihood Risk Reduction

26 Pages·2014·1.22 MB·English

Humanitarian Research &
099
Innovation Grant Programme

OCHA

Enhancing Entrepreneurship through
Livelihood Risk Reduction:
Community-Based Micro-Projects for Decentralized, Localized Economic Development

Brian Wei
April 2014
[email protected]
Table of Contents
1 Executive Summary .......................................................................................................... 4
2 Background & Context ...................................................................................................... 5

2.1 Decentralized, Local Economic Development ................................................................................................... 5

2.1.1 Community Centric ......................................................................................................................................... 7

2.1.2 Operating Amid Imperfect Knowledge .................................................................................................. 9

2.1.3 Scaling Success, Isolating Failure........................................................................................................... 10

2.2 Risk Management ...................................................................................................................................................... 11
3 Community-Based Micro-Projects Approach ................................................................... 14

3.1 CBMP Intervention Sequencing ........................................................................................................................... 16

3.1.1 Group Formation ........................................................................................................................................... 18

3.1.2 Capacity Building ........................................................................................................................................... 18

3.1.3 Input Provisioning ......................................................................................................................................... 19

3.1.4 Business development services ................................................................................................................ 19

3.2 Selection Criteria ....................................................................................................................................................... 19

3.2.1 Strategic Sectors ............................................................................................................................................ 20

3.2.2 Existing Groups ............................................................................................................................................... 21

3.2.3 Group Size.......................................................................................................................................................... 22
4 Conclusion...................................................................................................................... 23
5 Bibliography ................................................................................................................... 24

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Terms

CBOs Community-based organizations
SHGs Self-help groups
CBMP Community-based micro-projects
VLSA Village savings and loan association
TVET Technical and vocational education and training
BDS Business development services
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1 Executive Summary

Enhancing Entrepreneurship through Livelihood Risk Reduction: Community-Based Micro-
Projects for Decentralized, Localized Economic Development is a guideline for the utilization
of community groups for risk managed, poverty alleviation. Through self-initiated micro-
projects, community groups are able to create waged and self-employment and generate
income, provide valuable services to the local community, and strengthen community social
and economic cohesion.

The Community-Based Micro-Projects (CBMP) Approach places community groups as the
center of economic development. Small groups that are localized within the community
may possess a high degree of information awareness about the local economy, and can
move speed and flexibility to capitalize on windows of opportunity. CBMP accelerates
entrepreneurship development and promotes innovative solutions at the community level.

Community approaches to local public services delivery has been utilized with strong
results. When technical assistance and financial resources are delivered to local
government and community-based organizations, the community has strengthen capacity
for assessing, planning and implementing local infrastructure upgrading and the provision
of education, health, and other services. Moreover, empowering civil society with
community-based monitoring and a pathway to provide feedback can create a local
government more responsive to the needs it it’s constituents.

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2 Background & Context

Households and communities-level poverty alleviation requires employment creation and
income generation. In developing economies, the majority of employment creation is
through self-employment. As such, strong entrepreneurship development is essential to
catalyst economic growth.

Entrepreneurship is influenced by 1) business supporting capacities and 2) risk
management. Business supporting capacities include technical and vocational education
and training (TVET), business development services (BDS), and access to capital are
supports that strengthen businesses’ likelihood for success. In addition to supporting
capacities, risk management is important to overcome risk aversion among household and
community to engage in a new, high potential economic activities. Even if business support
capacities are present, if the risk exposure to the household or community exceeds the
threshold they are comfortable there will be avoidance of an economic activity. Risk
management, the avoidance and mitigation of negative events, can encourage
entrepreneurship.

Simultaneously providing business supports and managing risks is essential to creating an
enabling environment necessary for entrepreneurship.

Diagram: Business Enabling Environment

Business Enabling Environment

+
Risk Management

2.1 Decentralized, Local Economic Development

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The approach for risk managed, decentralized, local economic development is through the
Community-Based Micro-Projects (CBMP) Approach. CBMP is the utilization of community
groups to engage in micro-projects for the purposes of job creation and income generation.
These local, micro-projects are supported through a business development facility, which
provides customized business solutions to each individual project. CBMP has significant
advantageous over traditional centrally planned project due to:

• Robust platform that absorbs external shock. Non-performing micro-projects are
isolated and performing micro-projects scale in magnitude, and
• Flexibility to operate in different conditions. The platform’s interventions are
generated from local beneficiaries enabling cost-efficient scalability.

CBMP builds upon the other community-based models towards economic development.
CBMP utilizes small groups to drive localized employment creation and income generation
activities that are appropriate to the community. As an extension upon earlier community-
based models, CBMP uses these small groups as a platform primarily for economic
development. Utilizing economic development as the entry point, CBMP is the platform
through which child protection, SGBV, HIV/AIDS and other social supports can be launched.

Every project site has a different economic profile. Each profile requires a locally
appropriate response if it is to be successful. Traditional centrally planned approaches
would have each site conduct its own assessment followed by an intensive project planning
process. This planning process is costly and time consuming. If centrally planned, this leads
to limited scalability.

CBMP puts project design in the hands of the community groups with the support f a
business development facility. This means that initiative can support many, unique micro-
projects through one standardized set of supporting structures. Standard supporting
structure can then tailor the capacity building and other inputs to the needs of the group.
The standardization of the supporting structure, not the actual activities, enables cost-
efficient scale up, and an interoperability of staff across different project sites.

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Traditional: Centrally Planned Contemporary: Decentralized, Localized
Project Project
1. Participatory Rural 1. Platform Supporting
Appraisal and Other Decentralized, Local Groups
Assessments
2. Centrally Planned Business Development Facility
Activities Delivered 1. Technical and Vocational
from Assessments Education and Training s, 2. Business
Development Services, and 3. Access
to Capital
Community

2. Business Development 3. Business Development
Facility Providing Support Facility Providing Support
based on each group’s based on each group’s
request. request.

2.1.1 Community Centric

CBMP operate through decentralized, localized groups. Groups are a strong tool for
microenterprises creation and economic growth. Groups working in concert build efficiency
and scale. Moreover, individuals working within groups have the potential to influenced by
their peers, and encourage on another in building opportunity seeking, persistence, risk
taking, integrity, and self-confidence characteristics.

Groups advantages include, but are not limited to:

• Risk Sharing – As an individual entering into a business venture, the individual is
exposed to 100% of losses. An individual faced with a business terminal event
would have catastrophic impact to his/her household. Within groups, this risk is
spread thinly across many members. Risk sharing arrangements through groups
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works well when they are stable and the members are homogenous (e.g. similar
1
economic activity, live in same village, same ethnicity). Individuals need to position
themselves in a situation where in the event of a business failure he/she can recover
and start again. When an individual takes a smaller risk position, he/she can
diversify into other business ventures. Risks can never be full eliminated, but they
2
can be managed. With a diversified portfolio, the risk exposure is reduced and long-
term gain is increased.

Diagram: Risk Sharing
Individual Ownership Group Ownership
Business Business
1 Owner Multiple Owners
External
External Shock
Shock
100% of Loss to One Individual. Loss Distributed Across
Business Terminal Event, Severely Multiple Individuals. Spread
Impacting Household . loss, Members able to recover.

• Improved Informational Awareness – Individually, a single person, has a narrow
view of their community’s economy, and what potential business opportunities
might arise. Through groups, the collective consensus increases the information
awareness of all its members. Opportunities, risks, and other factors are more
apparent to the members of the group that an individual. Many individuals thinking
collectively can come at the same problem from different angels.

• Improved Terms of Trade - Purchasing and selling in bulk gives groups leverage over
both suppliers and buyers. Commonly, individuals and microenterprises have
limited purchasing or selling power in their economies and are often price takers.

1 Genicot, Garance, and Ray, Debraj. Group Formation in Risk-Sharing. The Review of Economic
Studies, Vol. 70, No. 1 (Jan., 2003), pp. 87-113.
2 T. Petrin. 1994. Entrepreneurship as an economic force in rural development. FAO.
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However, groups with their increased scale have improved bargaining power over
traders and wholesalers. They are in a better position to influence pricing.

• Social Safety Net - Groups established for economic activities also have the benefit
of serving as social safety nets. In the event of an external shock, the members
within the group have a way of dampening the shock and enable quick recovery.
Groups can strengthen community activities and structures, like childcare for
working mothers and community policing.

2.1.2 Operating Amid Imperfect Knowledge

By shifting planning and implementation from centrally planned projects to community-
based development, local institutions carry forth economic and social development
initiatives. The national-local shift for project planning addresses two major constraints with
economic development projects:

• Addressing imperfect knowledge – a local economy has many dimensions, and
many of those dimensions are in constant flux (e.g. seasonality, external shocks). It
is important to recognize that project designed centrally lack the full beneficiary and
local economic profile. There will always be imperfect knowledge. Local groups are
in the best position to make informed decisions about their local markets’ demands,
constraints, opportunities and challenges, and

• Capturing narrow windows of opportunity – micro, small and medium-size
enterprises operating local economies that are rapidly changing. Small mobile
groups are flexible and adaptable to rapidly changing market opportunities and
risks.

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Imperfect Information

Local economies are complex, multifaceted. Case in point, an intervention designed to address the
refugee programming in Uganda must address:

• 9 nationalities with different human capital and livelihood backgrounds,
• 8 refugee hosting areas with radically different natural resource endowments (e.g. urban
Kampala, arid Southwest, fertile Midwest)
• New and old caseload (e.g. new arrivals emergency, protracted caseload)
• Seasonality (e.g. long and short growing season, long and short dry season)

In the ideal world, each nationality within each settlement will have a unique planned approach.
However, 9 nationalities x 8 settlements results in 72 different combinations, and this is not accounting for
other factors. A single, centrally planned intervention cannot accommodate all priorities, needs and
limitations of the beneficiaries. However, if each group can craft their own micro-projects based on their
group’s need and local economic conditions the intervention will achieve better outcomes.

Heavy assessment followed by detailed project work plans may work well for strategic
economic sectors, where deep value chain upgrading, infrastructure (e.g. feeder road
construction, marketplace construction) and other comprehensive supports (e.g. value
chain upgrading) are needed. However, small-scale economic activity the localization of the
planning process produces better results.

When there are many small-scaled economic activities, an initiative that has opened ended
supports is required. CBMP utilizes a business development facility that offers different
blends and types of support (e.g. skills training, business development services, and access
to capital) to different community groups based on their economic activities and pre-
existing skillsets.
2.1.3 Scaling Success, Isolating Failure

CBMP is a platform on which community groups can develop simple, functional work plans
outlining the proposed economic activity. CBMP rely on community groups to leverage
their local knowledge for building solutions to the community’s needs. By building a
platform instead of the specific activities of an intervention, CBMP can be deployed to a
wide range of conditions.

CBMP is a robust platform that mitigates risk to the intervention through the diversification
of engagements across a wide range of groups and micro-projects. Non-performing micro-
projects naturally fail, and beneficiaries seek out other activities that yield better returns.
Micro-projects that do well are recognized by the community, and encourages other groups
to follow suit. Through local learning and innovation, poorly performing micro-projects
filter themselves out and successful micro-projects scale in size as more groups imitate
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