Aid agencies talk about ‘making markets work for the poor’. But they still have to understand what market functions are needed to make business service markets work better for poor people, who will deliver these and how they will be paid for now, and in the future.

Aid agencies can help small-scale producers and small businesses access vital inputs, goods and services through relevant business development services (BDS). A report from The Springfield Centre for Business in Development, UK, examines the nature of rural business services and highlights steps to promote their development. Focusing on lessons learned from small and medium enterprise (SME) development, it suggests how market development approaches could make aid more effective.

There is evidence that in some situations interventions to assist small businesses are unfeasible, regardless of the level of public subsidy involved. It is important to realise that many schemes to promote income generation are actually social safety nets and cannot bring about sustainable economic development.

Existing services for rural businesses often exist in diverse forms but remain unseen by development agencies and outsiders. Their ‘invisibility’ can leave them vulnerable to displacement and damage by publicly-funded interventions.

BDS can be thought of under four different headings:

• Specialised fee-based services include accountancy/audit, freight forwarding, advertising, legal advice, equipment repair, business consultancy, technical information, conference organising and product design.
• Embedded services are included within a commercial transaction for another product or service. This could include design advice offered by a retailer to a producer, livestock advice offered by a trader to a farmer and quality control provided by an exporter to a small processor.
• Informally provided services include information, knowledge and advice on price, market and technology trends or mediation through traditional cultural mechanisms.
• Collective delivery or consumption services, such as sources of information and policy advocacy services provided through commercial media, and public benefit services offered by producer or membership organisations.

Case studies illustrate innovative approaches to BDS:

• Public-private partnerships in Mali have privatised agricultural extension services and created a network of private vets who have lowered livestock mortality.
• In Uganda private resolution and mediation services have aided small businesses in a context where formal public mechanisms to enforce transactions and property rights do not work.
• In the Indian state of Madhya Pradesh information kiosks have thrived by selling information on government services and markets to citizens in rural areas.
• In South Africa a trust is helping small-scale wool producers learn more about breeding, health management, auctions and markets.

Aid agencies need to realise that their standard practices – often focusing on technical qualifications rather than commercial experience – can discourage innovation and ability to engage with local markets. They need to understand that:

• business services do not exist in isolation from the wider economy
• markets are not only about transactions but also central to other key functions – information, regulation, standards and skill enhancement – required to make markets more inclusive
• the role of the state must be realistically and clearly defined: the direct service delivery role that governments often routinely take on may not be appropriate
• more aid should be delivered by autonomous and flexible trusts
• it is important to fund, and learn from, action research.

Source(s):
‘Making Business Service Markets Work For The Rural Poor – A Review of Experience’ by Rob Hitchins, David Elliott and Alan Gibson, Small Enterprise Development, vol 16, no 2, pp. 10-23, June 2005
 ‘Making Business Service Markets Work For The Rural Poor – A Review of Experience’, Springfield Centre for Business in Development, by Rob Hitchins, David Elliott and Alan Gibson, June 2004 (PDF) Full document.

Funded by: UK Department for International Development

id21 Research Highlight: 17 March 2007

Further Information:
Rob Hitchins, David Elliott and Alan Gibson
The Springfield Centre for Business in Development
Mountjoy Research Centre
Durham, DH1 3UZ UK

Tel: +44 191 3831212
Fax: +44 191 3831616
Contact the contributor: global@springfieldcentre.com

The Springfield Centre for Business in Development

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'Winners and losers: making the most of globalisation'

'ICTs bring multiple benefits to Indian farmers'

Eldis Finance Policy Resource Guide

GTZ - Services for Rural Development (PDF)

World Bank - Pro-poor private infrastructure