MSME - Social Investment for Poverty Alleviation and Youth Employment

At the drop bottom of the social hierarchy lives the poor.  Stricken by poverty, drudgery is their way of life.  With innate desire to be prosperous they incessantly combat poverty.  Given the opportunity to exploit their hopes and aspirations, they do have the potential to excel as anyone.  What they would need is the enabling condition.  

Inclusive development is a popular slogan to alleviate poverty and unemployment.  Every developing nation is making their best effort to provide better livelihood alternatives and employment.  Successes have been achieved where the causes are understood and enabling conditions are adequately provided for a sufficient period of time with less standardization and central control.  

What is important is the level playing field for the poor and unemployed that enable them to participate effectively in the process of economic development.  Investment is justified on the ground that, both being poor and unemployed, is a lost opportunity.  To address poverty and unemployment, the developing nations are pursuing two prong strategies: (1) Vulnerability reduction, and (2) Economic inclusion.

The investment made for vulnerability reduction has positive impacts on economic inclusion of poor and unemployed youth.  The problem has been looking at the investment discretely and thereby not been able to justify adequate investment that is pre-requisite to deriving economic benefits.

Investment on up scaling the livelihood skills is irrefutably a major strategy for vulnerability reduction.  And investment is made consistently on two sets of interlinked initiatives: (1) Vocational education and training on relevant livelihood skills, and (2) Enterprise awareness and management.  

Education and skill are not always same.  Being educated may not guarantee employment but being skilled helps.  While being educated and skilled does guarantee self-help, employment and well-being.  Since youth unemployment is a lost opportunity and has spiraling negative impact on overall socio-economy, the developing countries are reforming their education system to sufficiently augment skills and in tandem bringing up technical and enterprise management skill development training in terms of priority and investment.

Having sufficient vocational training institutes and business incubation centers of relevance is a natural response to poverty and employment.  However the success of these interventions requires in depth market research and innovation for having right curriculum to instill adequate relevance.  When there is weak link of such interventions with market, the investment made goes waste.  

In most countries the initiatives have been taken to regulate the quality of Technical and Vocational Education Training (TVET) by the statutory authority applying Vocational Qualification Framework (VQF).  However, what is observed lacking in almost every developing country is the statutory policy on investment, which would ensure sustained progress.  

Besides skills, poor and unemployed need financial support to engage meaningfully on sustainable livelihood activities.  To poor and unemployed the lending from commercial banks is of no use.  High interest rate, fulfilling collateral requirement and risk of misfortunes prohibits from accessing to lending from commercial banks.  

In engaging with poor and unemployed needs continuous dynamism.  Standardized services and blindly replicating successful programs often undermine the potential success at the local level.  Instead a deliberate effort against the one size fit all approach is required in provision of public support and services with adequate level playing fields.  

Definitely engaging the poor and unemployed in MSME –micro, small and medium enterprise has been found encouraging in scooping them out of their state of being.  

For both, poor and unemployed, strategically the focus has to be on MSME.  The provision of vocational skills, business management training, and access to credit and market have to be interlinked, coordinated and managed.  It is evident that the degree of success is determined by the degree inter-linkages, coordination, and management.  

The credit in all its manifestations has been useful when the mode and interest rates have been incentivized.  Capital investment support and credit at affordable rate and arrangement has been the most successful tool to fix poverty and employment.  

Providing, both capital investment support and credit lending at affordable rate, through local banks with explicit policies, procedures, and conditions has been effective institutional arrangement.  

The tri-lateral mode of operation among the fund managing body, the local banks and public sector agencies responsible for poverty alleviation and employment is a common feature.  The public sector agencies are involved in the complete cycle of MSME and remain responsible for the successes.  

The financial support being made in such tri-lateral arrangement is back ended, both in case of capital investment support and for subsidy on interest rates.  For capital investment support, i.e. subsidy on capital investment, the banks releases the full amount to the client.  When the project is operational, the fund management body, upon recommendation of the promoting agency releases the subsidy/support amount to the bank concerned.  This is the credit-linked back-ended support system.  

Depending upon the size and type of support, the interest rates varies to the extent of zero interest.  Generally, for micro and small enterprises the interest and collateral free loan is given for which group lending mode is favored.  The subsidy on interest rate component is also paid to the bank by the fund managing institution as the enterprise progresses.  

The country experiences across Asia and Africa, suggests the fourth pillar of MSME is the Civil Societies Organizations (CSOs).  The CSOs have been providing excellent platform for promoting grass root level MSME initiatives.  The CSOs also have been successful in promoting groups, societies, and cooperatives, and providing advisory services on awareness creation, fund management, production and marketing initiatives.  

It needs no evidence that MSME particularly in developing nations serves as engine for poverty alleviation and employment.  It is on MSME the larger industries depend for their value addition and the synergies have been exploited with integrating MSME with large corporate as the MSME does the smaller jobs more efficiently.

After providing technical and entrepreneurship training, credit support and advisory services, there still remains the hitch of tax regimes which can derail the initiatives and investments.  The tax regimes for import of raw material or for export of finished product may render MSME not feasible.  It needs to be considered at the initial conceptual stage. 

Failure to manage success is experienced when risk factors are not sufficiently recognized.  It is necessary to consider insurance of every MSME.  It should be backed by prudential regulatory means for repayment and saving linked to earning, which indeed should be binding factor for managing risks.

Eventually, the success depends upon the level of coordination and communication among stakeholders at policy level, commitment and program management.  Definitely a coordination and monitoring mechanism have to be found converging public, corporate and private sector actors, including CSOs, and NGOs.  

Given the multifaceted nature of poverty and employment challenges, a national platform is inevitable which would require team commitment, setting of team target and pursue the path together.  Such a platform is necessary for networking, dialogue and action and it needs to be backed by national statutory policy, and legal and institutional framework.