BDS market development guide.pdf - PACA

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mainstream markets; in a sense, solutions can be exclusive rather than inclusive. Several
concerns arise:
• These mechanisms all require some form of control or subsidy that can be achieved only
by government or development agencies. Resource and time constraints limit their scale
and longevity. With no clear picture of sustainability, interventions become, at best,
short-term welfare for the disadvantaged.
• Subsidizing or directing services weakens demand signals, the strongest indication that
services are useful or appropriate to the consumer. Deprived of this, consumers become
recipients of welfare.
• Subsidy and control can distort and discourage private sector service provision of
services. Many interventions fail to observe that disadvantaged groups may already have
access to some services, which can be damaged by invasive or intensive intervention.
Even if services are not available, how is it anticipated that consumers will progress from
highly subsidized services to full-cost services in the future?
Inequity in itself is not a constraint to market provision of services (poor people buy and sell
a variety of goods and services all the time). The constraint is that the supply side (service
providers or products) is unable or inappropriate to serve certain segments of the market,
defined by income level, gender, ethnicity, ability, and geographic location.
Microenterprises that Cannot Afford to Pay for Services
This may be the case for some ‘high-end’ services, but for other services, what is it they can’t
afford? Is it services or the service provider?
• Many providers (particularly partners of development agencies) will have offices,
equipment, a vehicle, and well-educated staff, all of which translate into considerable
overhead. It is unrealistic to expect that revenues from SMEs will cover these costs.
Therefore, attempts to incentivize providers to focus downward to microenterprises
inevitably see service providers creeping upward again, to their natural level, as they
strive to make money. This is hardly surprising; if your M.B.A. degree gives you the
capacity to sell services to large businesses or donors for a generous fee, why would you
work with microenterprises for a fraction of the income?
• Services themselves might be over-engineered. Aside from the cost of such services, they
may well not be what the microenterprise actually needs. Evidence suggests that services
that are extremely focused and can be immediately practicable in the business are most
valued by SMEs and they will pay for them.
The challenge is to work with providers who are much closer to their clients in terms of
people, service offers, cost bases, and expectations of remuneration and to develop products
and delivery mechanisms based on local resources, solutions, and markets.
Microenterprise Best Practices
Development Alternatives, Inc.