Small and Successful

In a landscape strewn with tottering aid projects, Small Business Promotion Project sets an example

Poor productivity continues to hobble the Nepalese economy in spite of three decades of experimenting with a variety of development strategies. During this period, the country's national output has risen an average of 2 percent annually, the lowest in South Asia, and even today, the industry (including construction) accounts for a mere 13 percent of the GNP. No doubt that the country's disadvantageous terrain and poor resource base are largely to blame, but it is also true that a lot of good money has been wasted on unfeasible aid projects that petered out about the same time as the donor's money did.

A bright exception is the GTZ-spon-sored Small Business Promotion Project (SBPP), founded in 1983 as an outgrowth of the Bhaktapur Development Project (HIMAL, May 1987). In six years, the SBPP has exceeded virtually every one of its output targets, and established itself as Nepal's foremost business promotion center. In doing so, it has demonstrated the vibrance of small business as a sector of national development which might serve as a model for how aid can be channelled more productively.

Earlier this year, a comprehensive evaluation states that SBPP facilitated the establishment of more than 300 new enterprises (a 50 percent success rate among trainees), generated 1,500 new jobs, mobilized Rs. 25 million in capital resources, increased the value added of clients' businesses by an average of 40 percent, and published manuals, reports, and case studies on various aspects of business promotion.

Proof of the success of SBPP's approach is seen in the growing demand for its services by other agencies. Its promotional services division, created in March 1988, has trained field personnel from 21 NGOs, integrated rural development projects, HMG ministries and panchayat institutions, whose sub-sequent contribution to their own programmes then increased the multiplier effect of SBPP. For example, Save the Children USA sent two extentionists from its field staff in Gorkha District for an SBPP "training of trainers" course in new business creation. Within a year they had established 25 women's credit groups of five to 10 members each in seven Gorkha panchayats.

"They definitely gained a lot of self-confidence, good skills, and an orientation to the enterprise sector, which they never had before," said Save Director Keith Leslie. "And they've been able to transfer that to the villagers, working with both illiterate women as well as more savvy enterpreneurs. There's a lot of potential out there for programmes that can provide loans of even Rs. 1,000."

SBPP's effectiveness appears to lie in the practicality of its training courses, and its emphasis on the basics of management, marketing, and finance. "In my college we just got theoretical courses which had no practical value," said Yadav Raj Gurung, an extentionist for Action Aid/Nepal, with a B. Comm from Darjeeling. "The SBPP training was more helpful because it was task-specific."

Because of SBPP, "income generation" has now become the buzzword for any integrated rural development project. It is not difficult to see why. Thus far, most efforts have been poorly conceived, entailing a one-shot training programme with no follow-up. Even the highly lauded Production Credit for Rural Women (PCRW) project, which was successful in organising small producers into collateral-free loan groups, neglected the marketing and technical support that makes productivity earn income.

The way SBPP typically operates is as follows: First, it identifies a homogeneous target group of 15-20 participants in a given location, such as unemployed graduates and SLCs, vocational trainees, retiring servicemen, etc.. It then conducts an Area Potential Study to assess the local resource base, existing industries, raw materials supply, market potential and other macro conditions. A Training Needs Assessment follows to tailor the training curriculum to the group's educational levels and interests, after which a New Business Creation course is staged. Each participant in the NBC designs a scheme for her/his planned enterprise, and is critically assessed.

After several months, a short follow-up workshop is held to solve the problems that trainees face in starting their businesses. For instance, it capitalization is lacking, loans of up to Rs. 200,000 can be had from the Complimentary Credit Programme with a payback period of 2-5 years. In sites covered by SBPP branch offices (Bairahawa, Bhaktapur, Butwal, Dharan, Narayanghat, Nepalgunj and Pokhara), small business consultants continue to assist trainees over a nominal period of 3 months. For new industrial enterprises, technical experts can be deputed by the Technical Advisory Services to conduct short-term consultancies on production processes and machinery requirements.

While training and consultancy remain the core of SBPP's activities, the high demand for these services from other agencies has turned SBPP into an income-generating enterprise, which is not what it set out to be.

But while all these are impressive, SBPP is not without flaws. To begin with, the sector it addresses is both literate and asset owning, and generally found in urban areas where infrastructure already supports commercial activity. Also, a recent evaluation of consultancy services suggests that the current approach is unduly costly and not sustainable in the long term. Some may also question the accuracy of the assessment of SBPP. For instance, data on new businesses do not indicate how many survive and become profit-earning. (One industrialist in Narayanghat piled up a Rs. 2-million inventory of carpets, which was duly tabulated as "value-added" but remained unsold a year later). And the client repayment record on loans procured through the Complimentary Credit Programme fund has often been lower than for loans disbursed on straight commercial terms by bank branches in SBPP locations. Most tellingly, plans to privatise SBPP this year had to be shelved when GTZ realised the project, though generating income, was far from being self-sufficient, and had yet to come up with an effective cost accountancy system for its services.

But even the concerns raised reflect a serious preoccupation with the "bottom line" of sustainablility, something altogether absent in most projects in Nepal. Considering the enhanced multiplier effect achieved by specialists, and its significant "payback," there seems to be a strong rationale for long-term subsidization by GTZ, HMG, or both, in much the same way that an institute of higher learning might be supported. In a positive light, SBPP's accomplishments show that small businesses should be accorded a higher priority from national planners. They may point to a therapy for Nepal's achilles heel.

Michael Luhan is a writer who lives in Kathmandu.