Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR
6.2 Recommendations

6.2 Recommendations

Interventions are required both to support the whole micro/small enterprise sector and to work on specific micro/small enterprise issues.

6.2.1 Interventions for General Micro/Small Enterprise Development

(1) Enabling policy and regulatory environment

If the overall business environment has a negative impact on the development of small businesses and cooperatives, then direct assistance to any specific group or project is likely also to have only limited impact.

It is recommended that a national Micro/Small Enterprises and Cooperatives Promotion Committee be established.

It should include representatives from concerned line ministries such as the Ministry of Industry and Handicraft, the Ministry of Commerce, the Ministry of Agriculture and Forestry, the Ministry of Labour and Social Welfare, the Ministry of Education, and the Ministry of Finance, as well as representatives from the private sector including micro/small enterprises and cooperatives.

The committee should:

1. Formulate standard definitions of micro, small, medium and large enterprises and cooperatives so that assistance programmes can be tailored more appropriately.
    
2. Clarify the definition of cooperatives, and accord them an appropriate legal status.
    
3. Advocate micro/small enterprises as a means to foster employment and address the obstacles that impede rural entrepreneurs, women, ethnic groups, and persons with disabilities from running successful enterprises.
    
4. Introduce micro/small enterprise development as a standard policy imperative in addressing other areas of government activity such as poverty reduction. Use both informal and formal channels to develop better awareness among government personnel of the benefits of micro/small enterprise development to socio-economic progress and employment creation
    
5. Create better awareness regarding the role of micro/small enterprises in economic development and employment and the importance of targeting specific groups. Stakeholder organizations should be given the relevant technical knowledge to assist stakeholder organizations to include these elements in their project designs.
    
6. Encourage organizations to adapt existing programmes to be more sensitive to the different needs and obstacles, as experienced by women and men, ethnic groups and persons with disabilities, and establish follow-up systems to assess project effectiveness.
    
7. Ensure that micro/small enterprise development is reflected in overall country strategies, e.g. the Country Assistance Program and Project Preparatory Technical Assistance. The promotion of women and men with disabilities should also be prioritized and expressed in specific targets within a comprehensive strategy.
    
8. Develop sector and location specific strategies for promoting micro/small enterprises and cooperatives. Provincial and district levels need to be resourced to make thorough evaluations of local economic and business strengths, weaknesses, opportunities, and threats.
    
9. Develop laws and regulations that recognize, protect, and promote the interests of micro/small enterprises and cooperatives. These laws should cover free and fair trade, access to basic infrastructure and related public utilities, equalities between women and men in access to credit, import restrictions on certain products, subsidies for vulnerable sectors, such as processing substitute products, tax reform, and the establishment of micro/small enterprise and cooperative associations.
    
10. Coordinate the various international and local efforts in micro/small enterprise and cooperative promotion so as to maximize limited resources.
     
11. Monitor national micro/small enterprise development strategies so that useful lessons can be learned and acted upon.
     
12. Learn from other countries the best practices for promoting micro/small enterprises and cooperatives.

(2) Data

Formulation of policy, intervention strategies and indicators of success depend on updated comprehensive data. Despite the smaller studies on specific issues and programmes carried out within the last few years and integrated into this report, the last comprehensive study was done in 1996. Since then there has been remarkable expansion in the overall private sector and in particular in the small/micro enterprise field.

It is recommended that:

• Either a 1996-style survey be undertaken with expanded terms of reference to take into account the shape of the private sector in Laos as it has emerged since 1996 and the refinements in the analysis of BDS that has arisen out of international experience;
   
• Or a series of specific studies related to the policies and programmes that may be adopted in particular sub-sectors, but co-ordinated within an overall research plan and agreed common definitions and objectives. This research should be co-ordinated with the mechanisms for evaluation and review of the policies and programmes adopted.
   
• Research is also needed on the current status of cooperatives including characteristics, size, composition, structure, sector, opportunities, and constraints. It should focus on agriculture and related sectors where there is considerable promise for cooperatives to assist in economic development both urban and rural.
   
• Research is also needed on people with disabilities and their micro/small enterprise practices. This would help find better ways to integrate these persons into the existing micro/small enterprise promotion environment. Future projects could include persons with disabilities and be designed to ensure promotion of the equality of the target group as a whole.
   
• Assessment is needed of the impact of the present regulatory and policy environment both as to the financial, time, and opportunity costs to micro/small enterprises of compliance with the present regulatory environment and on their ability to expand and so create more employment.

(3) Business Development Services

Laos is a small country and at a relatively youthful level of development in terms of a contemporary private sector. There is therefore potential for a coordinated `state of the art' strategy to be developed among the relevant national and international agencies as to how to apply the latest experience in poverty alleviation, employment creation and private sector development. A number of steps are recommended:

  3.2 A BDS Centre has been proposed, to be attached to one of the existing organizations supporting micro/small enterprise development. It would:

1. Provide training on entrepreneurship, basic business management, and marketing for new micro/small enterprises.
    
2. Offer advanced training for established entrepreneurs.
    
3. Provide counselling as an ongoing process for new entrepreneurs, as well as for those at turning points within different stages of their business.
    
4. Provide updated information on technology and markets that is designed to enhance productivity and competitiveness.
    
5. Clarify and respond to the differing needs of male and female entrepreneurs, rural entrepreneurs and entrepreneurs with disabilities.

However a BDS programme, and such a Centre, should be tailored to the needs of the large number of geographically dispersed micro/small enterprises in Laos.

  3.3 No single form and type of assistance may be appropriate to all micro and small enterprises and a careful study should be made of the sources of advice and support that already exist in Lao communities and how this can be improved. Private sector delivery of business development services needs also to be a priority over the medium to longer term. Imaginative delivery of business development services through print media and radio, formal and informal networks -- or packaged with information flows via both private and public sector personnel -- should all be actively explored.

  3.4 At an early stage entrepreneurs should be assisted to form business associations relevant to their locality, size and sector. These associations should be encouraged not only to take responsibility for many business development services but also to advocate on behalf of their members to Government and other authorities and agencies. Such associations will need capacity building and governance training. To be effective such interventions should understand existing structures and cultural patterns of decision-making in Lao communities.

  3.5 Laos should also be able to benefit from the international reappraisal of cooperative and other forms of group enterprise. Such business systems may be a natural outgrowth of existing microfinance schemes or arise as a means of bulk purchasing or marketing for micro/small entrepreneurs. It will be important to identify the patterns of social capital formation and maintenance that exist in Lao family and community relationships and for external interventions to work with Lao leadership in developing appropriate models of cooperative enterprise.

  3.6 Consideration should be given to introducing and adapting a globally experienced business skills programme suitable for micro/small enterprises, such as the ILO's Start and Improve Your Business Programme.

(4) Improving access to credit

Both formal and informal financing systems should be used to support micro/small enterprises. Interventions can be at two levels: managerial and entrepreneurial. At the managerial level the suggested national Micro/Small Enterprises and Cooperatives Promotion Committee could take the leading role with assistance from donors to:

Formal sector

1. Advocate the provision of loans for promoting micro/small enterprises particularly to the Ministry of Finance and the Central Bank. Some guidelines for including loans for micro/small enterprises and cooperatives into the concerned Ministry's operations cycle could be as follows:
   • The micro/small enterprise and cooperative sector is important to employment creation and the national economy and should be effectively financed;
      
   • Awareness is needed among the relevant ministries and the banks of the importance of including micro/small enterprises within their loan programs; and
      
   • Resource the relevant Ministries with the necessary technical know-how in designing their lending programmes.
      
2. Loans programmes should be designed according to the kinds of micro/small enterprises involved, including those of women and marginalized groups, and should incorporate small-scale funds, flexible credit schemes and terms, manageable banking procedures for entrepreneurs, and access for people with disabilities.
    
3. Small entrepreneurs should be encouraged to establish active relationships with commercial banks, by opening some kind of account at an early stage.
    
4. As banks have preference for real estate collateral for loans, entrepreneurs should be advised to establish clear and registered title to any relevant real estate.
   
   Informal sector
   
   Credit and revolving funds implemented by community-based development programmes will continue to be a key source of funds for micro/small enterprise development and promotion. This sector can also act as a 'bridge' between the formal banking sector and micro/small enterprise owners, particularly those disadvantaged or marginalized.
   
   Through participation in informal credit schemes, the target groups of a project can start to develop more confidence in approaching the formal sector as an alternative source of funding. Informal credit programmes that at present are disparate might be appropriately integrated. To improve the informal financial sector it is also recommended that:
    
5. Loan provision is mainstreamed in any micro/small enterprise development or promotion project.
    
6. Accompanying any credit scheme, savings should be encouraged to ensure that the overall system remains viable. The management committee of the scheme should be community-based and well-trained.
    
7. In designing any micro-finance component in micro/small enterprise development projects, international aid agencies should continue to pay attention to establishing real interest rates that include appropriate cost recovery mechanisms and so avoid creating distortions in the savings and credit market.
    
8. Experience should be drawn from earlier development projects to ensure the financial sustainability of such schemes.
    
9. Monitoring and evaluation is vital though this is a new practice for many organizations and they will need capacitating appropriately.
    
10. Micro/small enterprise development projects should cooperate with the formal banking sector and with the APB bank. The bank could act as a kind of 'clearing bank' for such projects, and save and release funds according to approvals made by fund management committees at grassroots levels. This process could strengthen the competence of these committees.

6.2.2 Interventions for Specific Micro/small Enterprise Issues

1. Micro/small enterprises that are rural, female-owned, or family businesses have a high capacity to absorb labour, yet they receive comparatively little support for their start-up and growth. Such micro/small enterprises have emerged mostly around the commerce and manufacturing sectors in the retail, textiles and food processing sub-sectors and should be given special attention. The government's guidelines recognize the need to promote rural family businesses, but so far the emphasis has been on agriculture-related production. It is recommended that agriculture-related micro/small enterprises be given more attention. Any proposed production or business venture should be thoroughly studied and include appropriate geographical focus, topography, climate, soil quality, as well as assessment of the potential of the target entrepreneurs and skills needed.
    
2. Improvement efforts need to be made on many aspects of micro/small enterprise creation simultaneously including skills training, credit provision, and ongoing technical and managerial counseling. The characteristics of rural people, particularly of rural women, point to credit and savings through informal self-help organizations at community levels being the most appropriate. Feasible business venture proposals, reasonable interest rates, and an effective fund management committee need to be built into any village based funds. This will require a continuous learning process with on-the-job learning and community participation.
    
3. Women and people with disabilities should be given a degree of priority in all projects and their families or groups also should also be considered as potential beneficiaries. This should be expressed in terms of specific targets within a comprehensive strategy. Interventions to promote family micro/small enterprises will help share responsibilities, labour and expertise among family members.
    
4. Projects should be implemented at provincial, district and village levels, and less at central level. This will require 'capacity building' for hosting institutions.
    
5. Assisting groups who are at present hindered from full economic participation by various institutional and attitudinal inequalities is a priority. However such efforts will require considerable capacity building on both sides of the bridge that separates these groups from mainstream society. People with disabilities for example will require confidence building measures and long term support. By the same token the business systems and community institutions in which they desire to participate will themselves need capacity and confidence building measures in order to be able to integrate the "newcomers" successfully.

6.2 Recommendations
Study on Generating Employment through Micro and Small Enterprise and Cooperative Development in Lao PDR

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