Many microfinance professionals and donors have come to understand that access to credit and savings alone is often not enough to move poor entrepreneurs out of poverty. Certain non-financial services can also be useful in helping entrepreneurs improve their individual businesses. Called “business development services” ( BDS), they include training clients in finding buyers who will pay more for their goods; teaching them to do bookkeeping and pricing; developing appropriate technology to improve production, and specific technical assistance. Providing BDS can include encouraging collective action by entrepreneurs, such as joining together to buy in bulk at wholesale prices, and helping clients to negotiate less expensive prices with suppliers.
More recently, organizations that work with entrepreneurs have come to see that the challenge is much greater than just improving an individual’s business. They need to improve the way the market works, not only for that specific business but for all similar businesses in the country. These initiatives, called Market Development Services ( MDS), are designed to intervene in the market to improve distribution channels for business inputs, for example, or to assist entrepreneurs in eliminating a middle person.
IDEAS works with BDS or MDS organizations in developing countries to help microenterprise practitioners improve their productivity and profitability, thus bringing home more money for their households. IDEAS uses a tool called the “value chain analysis” to identify the missing links in the “chain” that begins when an entrepreneur conceives the idea for a product made from local raw materials and goes up to the time when that product is consumed in a European country. As the different processes are studied, entrepreneur are encouraged to “add value” to a specific “link” in the “value chain” so that more of the financial benefit comes back to the poor community. An intense investigation of how a particular product, like goat meat, passes through the value chain from the local rural producer to the final consumer far away is called “subsector analysis.”
IDEAS works with professionals in a country to use these tools of subsector analysis and market development to help micro and small entrepreneurs become better paid players in the markets for their goods and services. That contributes to IDEAS’ mission of assisting organizations that are helping poor and moderate people move more quickly out of poverty by getting a fair price for their labor.
For example, Puneetha Palakurthi of IDEAS flew to the Philippines in August of 2006 to do several weeks of field work with the staff of CARD (Centre for Agricultural and Rural Development) to analyze the subsectors of CARD borrowers. The challenge was to figure out how to provide better business development services to CARD’s 100,000 borrowers. At the same time, the staff were encouraged to think about how they might approach Market Development in ways that would benefit more current and future clients.
For the last 15 years, IDEAS has helped channel Socially Responsible Investments ( SRI) to lenders in Latin America, which are lending to efforts like Fair Trade coffee, shade grown (or “bird friendly”) coffee, and organic coffee. These are efforts in which not so “micro” credit helps a market intervention on behalf of thousands of poor producers who are organized in democratically run marketing cooperatives. For example, IDEAS was contracted by the Calvert Foundation to help them figure out how to lend an initial US$1 million dollars to five fair trade coffee producing cooperatives. Within a couple of years, Calvert Foundation’s portfolio in the coffee sector had grown to $3 million dollars. This is an example of how credit can support the market development services of fair trade coffee cooperatives that cut out the middle people in their national market and return more of the selling price to the producers.
The IDEAS team, made up of economists, credit specialists, sociologists and agronomists, has been privileged to be a part of the growth of such lending by Calvert and other large lenders. In the mid-1990s we helped Oikocredit to enter Nicaragua and make its first loan in Nicaragua to a fair trade coffee network of 40 cooperatives, called PRODECOOP. Ten years later, Oikocredit has made several loans to PRODECOOP, which has become a leader in fair trade coffee in Latin America, and Nicaragua has become the country with largest dollar amount of loans of Oikocredit of any country in the entire Central American region from Mexico to Panama. Of course, IDEAS cannot claim credit for this 10 years growth but we have the satisfaction of being “pioneers” in helping an international lender overcome internal barriers to bring tens of millions of dollars to a country like Nicaragua, where 75% of the people are poor.