IRDG to Establish “Micro Business Development Enterprise”

 

 

IRDG prepared a proposal for “A Way Forward” and widely consulted like minded local professionals during April 2016 and is currently in the process of implementing some of its critical components.

Over the last seven years, policies aimed at post war recovery focused primarily on improving trunk roads, re-building some infrastructure, enhancing connectivity to market for consumer goods, vehicles and expanding credit.

Despite impressive economic growth stemming from such development efforts, war inflicted poverty remains, and livelihood interventions in traditional sectors have failed to take hold. A significant proportion of the population in north and east Sri Lanka is entrapped below the poverty line and threshold levels in vital areas of general socio-economic development. They are hostage to un-supportive and weak systemic institutional arrangements, regulatory mechanisms, national policies, development projects and structural conditions.

The year 2015 has given us some hope to be able to address the issues of the war affected communities, particularly those who are living in unfavourable conditions and dire poverty. Success could most probably be achieved only through a participatory post war recovery and development involving these communities, and their ownership of the development will be a significant catalyst for community restoration and peace building.

Creating commercially viable micro businesses as a solution

There is potential for developing sustainable micro businesses that could generate employment at the local levels. Such businesses are viable particularly in diary, poultry and fishery or vegetable / fruit processing and similar small scale value addition micro enterprises. These are currently carried out predominantly at domestic level by individuals or families with no technical assistance or benefits of scale. The missing link for scaling up micro businesses is the institutional support to navigate through the complex web of bureaucratic and other challenges people are expected to face individually.

Number of entrepreneurs show desire and commitment to enhance their existing micro businesses, and fortunately there is good market for them. However, the entrepreneurs find the access to such opportunities daunting because of the existing bureaucratic systems and processes. They need to be facilitated, including securing loans at very low interest rates. Once this support is available, number of community and commodity groups would engage in socially responsible and commercially viable micro businesses.

Immature private sector

Locally, there is severe inadequacy in privately operated, value adding enterprises in the war affected regions, especially in the Northern Province. The chamber of commerce of Jaffna mainly comprises trading organisations and there are hardly any commercial value adding processing companies. The capacity levels of even the few that are currently operating, such as the ones producing fruit juices, cordials, packing spices and other small scale local produces, need significant improvements to be able to participate in the mainstream value chain. The quality and health standards of these products too need to be improved. However, these operators are capable of progressing if they are provided with targeted assistance. These micro and small businesses have not progressed to meet the mainstream standards due to the years of war and lack of any support systems.

The small scale value addition enterprises do not receive any meaningful assistance from institutions such as manufacturers chamber of commerce and the entrepreneurs do not link up / collaborate with national private sector institutions and are not supported by any public institutions either at the provincial or national levels. These operators individually deal with all the business challenges.

The potential for these products and operators to link up with the mainstream value chain and benefit from national and international trade is significantly high. The markets for such products are very good in several western countries. However, there is a need to compete with products from countries such as India, Indonesia and Vietnam, which are already in the western market.

Addressing the many basic challenges in linking these local agrarian products with the mainstream value chain requires a concerted action plan and dedicated institutional support.

Several working models of micro businesses that target international sales must be created and copied by other new entrepreneurs. The key factors for success of enterprises are introduction of basic technologies in processing and packaging that meet international product standards, including “Quality and Processing Standards”, and training of staff as well as personalised training services to new entrepreneurs. Having a support system that will assist individual entrepreneurs in securing finance, in profitability analysis, micro business project development planning, branding and marketing is essential to achieve any meaningful impact.

Domestic level primary producers

Several people are engaged in dairy, poultry and other basic subsistence farming and these would not be sustainable in the medium to long term. They procure their animal / poultry feeds, transport them and face their local marketing challenges individually. They do not benefit from the scales of being a member of a producer group.

Most inputs, such as maize for poultry and fodder for cattle, are brought in from outside the regions at very high transport costs and at a high profit to feed providers. However, these feeds could be produced locally with minimum capital investment, and the feeding cost could be lowered while creating local employment. This would enhance profitability of dairy and poultry enterprises. This model could be replicated across various communities.

IRDG has decided to provide micro business development services, a social enterprise and a support unit, through setting up of Micro Business Development Enterprise (MBDE Pty Ltd) and provide business support, technical assistance and field monitoring of the performance of individual dairy/poultry farmers and value adding micro businesses.

In the case of dairy, the average number of cows generally maintained by a family is 1 or 2, as feeding the cows can be challenging. If an arrangement were to be made at community level to prepare the feeds centrally, new jobs could be created with an assured market and also enable families to rear additional cows.

Potential for creating such an arrangement, to engage and gainfully employ female headed households is significantly high. Such arrangements would build women’s resilience, provide substantial financial rewards and enable them to attend to their children’s or aged parents’ needs. The potential to own the micro business assets, once the loans are paid off, will be a significant boost to their socio economic standing. Initially, the new micro businesses will use the existing supply chain structure in its inefficient form, and once the commodity and community groups are functional, productive new initiatives could be tailored in, particularly the marketing and supply chain, to engage in the mainstream value chain and benefit from it.

The need for a one stop shop for Micro Business Development

Introduction of new practices through collaborating and linking with financial, donor and mainstream public sector institutions, will become possible if a support structure that is actively servicing these community groups’ needs could be established. This can only be achieved by infusing commercial dynamics into the new micro businesses and by such support structure directly exercising total business controls until the businesses is stabilised.

IRDG will initiate commercially viable micro businesses and target commodity / community groups to take them over and directly assist in addressing the groups’ associated supply chain needs. Initially, only members of active, self-help, small groups will be targeted as they already enjoy the benefits from group dynamics.

IRDG is mindful of the capacity required to be able to service such an ambitious agenda and will actively seek donor and government assistance for its capacity building. Linking up with like-minded professionals / specialist service providers, nationally and internationally as well as using digital technology would become the focus of MBDE.

Benefits of MBDE model

MBDE will create much needed employment at the local level using existing competencies and will enhance the skills and capacities of the beneficiaries. Commercially viable sustainable livelihood, principally targeting Female Headed Families and linking such livelihood initiatives to the mainstream value chain is the key focus.

This model and its inherent strategy have been designed to respond to the ground reality and to be able to have rapid large scale positive impact.

Entry points of the businesses have been carefully designed to accommodate the current strengths and limitations on the ground and make the best use of existing competencies. Ability to provide central business support services would become the key component in this strategy and will have the focus of MBDE.

In addition to project level donor assistance, capacity building assistance for MBDE business support structure will directly correlate to the extent and the number of micro businesses that could be developed.

In a nutshell, MBDE will hold the assets on behalf of the beneficiary operators until the operators’ financial obligations (repayment of the invested capital) are fulfilled, at which point the individual beneficiaries will start to own the assets and the business.

A rapid scaling up of micro businesses will make the entire program more effective and earlier repayment of capital would become possible, benefiting the beneficiary business operators to own their business early.

A detailed action plan and the business model of the MBDE will be published in the near future.

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Naga Narendran

Naga Narendran ACMA, CPA, CGMA A Management Consultant with over 40 years of experience in Finance and large scale Business Project Management gained mainly in Australia and has served in senior executive positions in top tear corporations including IBM.

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