Front Cover
 Title Page
 Table of Contents
 Executive summary
 Part I. Synthesis of overall...
 Part II. Case studies: Africa
 Part III. Case studies: Latin...
 Part IV. Case studies: The...
 Part V. Case studies: India

Group Title: Pisces studies
Title: The Pisces studies
Full Citation
Permanent Link: http://ufdc.ufl.edu/UF00087130/00001
 Material Information
Title: The Pisces studies assisting the smallest economic activities of the urban poor
Series Title: Pisces studies
Alternate Title: Assisting the smallest economic activities of the urban poor
Physical Description: xiv, 378 p. : ill. ; 28 cm.
Language: English
Creator: Farbman, Michael
Ashe, Jeffrey
United States -- Agency for International Development. -- Office of Urban Development
Publisher: Office of Urban Development, Bureau for Science and Technology, Agency for International Development, International Development Cooperation Agency
Place of Publication: Washington D.C
Publication Date: 1981
Subject: Economic assistance   ( lcsh )
Community development, Urban   ( lcsh )
Urban policy   ( lcsh )
Genre: federal government publication   ( marcgt )
non-fiction   ( marcgt )
Spatial Coverage: India
Statement of Responsibility: contributors: Jeffrey Ashe et al. ; edited by Michael Farbman.
 Record Information
Bibliographic ID: UF00087130
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 09301922

Table of Contents
    Front Cover
        Front Cover 1
        Front Cover 2
    Title Page
        Title Page 1
        Title Page 2
    Table of Contents
        Page i
        Page ii
        Page iii
        Page iv
        Page v
        Page vi
        Page vii
        Page viii
    Executive summary
        Page ix
        Page x
        Page xi
        Page xii
        Page xiii
        Page xiv
    Part I. Synthesis of overall findings
        Page 1
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    Part II. Case studies: Africa
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    Part III. Case studies: Latin America
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    Part IV. Case studies: The Philippines
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    Part V. Case studies: India
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Full Text








September 1981

The views and interpretations in this publication are those of the authors) and should not be at-
tributed to the Agency for International Development or to any individual acting in its behalf.





PREFACE ................................................................... iii

INTRODUCTION ................................................................ v
Michael Farbman
Project Officer, A.I.D.

EXECUTIVE SUMMARY ......................................................... ix
Jeffrey Ashe
Project Director, ACCION International/AITEC

PART I -SYNTHESIS AND OVERALL FINDINGS............................... 1
Jeffrey Ashe
Project Director, ACCION International/AITEC

PART II -CASE STUDIES: AFRICA ........................................... 57
Fred M. O'Regan and Douglas A. Hellinger
The Development Group for Alternative Policies

PART III -CASE STUDIES: LATIN AMERICA .................................. 157
Peter H. Fraser and William R. Tucker
ACCION International/AITEC

PART IV -CASE STUDIES: PHILIPPINES...................................... 253
Jason Brown
Partnership for Productivity

PART V -CASE STUDIES: INDIA............................................ 337
Jason Brown
Partnership for Productivity


Despite the constant reminders that development is a long process, one seldom is prepared to at-
tribute that characteristic to the realization of one's sure-fire ideas. Nevertheless one is hard-pressed
in a large organization to get a quick hearing, much more ready acceptance and support, especially
when the organization has had little or no experience with the subject matter.
So it has been with addressing the employment problems of the urban poor. The Office of Urban
Development recognized nearly ten years ago that a problem and an opportunity to assist existed in
that sector of the economy in which many, if not most, of the urban poor earn their
livelihood-namely, the informal ("traditional" and artisanall" also are used) sector. The label
defied acceptable definition and many efforts to discuss this idea foundered there. Of even greater
concern was the notion of an A.I.D. project being targeted on that sector!
The need to do something about urban employment and the notion that it might be done in the in-
formal sector persisted and, as time and resources permitted, the then two-man urban development
staff probed further to see what might be designed.
The Introduction recounts the "breakthrough" which came as a result of the study which Simon
Fass did in Haiti. Another "breakthrough" came when it was possible to expand the Office and to in-
clude someone on the staff who could give more expert attention to this important matter.
This volume is a milestone in the long journey of helping the Agency and the development
assistance community understand the nature and value of the informal sector of the economies of
developing nations and prepare to assist at a very basic level in its growth and development. The Of-
fice of Urban Development is grateful to Michael Farbman for his continuing leadership and to the
contractors for the professional skill and caring with which they carried out their assignment.

William R. Miner, Director
Office of Urban Development


The PISCES Project Context

In 1978, the Office of Urban Development, in what was then known as the Development Support
Bureau (forerunner to the current Bureau for Science and Technology) in AID/Washington, began
implementation of a project titled "Small Enterprise Approaches to Employment." Its purpose was,
in general terms, to improve AID's understanding of the nature and constraints of the small enter-
prise (SSE) "sector", and eventually to upgrade our ability as a development organization to design,
implement and evaluate projects which promote employment for AID's target group through provi-
sion of assistance to institutions, individuals and enterprises associated with this sector.
Under the "Small Enterprise Approaches to Employment" umbrella, three separate subprojects
were contracted. The first, with Michigan State University' and under the direction of Professor W.
Paul Strassmann of the Department of Economics, was designed to further our understanding of the
relationship between housing improvement and employment. It is concerned with the small enterprise
dimension in two important respects: first, in analyzing the roll of small, labor-intensive, enterprises
as providers of both building materials and construction services; and second, in terms of promoting
shelter improvement in tandem with provision of space for productive activities, such as for
workshop areas, retail sales areas, and storage space. This component has produced a series of survey
analyses, policy documents and working papers, which are available from either the Project Director
or the Office of Urban Development, AID.
The second subproject was designed to examine evaluation methodologies as applied to measuring
the impacts of small enterprise assistance projects. Its purpose-in addition to reviewing the
literature on, and assessing prior attempts at, small enterprise project impact evaluations-is to ad-
vance the state-of-the-art of cost-effective impact evaluation methodologies by field testing of new
approaches to data gathering, monitoring and analysis as adjuncts to new and continuing SSE pro-
jects. This component is contracted with Development Alternatives, Inc., Washington, D.C., under
the direction of Ms. Susan Goldmark.2 A monograph reviewing the state-of-the-art of SSE impact
evaluation and describing the current (1981/82) phase of field testing is available from the Office of
Urban Development, AID.3
The third component-the subject of this volume-was and is what has come to be known as the
"PISCES" component. As with so much else in the government, PISCES is an acronym. Fully ex-
panded, it translates into the "Program for Investment in the Small Capital Enterprise Sector."
Although the less said about the origins of the acronym, the better, it is the purpose of this section of
the PISCES studies to acknowledge the origins of the project concept itself, which, among its interim
accomplishments, has led to the publication of this volume.

Origins of PISCES

The PISCES project sprang from discussions that took place among the Urban Development Of-
fice staff during late 1977/early 1978. At that time we had just received a draft copy of a study, in
part financed by the Office, on "the economics of survival" in a squatter settlement in Port-au-
Prince, Haiti, by Simon Fass.4 Among the most striking features of the group which Fass described
' Contract No. AID/DS/otr-C-0012.
2 Contract No. AID/DS/otr-C-0016.
3 Susan G. Goldmark and Jay Rosengard, "Evaluating Small-Scale Enterprise Promotion: State-of-the-Art, Methodologies and
Future Alternatives", U.S. Agency for International Development, Washington, D.C., May 1981.
4 "The Economics of Survival: A Study of Poverty and Planning in Haiti", U.S. Agency for International Development,
Washington, D.C., October 1980.

were the high economic activity rates in the settlement, the nature of the economic activities in which
the residents were engaged, and above all, the apparent simplicity of their enterprise needs. The fact
was that most were engaged in household or other "informal" types of enterprise, mostly at a level so
low that the enterprise would hardly show up in a count of business establishments. Moreover, Fass's
data suggested that many of the activities reported upon remained small and precarious, not so much
because of lack of entrepreneurial capabilities or of market opportunities, as because of lack of
working capital, storage space or access to only slightly higher levels of technology. In short, the
universal, shared condition in this settlement, apart from poverty, was lack of access to resources to
help these small-some would say "marginal"-enterprises to rise above their low-level, stagnant
In discussing this particular study, and in comparing the reported conditions against those known
to predominate in similar "bustees", bidonvilles, barrios and tugurios worldwide, it became clear
that surely no better opportunity existed to make a new and useful contribution to small enterprise
assistance technology than to examine the potential for assisting small "micro" businesses at this
In the first place, it had to be acknowledged that if, indeed, AID's main focus of direct
developmental assistance was meant to be the so-called poor majority, little question existed as to this
impoverished group's eligibility. Secondly, a non-systematic review of then-existing AID projects
showed precious few initiatives that were designed to assist the economic activities of this needy
group. The problem, we soon came to realize, was: how to do it? How can AID get into the business
of developing and implementing "enterprise" projects that reach this most difficult-to-assist target
The needs for enterprise development at this level seemed well-enough identified: working capital,
management training, low-level technical assistance, security. So too were the constraints: lack of
collateral, widespread functional illiteracy, lack of contact with potentially helpful institutions
already in place, susceptibility to health, family and business disruptions, and heavy competition.
At this point I should acknowledge my eternal debt of gratitude to my erstwhile colleague, Dr.
John W. Dickey, who was working with us while on leave from Virginia Polytechnic Institute and
State University during 1977-79. It was he who came up with the germ of the idea for dealing with this
lacuna in our assistance portfolio that eventually become PISCES. Using mirrors, wires, and
assumptions of multiplier effects and human behavior, Dickey argued that small-say $20 -
$100-unsecured loans for working capital was the answer, and he worked out a model to prove it.
While the model may have been the subject of much dispute at the time, the basic consensus
emerged that something should be done, even at great risk, and probably very small loans would have
to be part of it. We kept coming back to our original point that we had no institutional history with
which to inform ourselves. Experience with small lending and enterprise assistance projects at this
level, for AID at least, was a blank slate.
Clearly we needed real world knowledge and inspiration. Our response was to issue a competitive
request for proposals to work with us under the Small Enterprise Approaches to Employment um-
brella to document whatever it was that the real world had to teach us with respect to this question.
We were fortunate in receiving about ten proposals to carry out this research, the best of which
came from a group of three private and voluntary organizations (PVOs). Two of them, ACCION In-
ternational/AITEC and Partnership for Productivity (PfP), accounted for a substantial proportion
of U.S. PVO-run projects in developing countries which came even close to operating at the level
which we had in mind. More importantly, however, their longstanding commitment to working with
local groups, complemented by their worldwide network of PVO and other nongovernmental
organization contacts, promised success in identifying and analyzing these indigenous pro-
jects/programs. A third U.S. PVO, the Development Group for Alternative Policies (DGAP),
rounded out the contracting team. While not a project implementing organization like AITEC and
PfP, the DGAP had other complementary interests and experiences related to the small micro-
enterprise assistance problem, particularly on the policy side.
In September 1978 a contract was signed, marking the official beginning of PISCES Phase I.5 It
was designated "Phase I" because we were optimistic that not only would appropriate lessons be

5 Contract No. AID/DS/otr-C-0013.

there to be learned, but that the Agency would wish to move forward with this knowledge, at least to
the stage of pilot/demonstration projects.6
The contracting team divided its coverage among the three regions of the world according to the
experience and expertise of the personnel: AITEC, as prime contractor was responsible for the
overall direction and administration of the project, the synthesis of the study results, and the Latin
America case studies; PfP was responsible for the Asia case studies; and the DGAP for the Africa
case studies. Stated broadly, their terms of reference boiled down to responding to three questions:
-Is it possible to reach very poor urban dwellers and provide to them assistance in respect of their
self-initiated economic activities?
-What methodologies/approaches seem to be effective?
-What are the implications for donor agencies?7
The actual project activities were launched with a series of workshops held early in 1979 to define
the problem further and to develop a methodology for carrying out the field investigations. PISCES
team members then proceeded to visit over twenty developing countries where their information led
them to believe model projects existed and appeared to be working on a reasonably cost-effective
basis. After determining that a number of the projects visited indeed were effective and employed in-
teresting approaches worthy of further study, the series of in-depth case studies reported upon in this
volume was carried out.
The case studies were completed early in 1980 and were circulated in draft form for comments.
Subsequently, in April 1980, a one-day workshop was convened at the Brookings Institution to
disseminate the accumulated information and to use the assembled experts from AID, other donors,
PVO's, and private consultants, inter alia, as a sounding board for some of our conclusions and in-
ferences. The workshop generated a considerable amount of debate at the time of its convening and
for some time afterward about the issue of assistability of this sector, and particularly of the ap-
propriate role of bilateral and multilateral agencies in this process. What no longer was debated,
however, was the very existence of an assistance technology as such. The approaches and
methodologies, opportunities and pitfalls, for working with the smallest enterprise needs of the ur-
ban poor, mostly through indigenous PVOs and other church and nongovernmental organizations,
were now on the record, clearly documented. The reader of this volume is invited to consider for
himself or herself the validity of these findings, as presented below in the remainder of this

Organization of this Volume

While not wishing to preempt all details of PISCES Phase I's findings, it can be revealed here that
the case studies do report on a great wealth of experience and activity "out there" in the real world,
and do contain systematic analyses of possible assistance approaches which we hope through this
volume to incorporate into AID's awareness and, ultimately, through PISCES Phase II
(pilot/demonstration projects) into its regular development portfolio.
This volume begins with an executive summary, followed by a contribution (Part I) by Jeffrey
Ashe, the Project Director, which draws together the sometimes divergent, but frequently
remarkably consistent, findings from the analyses of the projects. While it contains references to
specific projects, Part I is most noteworthy for the way it systematizes the lessons learned into a
logically consistent framework, which matches assistance approaches with types of persons and
enterprises needing to be assisted, their specific needs, and the institutional context in which
assistance takes place.
Parts two through five are the regional sets of case studies, containing the detailed background in-
formation and analyses which form the basis for the conclusions in Part I. The reader is advised to
read Part I before attacking a specific regional section, if only to understand in advance where,
analytically, the case studies are meant to lead him/her, and to provide a context in which to view all
the detailed information presented.
6 Refer to Chapter 12 in Part I for further elaboration of PISCES Phase II.
7 One AITEC staff person summarized these terms of reference quite succinctly: "We already demonstrated through our pro-
jects in Latin American that (e.g.) the artisan shoe manufacturers with three or four employees can be helped with a $1000
loan. Now we are being asked if it is possible to assist the curbside food seller who serves lunch to the shoemakers."


As AID Project Officer for the PISCES project and as editor of this volume, I would like to use
this forum to record my deep appreciation above all to the three PVOs and their personnel who so
professionally implemented PISCES Phase I. The project was not without the usual funding pro-
blems, communication breakdowns, and difficulties in relations with AID field missions and with
developing country counterparts and cooperators. Yet throughout, and notwithstanding the addi-
tional pressures of extended separations from family to carry out the field work, the contracting per-
sonnel remained faithful to their assignment, persevered through the myriad operational difficulties,
and came up with a highly professional output. I know that it was costly to them personally, and to
their institutions, and I congratulate and salute them and their families.
My colleagues and former colleagues in the Office of Urban Development, especially John Dickey
as mentioned above, provided inspiration and all the support on this project that one could
reasonably have asked for. Dr. William R. Miner, Director, and Dr. Eric Chetwynd, Jr., Deputy
Director of the Office of Urban Development, aside from having anticipated by two years the need
for financing this project, were stalwart supporters of me and of the project, particularly when senior
management got cold feet about the whole informal sector assistance idea and the risks involved.
David A. A. Smith, erstwhile Graduate Work/Study student in the Office of Urban Development,
performed yeoman services in helping with the editing of the manuscripts.
Finally, the usual debt must be acknowledged to Ms. Diannah McDaniel and Ms. Mary Gilmartin
of the Office of Urban Development, mostly for their typing services, but also for the uncountable
other services they performed on the project's or my behalf, mostly without having to be asked.
All the customary disclaimers apply to this volume on behalf of AID. The contracting team has
done its best and has written what the members honestly believe. Of course, they speak for
themselves only. I stand behind them personally and associate myself with their findings and conclu-
sions. At the same time I accept responsibility for the editing of this volume.


It is estimated that the Third World will need 782 million new jobs between 1980 and the year 2000.
Since more people are crowding into cities-the rate of population increase in many cities exceeds 5%
per annum-an increasing proportion of these new jobs will need to be created in urban areas. Cur-
rently from 20% to 50% of those working in cities are employed in the urban informal sector in
businesses ranging from street vending, to tailoring, to furniture making. In many areas the percent-
age working in the informal sector is increasing as larger-scale businesses have proved incapable of
expanding rapidly enough to meet the demand for jobs.
This report focuses on programs of direct assistance to the smallest businesses within the informal
sector where capital start-up is minimal, from a few dollars to one or two hundred dollars. We are
differentiating between the informal sector artisan shoe manufacturer with two or three employees
who could benefit from a $2,000 loan and the curbside food seller who serves lunch to the
shoemakers who could use a $200 loan. Assistance to businesses at the level of the curbside food
seller has as its goal increasing income and employment for very poor urban dwellers and providing
needed goods and services for urban areas.
The programs and projects described in the summary report and the four regional case studies
show it is possible to assist effectively the smallest businesses of the informal sector. Programs
assisted significant numbers of businesses with initial loans ranging from $12 to $300. Administrative
costs were relatively low and payback rates ranged as high as 90% to 99%. Other programs helped
the poorest enter urban activities by providing loans of less than $100 to start hawking or selling
prepared food. Our research also showed it was possible to train poor youths in higher paying skills
and help them start new businesses, or to help establish cooperative businesses where people working
together were able to pool resources and equipment and produce and sell collectively.
These programs often had significant impacts on the businessperson's family and on the commu-
nity. Although evidence is scattered and often impressionistic, our initial observations are that pro-
grams that assist the smallest of already existing businesses often increase the income of the owners
substantially. Many who were earning one dollar a day are now earning two dollars or more. New in-
dividual and collective businesses often provide one or two dollars of income a day to those who had
no source of income. New income is most commonly used for basic necessities such as food, health
care, schooling and shelter. New employment is often created for family members or others in the
neighborhood as these businesses expand.
There are non-economic impacts as well. A project in India helped form an organization of poor
women entrepreneurs that led to improved conditions in the markets and a reduction in police harass-
ment. Project participants in the Philippines tended to provide more business assistance to each
other, and to help more in community improvement efforts. Increased self-confidence and motiva-
tion were notable in all projects.
Finally, projects most commonly assisted women entrepreneurs. In general, the smaller the size of
the business reached by a project, the larger the proportion of women business owners.
Enterprise assistance is a strongly felt need among the poorest urban dwellers. Many projects
moved into enterprise development even though their original purpose was community development
or to provide services. The poor people they worked with often made it evident to project staff that
their most immediate need was earning an income. The intensity of this need is demonstrated by the
extremely rapid growth of some of these programs, and that several of them could have served even
more beneficiaries if they had had additional funding for loans and staff expansion.

Levels of Beneficiaries
One major finding of PISCES Phase I was that within the category of the smallest businesses of the
informal sector there are distinct levels that correspond closely with the most appropriate type of pro-

ject assistance. At the smallest level (Level I) people do whatever they must to subsist. They do not
perceive themselves as entrepreneurs, nor do they conceive of their moneymaking activities as
"businesses." Activities are often extremely ephemeral-selling chewing gum or cigarettes on a cor-
ner, or colas and candy during parades. Even when they have potentially marketable skills such as
sewing and weaving, their unfamiliarity with the competitive aspects of planning and organization
for a profit-making business venture often limit the incomes they realize as a result of plying their
Entrepreneurs at the next level (Level II) have a fundamental understanding of business practices
and have a viable going concern. They may make tortillas, or sew clothes on an old treadle sewing
machine, or hawk a well organized assortment of clothing or toys, or sell prepared food, etc. Level II
entrepreneurs generally will dedicate to their businesses whatever resources are available-be it
capital, raw materials, skills, effort, time, or ingenuity.
At Level III business owners have better-developed business skills. They understand the basic prin-
ciples governing their markets and are flexible enough to expand when the opportunity arises. Ex-
amples of businesses at this level might include a shoemaker with a small rented shop who has an
assistant, or a family of tailors, who informally divide their dwelling into a living area and a work

Types of Projects

People without businesses or whose businesses are marginal (Level I) are often assisted by
community-based development efforts, concerned as much with access to such basic services as
health, education, nutrition and sanitation, as with enterprise development and income generation.
Enterprise development usually involves creating new individual and collective businesses to provide
enough income to meet basic needs while increasing self-esteem and self-worth. In turn, that process,
as part of an integrated community development effort, tends to promote the collective solution of
problems in the community. Promotion among marginal micro-entrepreneurs is intensive and long
term, reflecting the time-consuming task of directly promoting and organizing within poor com-
munities projects that include several elements in addition to enterprise development.
Where poor community residents already own very small micro-enterprises (Level II) that have at
least the potential to produce enough income to meet basic family needs, programs often focus on
creating small informal groups within the community made up of business owners. Groups are
generally set up to collectively guarantee loans. (Group members or group leaders act as co-
guarantors for each other's loans.)
Once it is recognized that business owners are the best qualified to decide how to use the credit pro-
vided and that business advice will be provided informally by other business owners in the commu-
nity, the process of designing programs translates largely into how to provide the right amount of
credit to the small business owners quickly and economically while ensuring that the loans are paid
back promptly. In these programs, groups are formed by the members themselves with little staff in-
volvement, and leaders are often responsible for the daily collection of loans. Because these programs
focus on enterprise development, the cost per beneficiary assisted is low compared to programs that
address a range of community problems simultaneously.
Innovative commercial bank programs reach Level III micro-entrepreneurs individually by servic-
ing owners who have acceptable collateral, a credit history, and/or someone willing to co-sign a loan
for them. These businesses are far smaller than those traditionally served by small enterprise pro-
grams, but compared to the typical beneficiaries of community and group programs, they have
developed business skills and contacts in the local economy sufficient for commercial lenders to con-
sider them credit-worthy. Costs may be low when these programs are efficiently administered. One
bank program even made a profit through its lending at this level.
The conclusion of this study is that all three levels of beneficiaries should be served by informal
sector assistance projects, although the nature of this assistance may vary according to the level. The
benefits of the programs examined also were seen to differ according to level. For instance, it is possi-
ble to reach large numbers of business owners at Level III through commercial bank projects, thereby
increasing family income and generating a considerable number of new jobs. Level II group type pro-

jects, however, may significantly increase family income and generate employment, but will generate
these benefits in the context of a distinctly different approach to assistance. The cost and complexity
of these programs are in most cases relatively low. Reaching people with marginal economic activities
who are outside even informal sector economic activities, however, tends to be more difficult and
costly. Although in this last instance the neediest people are assisted, the greater project complexity
involved means considerable effort is necessary to reach large numbers.

Characteristics of Effective Projects

Despite the diversity of beneficiaries, the different types of implementing organizations and the
varied environments in which they operated, in the most effective projects we found one precept to be
universally valid: Program inputs are responsive to the plans and desires of those they serve and to
the degree possible reflect the level of skills and knowledge that commonly exists in the community.
When this precept is violated, project complexity and cost per beneficiary increase, while the number
of people who can be served decreases significantly. Programs which follow this precept most closely
tend to be simple and low cost and actively involve the community or assisted groups in the planning
process. They also tend to use community volunteers for promotion, for outreach, for selection, for
providing business advice, and for managing very small loan funds. These programs spread rapidly
by word of mouth after an initial project implementation phase with very little promotion.

1. Design

Even though programs spanned three continents and served a broad range of beneficiaries, the ef-
fective projects often exhibited similarities in program elements. Every project described in the four
volumes of case studies is the product of an extended process of project design as well as of a con-
tinuous process of project evolution. Most were developed only after an intensive exercise was carried
out to identify the problems of poor people. Most important, the major source of program modifica-
tion seems to have come from daily interaction with program beneficiaries. Good project staff have
the ability to listen.

2. Staffing

It was frequently observed that the field staff of these projects are not trained in business. The
most important skills are the ability to relate to people in the poor community and to organize at the
grass roots level. A good case can be made for using this level of staff for field work. One obvious
reason is cost. Several students can be hired for the same cost as an experienced business school
graduate. Second, the tasks performed by promoters are simple. Most of their time is spent identify-
ing potential clients, explaining the program and impressing upon them the importance of regular
payback-tasks that would quickly frustrate and bore more highly qualified staff. Third, the work is
rewarding. The often young promoters see working with micro-businesses as challenging and fulfill-
ing an important social function.

3. Outreach

No program we studied simply opened a micro-enterprise office in a central location and started to
provide services. It is doubtful that such an effort could be successful even if tried. To reach the
poorest community residents, program staff will first have to promote the idea directly in the com-

4. Selection

The most important selection criterion seems to be the individual's reputation among other com-
munity residents and local business owners, since few borrowers at these levels have a significant
amount of collateral. For example, in group programs, group members determine who is credit wor-
thy enough to be a member-a serious decision, since either the group leader or the other group
members (depending on the project) are responsible to pay in case of a default by one of the
members. Even in credit programs where loans are secured through inventory, fixed capital or a co-
signer, initial selection may be based on the recommendation of community leaders, program par-
ticipants, or other people with whom the applicant has had a credit history.

5. Credit

Owners of businesses usually desire credit more than any other services, and several projects have
been highly successful in developing mechanisms to grant very small loans at relatively low costs
while assuring loan repayment.
Loans are used for several purposes:
To pay off money lenders: For larger loans to established customers, money lenders charge an
interest rate of 20% or more a month. For smaller, unsecured loans, they may charge interest
of 20% or more per day.
To reduce time-consuming trips for the purchase of raw materials and debt collection: Where
there is insufficient working capital, each day's production depends on revenue collected from
the previous day's sales.
To reduce the cost of stock and raw materials: Lacking working capital, the owner buys stock
and raw materials daily in small quantities at high cost.
To reach new markets: With more working capital, the small trader or manufacturer can reach
new markets by extending small amounts of credit to those who cannot pay cash.
To improve equipment and methods of production: The purchase of a better sewing machine,
for example, may double productivity.
To start a new business: Many business operators have used additional capital to start a new
Assuming that the program has selected a good client, several generalizations can be made about
disbursing and collecting on very small loans:
Loan amounts: The first loan should be very small for two reasons: first, it tests the in-
dividual's ability to repay; second, it avoids overburdening the business with more money than
can be invested wisely.
Terms: Most programs appeared to provide a first loan to existing businesses for no more than
three to six months. A series of small loans in increasing amounts repaid quickly presents a
manageable risk to both the businesses and the program.
Interest Rates: It is generally thought that interest rates for micro-businesses should be low.
Yet, if interest rates do not cover costs of risk and administration, financial institutions have
little incentive to lend. While those who receive loans at concessionary rates have an important
advantage, many others equally well qualified will not receive loans because of lack of funds.
Frequency of loan payback: Loan payback periods should reflect the cash flow cycle of the
economic activity in question and the time frame in which the client is used to thinking.
Retailers generally pay their solidarity group leaders daily, since they purchase and sell their
stock daily.
Loan collection: Almost all the programs are businesslike about loan payback to maintain good
relations with financial institutions, encourage good habits among beneficiaries and avoid the
depletion of the loan fund.

6. Bookkeeping and Management Training

While there is apparently no lack of entrepreneurial talent for starting and maintaining small
trading and manufacturing activities, the entrepreneurial skills required for larger, better organized
businesses are generally lacking. To overcome these limitations, some programs have attempted to
train business owners in simple bookkeeping and management. This has brought mixed results
because it is difficult to convince owners of micro-businesses of the necessity of business training,
since they often perceive that their own informal systems are adequate at this level. At the same time,
it is difficult to translate apparently simple business concepts into terms understandable to largely il-
literate or functionally illiterate slum dwellers who keep no records of any kind.

7. Job Skills Training

A good case can be made for providing special skills training opportunities for the youth of the
very poor. Our study of training components of programs revealed that in areas where the demand
for skilled labor is low, a large proportion of the graduates will remain unemployed because they do
not have the attitudes, capital or business skills to start their own businesses. A combination of job
skills training, business training, and intensive follow-up is essential if the job skills learned are to be
put into practice. Separating technical training from business training and follow-up is a major
limitation of most vocational education programs.

8. Marketing Assistance

The provision of marketing assistance is an additional support mechanism which seems sorely
needed. For many small enterprises, marketing problems (i.e., lack of assured demand) will continue
to form the greatest constraint to their growth and prosperity.
Perhaps the most effective approach for dealing with marketing problems, adopted by some pro-
grams, is to identify carefully the demand for skills and products within local communities and then
match the areas of training and enterprise promotion to these needs. Another approach seen in
several of the programs reviewed involved the direct intervention of the assisting entity in the iden-
tification or establishment of marketing channels for client enterprises.

Implications for Donors

The number of projects studied is small. The portion of the informal sector that has been served by
these projects is minuscule. Yet these experimental efforts show that the smallest economic activities
of the urban poor can be assisted, often very effectively. Assistance is delivered through a variety of
programs, with objectives appropriate to the strikingly different needs of the various levels of
These experimental efforts and many others like them can be encouraged. Donors can facilitate
this process at three levels. They can strengthen small existing local PVO business development ef-
forts, or enable small local PVOs with strong community programs to begin PISCES-level business
development efforts. Some of the more successful programs were facilitated by grants provided just
as they were getting started.
Another approach is to enable larger national PVOs, large cooperatives, national development
foundations, and government agencies with a history of efficient delivery of services and an interest
in assisting this sector, to set up special units and programs to reach PISCES-level enterprises. Finally
the existing PISCES-level programs of PVOs, banks, and government agencies can be strengthened
and expanded.
Other types of activities that might be funded include:
the small enterprise development efforts of expatriate PVOs;
visits between the staffs of projects to facilitate the exchange of ideas;

special training programs for banks, PVOs, and government institutions;
efforts to assess or change government policy favoring the informal sector; and
increasing the availability of small loans through local credit institutions.
Funding these types of activities may have important implications for donors. While some of the
large programs may be able to absorb enough funding to justify the sometimes costly and time-
consuming project development sequence required by AID (requirements are similarly complex for
other major donors), most of these PISCES-level projects will be much smaller, at least initially.
Since these small projects are often the only ones reaching the bottom of the economic scale, donors
desiring to assist this sector may need to reconcile themselves to working with these organizations and
to supporting their projects, despite the relatively high unit programming costs. The PISCES
research has at least given us an understanding of how such project assistance may be designed and

Part I
Synthesis and Overall Findings


by Jeffrey Ashe
ACCION International/AITEC



ACKNOWLEDGEMENTS ....................................................... 7

PREFACE ...................................................................... 8

INTRODUCTION.................................................................. 9

Chapter 1: The Informal Sector ................................................ 11
Definition and Characteristics........................................ 11
Role in the Third W orld .......................... ......... .......... 12
Constraints........................................ ................. 12
Summary ............ ........... ............. ...... ..... ........... 13

A TYPOLOGY OF BENEFICIARIES AND PROGRAMS ............................. 15

Chapter 2: Characteristics of Beneficiaries ....................................... 17
The Urban Dweller ................................................. 17
The Rural Migrant.................................................. 17

Chapter 3: Levels of Enterprise............................................... 19
Level I-Marginal .............................................. 19
Level II-Very Small.................................................... 19
Level Ill-Small .................................................. 20

Chapter 4: Program Objectives and Entry Points................................. 20
Marginal Micro-Enterprises: Community Programs ...................... 22
Very Small Micro-Enterprises: Group Programs ......................... 22
Small Micro-Enterprises: Individual Programs .......................... 22

ENTERPRISE DEVELOPMENT METHODOLOGY ................................ 25

Chapter 5: Projects that Assist Existing Economic Activities ........................ 28
The Credit Component............................................. 28
Group Programs ..................................... ............. 29
Individual Programs ............... ................................. 30
Salient Features .................................................... 31
Limitations ........................................................ 31

Chapter 6: Projects that Create New Enterprises ................................. 32
Community-Based Projects......................................... 32
Salient Features ................................................... 33
Group-Based Projects.............................................. 34

Chapter 7: Impact of Assistance................. ..............................

ANALYSIS OF EFFECTIVE PROJECTS..................................... ......

Characteristics of Effective Programs ..................................
Project Design .....................................................
Selection ..........................................................
Credit ............................................................
Bookkeeping and Management Training ..............................
Job Skills Training .............. ....................................
Marketing Assistance ................................................

Lessons Learned ...................................................
General Conclusions .................................................
Program Setting ....................................................
Types of Projects ...................................................
Project Objectives ..................................................


Implications for Donors............................................
Characteristics of Implementing Organizations ..........................
Types of Projects to be Funded ............................ ...........

Major Challenges for Donors and Practitioners ..........................
Reaching Smaller Businesses .........................................
Increasing Technical Competence.....................................
Flexibly Assessing Different Types of Small Enterprise Opportunities........
Reaching Larger Numbers and Institutionalizing Small Programs ...........
Using Evaluation and Feedback ......................................

PISCES Phase II ...........................................................
Demonstration Project Development ...................................
Design a Methodology for Evaluation ......... ................. .......
Monitoring and Evaluation ........ ....................................
Dissemination and Workshops ...................... ............
Secretariat ..................................................

BIBLIOGRAPHY ........ .................................................

Chapter 8:

Chapter 9:

Chapter 10:

Chapter 11:

Chapter 12:


Table No. Page

I Characteristics of Beneficiaries ............................................... 18

II Program Type ............................................................. 21

III Project Objectives ................ ........................................ 23

IV Degree of Staff Intervention in Enterprise Development Aspects of Projects ......... 27


Many project supervisors and staff dedicated their time and interest to this study. Without their
assistance our work would have been impossible. Their observations helped either in the initial iden-
tification of projects or in the actual analysis of project methodologies.
We also wish to express our appreciation to the field missions and representatives of the Agency
for International Development in the countries visited for their concurrences and support services.
To Virginia McLarnon, Andrea Gold, Ayelech Semie, Kira Bermudez and Anne Griffin, our
assistants at Accion International/AITEC, who typed the drafts of this report, we express our
deepest gratitude. Helena Cantrell was also a big help to us in our last stages of proofreading, and in
setting up the final copy.
Finally, several people have reviewed this report and made suggestions, many of which have been
incorporated in the text.
John R. Beardsley, New TransCentury Foundation
Jason Brown, Partnership for Productivity
Michael Farbman, Agency for International Development
Simon Fass, Hubert H. Humphrey School of Public Affairs, University of Minnesota
Sue Goldmark, Development Alternatives, Inc.
Douglas Hellinger, The Development Group for Alternative Policies
David A. A. Smith, Graduate Student, The Fletcher School of Law and Diplomacy, and Har-
vard Business School
I would like to especially thank Susan Sawyer of Accion International/AITEC, who carried out
original research for this project that helped to conceptualize the different levels of beneficiaries and
enterprises in the informal sector. She also incorporated the suggestions of the other reviewers into
the final version. Ultimate responsibility for the contents of this report remains, of course, with the

Cambridge, MA
August 1980


The disquieting observation is frequently made that of the many tens of millions of dollars cur-
rently being made available by multi-lateral and bi-lateral assistance agencies to promote small-scale
enterprises (SSEs) in developing countries, only a tiny proportion finds its way directly into the enter-
prises of the urban poor (e.g., small manufacturing, artisans, family traders, service entrepreneurs,
etc.). These people are difficult to assist directly. In many cases they operate in an adverse economic
policy environment with little government support and are viewed as non-viable risks by financial in-
In terms of its mandate, The Agency for International Development (AID) should be targeting a
sizeable portion of its assistance to this group. However, AID's efforts and those of other donors
only infrequently extend to the very bottom of the enterprise size distribution-what we call micro-
enterprises*. The bulk of the direct credit and technical assistance that is made available to SSEs goes
to larger and otherwise organized groups of enterprises-with the hope that benefits will eventually
"trickle-down". To the extent that "trickle-down" effects are today less convincing as an argument
than in the past, there is at least room for doubt as to whether the type of SSE-assistance currently in
vogue and the sizes of firms currently attracting the bulk of this assistance are making optimum
development, income-generating, and employment-stimulating use of available resources, particu-
larly in respect of some of the poorest residents of developing countries.
The need for assistance to the smallest of entrepreneurs, many of whom could apply these
resources profitably, is clear. However, without an understanding on the part of the donors of this
group's special circumstances, constraints, and potential, the smallest of entrepreneurs will almost
certainly never receive the wherewithal to help themselves.
This report examines the characteristics of micro-enterprises, paying close attention to their role
and importance in their local economies. We then classify methods of assisting these enterprises and
describe the projects observed. Finally, the report summarizes the lessons learned about direct
assistance methods and discusses their implications for donors and practitioners. As such, the report
does not seek to justify direct assistance approaches, nor does it mean to imply that such approaches
are necessarily the best or the only means of assisting the urban poor. The report does, however, seek
to highlight, what look like being the most promising features of current direct assistance efforts in
order to inform better future attempts of this kind.

*Micro-enterprises are defined as the smallest-scale economic enterprises of the poor. They are normally run by a single
owner-manager, and employees, if any, average less than two. Capital required for start-up is minimal, anywhere from a few
dollars to one or two hundred dollars.


CHAPTER 1: The Informal Sector

Definition and Characteristics
Role in the Third World


1.1 Definition and Characteristics1

The breadth and diversity of informal sector enterprises are reflected in the multitude of defini-
tions attempting to describe the informal sector. A compilation of more than fifty definitions of this
elusive concept show wide discrepancies in their assumptions of the maximum number of employees,
capital required, productivity, modernity, and integration into the economy (Georgia Institute of
Technology, 1975).
The ILO defines the informal sector as a way of doing things, characterized by:
ease of entry
reliance on indigenous resources
family ownership of enterprises
small scale of operation
labor-intensive and adapted technology
skills acquired outside of formal schooling
unregulated and competitive markets.
Informal sector activities are largely ignored, rarely supported, often regulated and sometimes ac-
tively discouraged by the government (ILO, 1972, p. 6).
This definition is misleading in some ways. The informal sector often has significant economic, oc-
cupational, territorial, social, and legal barriers to entry. Trying to arrange a loan of $100 to set up a
small repair shop, the would-be business owner (often a woman) is turned away by commercial and
development banks interested in larger projects. Crafts apprenticeships require longer periods of
training than factory jobs. Hawkers may band together to limit the number entering their markets.
One's tribal or caste affiliation or sex may restrict his/her entry into other occupations. Finally, the
licensing fees and requirements of local authorities may discourage entry into the sector.
In addition, informal sector enterprises may be characterized as:
Ubiquitous: Street newspaper vendors, cobblers, Mom and Pop grocery stores, cooked-food
vendors, hawkers, and watch-repairmen are found in nearly every city and town of every coun-
Small-scale: The average size for all industrial firms in Sierra Leone is 1.8 workers (Chuta and
Liedholm, 1976, p. 10). The average value of the stock owned by traders in St. Martin, Haiti is
$17.00 (Fass, 1978, p. 85). In the Philippines, one could begin a trade (selling peanuts) with
$1.25 for stock, a service (shining shoes) with $6.25 for a shoe-shine box, and a manufacturing
enterprise (sewing stuffed toys) with $12.50 for materials (Brown, Philippine Case Studies
elsewhere in this volume).
Often linked to formal sector: Vendors are often the major marketers of formal sector
goods-for example, cigarettes, newspapers, and soft drinks.
Localized: The vast majority of informal sector industries and stores serve to meet the needs of
local, low-income workers. Local cobblers repair plastic sandals, and hawkers sell individual
cigarettes instead of packs or cartons.
Labor-intensive: In most cities, labor is plentiful and cheap; capital is scarce and expensive. En-
trepreneurs in the informal sector learn to deal effectively within those constraints, especially
by intensifying all available labor inputs. In addition, this sector is often a principal user and in-
novator of appropriate, capital-saving technologies.
Low income: The majority of informal sector workers earn somewhat less than unskilled
workers in the formal sector, but more than agricultural workers.

Adapted from material developed for the PISCES project by David A. A. Smith, a graduate student at the Fletcher School of
Law and Diplomacy.

Low profit: The micro-business owner often has little more than a few cents a day to save for
re-investment. Even slight increases in their margin of profit, however, can make business ex-
pansion possible.
Flexible: A food vendor in Colombia moves her cart to a new construction site to provide
workers with lunch. A bucket maker in Kenya switches to making wash-basins when water lines
are installed in his community.
Competitive markets: Markets in the informal sector are often unregulated, and have relatively
free entry and exit.2 Hundreds of cobblers compete for a limited number of shoe repairs,
thousands of food vendors compete for the purchases of urban housewives, and so on.

1.2 Role in the Third World

Informal sector activities play an increasingly large role in the urban economies of many Third
World countries. That role can be defined in the following ways:
Source of employment: The informal sector is a large, if not a major, source of employment in
the burgeoning cities of the Third World. Twenty to fifty percent of workers in the major urban
areas of Less Developed Countries (LDC's) find employment in the urban informal sector.3
Growing source of income opportunities: The informal sector is expected to provide an increas-
ing proportion of income opportunities, particularly where growth in modern/formal sector
employment in urban areas is expected to lag considerably behind rapidly growing urban labor
forces. For example, employment in the large-scale sector in Nigeria has been increasing by 1.5
percent annually, while the urban labor force has increased by 6 percent (Byerlee and Eicher,
1972). A smaller percentage of the Latin American workforce was employed in the manufactur-
ing sector in 1970 than in 1925, despite the burst of industrialization in those intervening years
(Barnet, 1980).
Large output: For example, in Sierra Leone, 43% of the entire industrial sector's value added
came from the small-scale informal sector (Chuta and Liedholm, 1976).
Supplier of goods and services: The informal sector supplies much needed services. Evidence
from Kampala suggests that 40% of every dollar earned is spent on informal sector goods
(Institute for Development Studies, Nairobi, 1977). In Nouakchott, 91.3% of the total sales of
informal sector manufacturing enterprises were to low and middle-income groups (Nihan and
Jourdain, 1979).

1.3 Constraints

Despite the importance of these smallest enterprises to the urban economy, their continual growth
and profitability is hindered by several factors.
Lack of capital: Two-thirds of the Kenyan entrepreneurs surveyed by Marris and Somerset
(1971) mentioned lack of capital as their biggest concern; few market-business owners thought
any other problem was worth mentioning. In our survey of small business development pro-
grams in the Philippines, 83% of program beneficiaries felt credit was their most important
need and the most important service rendered by these programs (Brown, Philippines Case
Studies, this volume).
Lack of business skills: Many entrepreneurs are constrained by their lack of basic business skills
such as bookkeeping. Activities develop only up to the level where such skills are necessary to
keep track of the flow of resources. Without further training at this point, businesses tend
simply to stabilize or to falter.
Restriction, regulation, and harassment by local authorities: In Nairobi, vendors, tailors, tea-
sellers, barbers and hawkers, among others, have to obtain licenses from local authorities.

2 It must be kept in mind, as stated earlier, that significant barriers to entry often do exist, and they are as complex as the
cultural settings within which the activities are found.
3 As John Friedmann and Flora Sullivan indicate in their study, "The Absorption of Labor in the Urban Economy", the in-
formal sector is the most labor-intensive sector of the urban economy. (See also Barnet, 1980).

Controls by the police also limit incomes by denying informal sector enterprises access to
downtown markets and heavily trafficked streets which offer the highest income possibilities.
Lack of reliable sources for raw materials and supplies: Raw materials and needed supplies are
either not available or are available only at high cost. Often a boom in a national industry will
affect the smallest enterprises only by a rise in the cost of raw materials (Peattie, 1976).

1.4 Summary

The informal sector is a large if not major employer of urban workers, provides the majority of
new income opportunities, produces a surprisingly large amount of goods and services, a significant
amount of value during manufacture, is a major source of supply of inexpensive goods for the urban
and rural poor in particular, and frequently uses capital saving technologies. The vitality and growth
potential of the informal sector are impressive.
Recognizing that "the number of jobs that must be created in the Third World between now and
the end of the century must equal at least the number of jobs that exist there today",4 and that a ma-
jor portion of these jobs will be generated in the urban informal sector, the need to understand and to
assist this sector is clear.
This report describes how various projects, spanning three continents, have reached the present ur-
ban dwellers and their economic activities. It is hoped that this description will serve to increase the
amount and effectiveness of assistance provided to this sector.

4 Quoted in USAID's "World Development Letter", March 31, 1980.


CHAPTER 2: Characteristics of Beneficiaries
CHAPTER 3: Levels of Enterprise
CHAPTER 4: Program Objectives and Entry Points


To provide a context for the project descriptions which follow, it is important to understand that
within the range of micro-enterprises which make up the informal sector, there are significant dif-
ferences. These differences relate to the needs and styles of business owners. The poor are not
homogeneous-their circumstances vary from place to place-and assistance approaches must be fit-
ted to local circumstances. The different types of projects have sharply different objectives and entry
points which relate directly to the characteristics of the people served. Essentially, the various pro-
grams are different because they address different priority needs of their beneficiaries.


2.1 The Urban Dweller

Although the outside observer may have trouble differentiating the "street-wise" urban dweller
from the recent migrant, the experiences of these two groups are distinct, as are the projects assisting
each group. The native or long-term city resident probably has contacts with people outside the fam-
ily: suppliers, buyers, money lenders, and officials-people who may provide advice and help. Grow-
ing up in a community surrounded by business activities, the long-term resident has probably worked
in some sort of economic activity from childhood and has a good grasp of the notions of credit and
marketing. Working with parents or relatives, skills may have developed that will serve in running a
business. With some ability to save, this person can invest in a business and see it grow. (See Table I.)

2.2 The Rural Migrant

In contrast, recent migrants from rural villages have few contacts outside their families, or their
contacts are limited to other very poor people like themselves. Growing up in a farm community,
their grasp of business functions in the city is limited and they have few or no marketable urban
skills. In some countries, migrants are not only illiterate, but speak languages other than the national
or commercial languages. Table I illustrates how the characteristics of project beneficiaries determine
the relative degree of difficulty of providing assistance for enterprise development.





Urban Experience

Established Urban

- "street wise"

- good contacts with
suppliers, buyers,
money lenders,
officials, etc.

oriented to urban

Recent Immigrants:

- little urban

- few contacts out-
side of family or
recent migrants
like themselves

- oriented to rural

Knowledge of

- grew up in com-
munity sur-
rounded by
business activity

- parents work as
artisans or

- worked with
business from
early age

- grasps concepts
of credit, costs,
markets, etc.

- has developed
marketable skills


Near Poverty line:

- can meet basic
needs of family
at low level

- some capacity to
reinvest savings

- access to basic

I i i I

- parents are

- no personal
business ex-

- little exposure to
business activities
in rural com-

- little grasp of
concepts of
credit, markets,

- fewor no
marketable skills

Extreme Poverty:

- fundamental
concern is day
to day

- almost no
capacity to
save and

- little access to
basic services


Basic reading,
writing, and


- lives in
central city

- markets,
supplies, and
raw materials
close at hand


- lives in
distant from

- transporta-
tion to mar-
kets costly
and time


Beneficiaries of projects tend to perceive themselves and their enterprises differently, according to
the amount and type of entrepreneurial exposure they have had. Their basic orientations reflect dif-
ferent strategies, needs, and growth potentials. Using a series of three levels we will look at these
orientations more closely.

3.1 Level I-Marginal

At Level I people do whatever they must to subsist. They do not perceive themselves as en-
trepreneurs, nor do they conceive of their moneymaking activities as "business opportunities." Their
activities lack the systematic qualities of enterprises at other levels, especially planning and schedul-
ing. Usually, the family of a person predominantly dependent on this sector cannot meet its survival
needs with the income of the one marginal business, but must receive contributions from several
micro-enterprises or income earners.
Activities are often extremely ephemeral-selling chewing gum or cigarettes on a corner, or colas
and candy during parades. In many cases these marginal workers, who are often women or children,
work on a day-basis as unsalaried distributors of large corporations. They are totally dependent on
large producers for what they sell and seldom have enough capital to buy more than a day's worth of
supplies at a time. They have extremely slim possibilities for reinvestment and/or capital accumula-
tion. All of the above constraints limit these enterprises' adaptive abilities, where more often than not
it is precisely the degree of flexibility that may determine an enterprise's viability.
The "Marias" in Mexico, women who migrate between the countryside and cities with their
families, are an example of marginal workers. Their principal concern is day-to-day survival.
Generally living with relatives from the same village in tightly knit "neighborhoods" within the city,
they continue much as they would in the countryside: sleeping on straw mats, cooking over charcoal
burners on a patio shared by numerous other families, and honoring the patron saints of their village.
Usually transient migrants from farming backgrounds, the "Marias" have no personal business
experience. Even when they have potentially marketable skills such as sewing and weaving, they are
unfamiliar with the competitive aspects of strategic planning and organization of profitmaking
business ventures. Their principal employment option is to work as servants in the homes of the up-
per and upper-middle classes. Yet many prefer the hazards of selling on the street, as they do not like
following orders, while they do like being outdoors with their children. In addition, both they and
their husbands try to arrange their income-earning activities so they can return to their villages
whenever the need or opportunity arises.
The "Marias" basic concern is simply day-to-day survival. The main advantage to them of work-
ing in the informal sector is that they can manage their own time much as they are used to doing in
rural areas. This is apparently adequate compensation for the low earnings they receive.

3.2 Level II-Very Small

Level II entrepreneurs have a fundamental understanding of business practices and generally have
either a viable going concern, or good business opportunities. After living in an urban area for a
while, they can be expected to diversify or grow in the existing businesses, or might start more
substantial businesses, albeit at a low level. Typically, Level II entrepreneurs will reinvest whatever

5 Adapted from material developed for the PISCES project by Susan Sawyer, a graduate student in the Harvard School of

resources are available-be it capital, raw materials, skills, effort, time, or ingenuity-into the
business once it has been started. For example, a woman in Colombia began a tortilla business by
making a few extra tortillas for a neighbor who spent her days at the market and who did not have
enough time to make tortillas for her family. Before long the woman discovered that many women in
the barrio were willing to pay for fresh tortillas. She employed one daughter who was old enough to
make tortillas correctly and had the other daughter wash the clothes and tend the baby so she could
devote more time to the income-producing activity of making tortillas. Often, as one woman in a
barrio begins to specialize in a business, another woman's time is freed up to specialize in an activity
which can add an income to her family. Within families, the use of older children as caretakers for
younger siblings is often an important feature of the division of labor within a family, since the shift-
ing of that burden of child care may be a prerequisite for the freeing of an adult woman's time for the
purpose of specializing on income generation.

3.3 Level III-Small

At Level III people have better business skills, strong entrepreneurial drive, and generally a more
substantial enterprise base off of which to work. They understand the basic principles governing their
markets and are flexible enough to expand when the opportunity arises.
The owner of a chicken shop in the Philippines exemplifies the characteristics of a Level III en-
trepreneur. On Saturdays the streets around her shop fill with people selling fresh produce and goods
brought in from the country. The chicken vendor, who grew plants in her home as a hobby, began to
fill the entrance of her shop with her plants, offering them for sale. In addition, during a period when
trade at this small Saturday market began to expand markedly, the vendor directed one of her
daughters to prepare snacks on a little stand in front of the shop. This way they attracted people who
grew tired and hungry while doing their marketing. The sight and smell of hot, freshly prepared food
in front of a small shop which was obviously clean and thriving drew customers on its own. These
people might then be enticed into buying a fresh chicken for their Sunday dinner or a new plant to
make their homes more cheerful.
Other examples of small, Level III micro-enterprises include:
an upholsterer, working with his wife, who has a little shop with one sewing machine;
a shoemaker with a very small rented shop opening into the street, who has one older man as an
a family of tailors, who divided their living area with a cloth in order to create a tiny work area.

The owners of these tiny enterprises, at all three levels, are beneficiaries of the projects described in
the following pages. These enterprises are far smaller than those served by commercial credit or by
traditional small enterprise development efforts. The next section discusses the objectives and entry
points of programs assisting the poor at different levels.


Table II shows how different types of programs reflect the needs of different levels of beneficiaries
and micro-enterprises. Program objectives reflect both the degree of poverty and the degree of
business experience of people living in poor communities.




shops, artisan
Beyond III manufacturers with
employees; often poten-
tial for significant growth.


Small Micro-Enterprises:
Established traders or
III / artisan manufacturers;
net often near $2 per

Very Small Micro-Enterprises:
Owners of very small
II economic enterprises; GROUP
net often near $1
per day

Marginal Micro-Enterprises:
Marginal or no economic

4.1 Marginal Micro-Enterprises: Community Programs

People without businesses or whose businesses are marginal (Level I) are often assisted by
community-based development efforts, concerned as much with access to such basic services as
health, education, nutrition and sanitation, as with enterprise development and income generation.
Enterprise development usually involves creating new individual and collective businesses to provide
enough income to meet basic needs while increasing self-esteem and self-worth. In turn, that process,
as part of an integrated community development effort, tends to promote the collective solution of
problems in the community. Promotion among marginal micro-entrepreneurs is intensive and long
term, reflecting the time-consuming task of directly promoting and organizing within poor com-
munities projects that include several elements in addition to enterprise development.6

4.2 Very Small Micro-Enterprises: Group Programs

Where poor community residents already own very small micro-enterprises that have at least the
potential to produce enough income to meet basic family needs, programs often focus on creating
small informal groups within the community made up of business owners. Groups are generally set
up to collectively guarantee loans. (Group members or group leaders act as co-guarantors for each
other's loans.) In some programs, the groups even take on some of the characteristics of community
organizations, since they act as advocates for the community. For example, in one program, group
leaders administer a fund to help start businesses for the very poorest in the community. In another,
the leaders of the various credit groups, acting as the Board of Directors of the community-based
organization, pressure the local government to improve conditions in the markets and to end police
harassment of hawkers and vendors.
In these programs, groups are formed by the members themselves with little staff involvement, and
leaders are often responsible for the daily collection of loans. Because these programs focus on enter-
prise development, the cost per beneficiary assisted is low compared to programs that address a range
of community problems simultaneously.

4.3 Small Micro-Enterprises: Individual Programs

Innovative commercial bank programs reach small micro-enterprises (Level III) individually by
servicing owners who have an acceptable inventory, a credit history, and/or someone willing to co-
sign a loan for them. These businesses are far smaller than those traditionally served by small enter-
prise programs, but compared to the typical beneficiaries of community and group programs, they
have developed business skills and contacts in the local economy sufficient for commercial lenders to
consider them credit-worthy.
As can be seen in Table III, the objectives of "individual programs" are comparatively narrow: in-
creased family income and increased employment. Costs may be low when these programs are effi-
ciently administered, and normal profits were frequently observed amongst lending institutions who
participated in these programs.

6 In at least one community-based program (NCCK in Kenya) assistance is provided to viable, as well as marginal, enterprises.



Assistance to existing business

Increased family income and employment
among poor

Improved conditions in markets; changed
government policy

Improved self-esteem, self-worth

Enhanced ability to earn a living through
job skills and management training

Creation of new economic activities for
those outside even the informal economic
system-for increased income and employ- I

Access to basic services-health, educa-
tion, water, etc. I

Diversifying the economic base of the com- I
munity by encouraging self-sufficiency and a
linkages to nearby rural areas

Key Community Group Individual
Projects Projects Projects
Most Projects Level I Level II Level III
Some Projects


CHAPTER 5: Projects that Assist Existing Economic Activities
CHAPTER 6: Projects that Create New Enterprises
CHAPTER 7: Impact of Assistance


Projects can be further categorized into two types: those which assist existing businesses and those
which create new ones. Projects which assist existing businesses provide credit and, in some cases,
basic bookkeeping and management training to very small micro-enterprises (generally through
group mechanisms) and to small micro-businesses directly to individual business owners. Similarly,
some comprehensive community improvement projects also assist existing enterprises. Projects
which create new businesses intervene directly to create new individual or collective businesses either
within the context of comprehensive community improvement efforts, or within the context of the
production group. Many of the projects which have created new businesses have been strikingly in-
ventive and effective in working with the neediest, the least skilled, and the least business-oriented in-
As the projects are described, it is perhaps useful to keep in mind a simple model that specifies how
much staff intervention there is in the enterprise development aspects of projects. Although there are
some exceptions, projects which assist existing businesses tend to range between "low intervention"
and "moderate intervention". Projects which start new businesses, however, tend to range between
"moderate" and "high intervention". Table IV, which follows, illustrates a rough way of concep-
tualizing projects with respect to the variable of staff intervention. In existing projects there might be
different degrees of intervention for the different elements, such as skills training or management,
As will be seen below in Chapter 9, the level of intervention is central to the issue of evaluating pro-
gram effectiveness relative to program costs. In general, the higher the level of intervention, the
higher the program costs.







Type of Enterprise Management

Staff does needs
assessment, se-
lects most fea-
sible enterprise
for beneficiaries

Community or
group consults
with staff, se-
lects enterprise
based on benefi-
ciary's present
business or

Beneficiary al-
ready has started

Project staff
manages all im-
portant aspects
of enterprise,
prepares benefi-
ciaries to take

Staff teaches
skills; inter-
venes when

Beneficiary runs
business; little
or no manage-
ment training

Skills Training
Training often
protracted and

Training brief;
existing skills

Training nonex-
istent; business-
owners have
necessary skills

Credit given
strictly in kind
to pay for in-
puts needed for
the collective
economic enter-

Credit based on
careful assess-
ment of business,
limited to spe-
cific predeter-
mined uses

Credit provided
to put owner's
plans into
effect; little
staff guidance

Program staff
finds markets,
handles sales,
returns profit
to producer

Staff assists
in finding mar-
kets; business
owners) re-
sponsible for

Business owner
locates and
(usually local)



Projects that assist existing businesses are either group programs, which tend to reach very small
micro-enterprises, or individual programs, which tend to reach small micro-enterprises. Since credit
is a major component of nearly every one of these programs, we will examine it in some detail before
proceeding to a discussion of the group and individual programs.

5.1 The Credit Component

Properly designed and administered credit components improve on the money lender, usually the
only alternative source of credit for most businesses at these levels, by providing money:
at lower interest rates: often 2% a month or less, compared to 20% a month or more;
in larger amounts: sufficient to significantly increase inventories and purchase equipment;
for longer periods: usually for three months to a year, as compared to a day to a month.
These three factors may make the expansion of the enterprise possible. Among the range of ser-
vices provided by assistance programs to micro-enterprises, small loans are almost always considered
to be the most important for improving or expanding their businesses. Indeed some of the projects
studied show it is possible to increase significantly the incomes of owners of existing micro-
enterprises solely through extending credit. These projects rely on the ability of the business owner to
find supplies, expand production, and increase sales without staff intervention in these areas.
Many of these micro-entrepreneurs have well-formulated plans for their businesses: typically the
business owner has painstakingly accumulated savings to get started; selected a stall, a choice loca-
tion on a main street, and a source of supplies based on hours of consultation with, and help from,
friends and relatives; and attracted customers through referrals by friends and relatives as well as by
their enterprise's word-of-mouth reputation for good products, good services, and low prices. As
these entrepreneurs are responsible for the purchasing, manufacturing and marketing of their goods,
it is not surprising that they have carefully considered how their businesses can be improved.
Micro-entrepreneurs use small loans for several purposes:
1. To pay off money lenders: For larger loans to established customers, money lenders charge an
interest rate of 20% or more per month. For smaller, unsecured loans, they may charge interest
of 20% or more per day. These interest charges are a significant burden on the micro-
entrepreneur. A program in Honduras which extended credit at 2% monthly interest to replace
the 20% loans offered by money lenders resulted in a significant increase in profit and income
for market women.
2. To reduce time-consuming trips for the purchase of raw materials and debt collection: Where
there is insufficient working capital, each day's production depends on revenue collected from
the previous day's sales. Numerous time-consuming trips must be made each day to collect
revenues and to purchase stock and raw materials. An elderly candymaker benefited from a
credit program in El Salvador; she now has sufficient capital to purchase sugar and other ingre-
dients in bulk, and to collect on consignment sales every few days instead of daily. The hours
she works have been cut by 40%.
3. To reduce the cost of stock and raw materials: Lacking working capital, the owner buys stock
and raw materials daily in small quantities at high cost. When a tortilla maker, a beneficiary of
a program in El Salvador, bought cornmeal by the full sack, she enjoyed a substantial quantity
discount. She also saved time and money when she purchased firewood for her stove by the
truckload and had it delivered. Previously, she walked to the firewood seller and purchased it
by the armload.
4. To reach new markets: With more working capital, the small trader or manufacturer can reach
new markets by extending small amounts of credit to those who cannot pay cash. The tortilla
maker mentioned earlier allows customers to pay weekly or biweekly, thereby reaching
customers who were previously unavailable to her. A costume jewelry maker assisted by a pro-
gram in the Philippines will open a stall on the principal avenue and sell at higher prices di-
rectly, rather than through a middleman.
5. To improve equipment and methods of production: The beneficiary of a commercial bank pro-
gram in Quito, Ecuador, used her loan to replace a treadle sewing machine with an electric one.

Now she sews twice as much in the same time. A shoemaker bought a sewing machine to attach
shoe uppers to their lowers, a task he previously contracted out to other shops at high cost and
considerable delay.
6. To expand the existing business: Sales of small artisans assisted by a program in Ecuador in-
creased by over 100%; monthly sales of small traders assisted by a program in the Philippines
increased by over 200%. Although data are spotty and impressionistic, sales increases were
reported in most of the programs we studied, indicating that the market is elastic and that these
business owners have sufficient entrepreneurial talent to handle expanding sales.
7. To start a new business: Many business operators have used additional capital to start a new
business. A seller of soft drinks in El Salvador now hawks cloth to rural villagers. The candy-
maker mentioned earlier now sells cheese in her neighborhood.
Once it is recognized that business owners are the best qualified to decide how to use the credit pro-
vided and that business advice will be provided informally by other business owners in the commu-
nity, the process of designing programs to assist existing micro-enterprises translates largely into how
to provide the right amount of credit to the small business owners quickly and economically while en-
suring that the loans are paid back promptly.

5.2 Group Programs

Programs whose beneficiaries tend to be very small micro-enterprises provide assistance through
various types of grouping mechanisms. For example:
PRIDECO/FEDECCREDITO Program, El Salvador:7 PRIDECO is a government-sponsored
community development agency; FEDECCREDITO is a major credit union. Their program is
based on solidarity groups of 5-8 members who are collectively responsible for paying back the
individual loan of each business owner. Project staff do not form solidarity groups. Solidarity
groups are formed when community members band together as required by the program to
qualify for low-interest loans. Each group elects a leader responsible for handling group
payments. Group members pay the leader daily. This money is then collected from the leader
weekly by a program employee who is paid 1% of the total collected. The PRIDECO/FEDEC-
CREDITO Program in El Salvador has provided loans to 2735 businesses in 18 months. Initial
loans average $80-$200 with administrative costs of $30 for the first loan and $10 for the second
and subsequent loans. The default rate is about 2o%.
Working Women's Forum, Madras, India: The Working Women's Forum, a local PVO, uses a
similar group mechanism. The leaders of each group stand as personal guarantors for the loans
to the 5-50 group members. Group members pay the leader daily who in turn deposits the
money in the lending bank. Each group leader is a member of a very active Forum Board of
Directors that lobbies to improve conditions in the market and to end police harassment. The
Forum has channeled credit to 3,000 businesses in 18 months. Loans average $12-$36. Ad-
ministrative costs are less than $2 per loan plus 10% of the loan's value. Ninety-nine percent of
the loans are repayed.
Manila Community Services, Inc. (MCSI), Manila, Philippines: In this local PVO's program,
the group leader also stands as guarantor for loans to group members. Group members usually
pay their loans to the leader daily. Leaders average 5 years participation in various MCSI pro-
grams and have been carefully trained. Increasingly, they are given more responsibility to train
other group leaders and to do more loan screening. Each leader also administers a $175 discre-
tionary fund to provide $5-$15 loans for emergencies to community people and to help those
who are so disposed to get started as hawkers and vendors. The MCSI program assists 80-90
new small businesses annually. Initial loans average $62.50; second loans average $93.75. Ad-
ministrative costs are about $100 per new business client, but this includes a 3-week orientation
and training in basic business skills. Ninety-five percent of current loans are repaid.
The group selection mechanism in each of the programs appears to be the critical element in their
success. Groups provide the essential loan guarantee and allow a large number of individuals to be

7 Each of the projects briefly referenced here is described in detail in the regional case study sections of this volume.

reached with a relatively small number of staff. In most cases the solidarity groups:
select their own members. Program staff have little say in the matter of who stands guarantor
for whom. This is a key binding element for the group and its "ownership" in the program.
Group members cannot blame staff for poor group selection since the members themselves
determine who they feel are good credit risks;
select their own leadership;
do not take a legal form, as do many cooperatives; rather they are formally constituted within
the framework of the agency concerned, normally through a contract signed by group
work on the basis of community responsibility, mutual trust, and peer assistance;
take the responsibility for most of the up-front analysis and feasibility studies; and
provide a basis and forum for organizing non-economic activities such as advocacy programs
and social services.

5.3 Individual Programs

Innovative projects carried out by commercial banks are reaching slightly larger micro-enterprises
with encouraging results. Banks can at least break even, or sometimes make a profit, delivering these
tiny loans. This opens the possibility of reaching many more of these businesses in the future.
Bank of Baroda, Calcutta, India: The Bank of Baroda Multi-Service Center branch in Calcutta
administers its portfolio of 4000 loans with 10 bank-loan promoters. Each promoter is respon-
sible for supervising 400 loans and for securing new clients. Interestingly, as in the programs
described earlier, bank officials group their clients by communities and depend on recommen-
dations from other clients to involve new people in the program, a kind of informal solidarity
grouping. Administrative costs are low (only $10 per loan) because loans require a minimum of
processing and supervision.
Philippine Commercial and Industrial Bank, Philippines: The Philippine Commercial and In-
dustrial Bank (PCIB), through its 70 "money shops" scattered throughout the country, pro-
vides credit to established commercial stallholders in public and private markets. To qualify for
a minimum loan of $125, the stallholder must have average daily sales of at least $7.50, and
profits of at least 25%. Loans are repaid on a daily basis. Each money shop operates from a
stall in a public or private market where there is a concentration of 400 to 800 sellers. By ag-
gressively expanding into this market, the PCIB gains loyal clients, significant expansion of its
portfolio, and an important source of profits. The money shops were to have $3,000,000 to
lend in 1980 in amounts ranging from $125 to $1250. No figures were available on the ad-
ministrative costs per loan, but the bank claims it is making a profit on these loans, and seven
other financial institutions are now competing for this lucrative and expanding market.
Banco del Pacifico, Ecuador: This bank makes small loans to established artisan manufac-
turers with good credit histories and co-signers. In contrast to the other programs mentioned in
this section, the bank completes an economic analysis of the proposed project and develops a
detailed plan for utilizing the loan funds. Its administrative costs are thus somewhat
high-about $100 per loan upon an average loan size of approximately $1,100. All field work is
completed by part-time university students with no business training. The Banco del Pacifico
has a portfolio of 900 loans to small artisan manufacturers. These businesses have created 400
new jobs, doubled their monthly sales, and increased their owners' incomes significantly.
Although the projects which utilize bank financing spanned three continents, they share similar
a separate unit in the bank with specially oriented personnel for this type of lending;
simple methodologies for processing and administering loans; and
formal contractual relationships, but with formalities held to a minimum.

5.4 Salient Features of Group and Individual Projects

The most salient elements and characteristics of group and individual projects are as follow:
Beneficiaries: The vast majority of the beneficiaries of these programs are women (e.g., over
86% of the clients of FEDECCREDITO are women) engaged in economic activities from
which they gain all or a good part of their income. Typically, they run small production shops,
corner stores, fruit stands, etc. They earn on the average between $1 and $2 per day. Businesses
served by commercial bank projects tend to be slightly larger, well-established, and able to pro-
vide guarantees for loans-such as inventory, a lease on a market stall, or a co-signer. Most
business owners have been engaged in some type of urban economic activity for between 2-20
Promotion and outreach: To promote their services effectively, programs must have credibility
within the communities in which they operate; they cannot be perceived as posing a threat or as
working for someone else's interest. FEDECCREDITO, for example, found it difficult to at-
tract clients until it acquired legitimacy by linking up with a community development program
which had the staff and the experience in the communities, and was known and trusted by the
Personnel: The efficiency of these projects is also reflected in the type of staff needed. Staff's
primary role is to disseminate information about the project and to facilitate the simple paper-
work. At the promotion level there is little need for staff with special training in business.
Credit: Credit terms are considered as a package and should complement and reflect the repay-
ment capacity of individual entrepreneurs. Most programs stress the importance of the educa-
tional experience of managing credit-of slowly increasing their clients' awareness of credit as a
business tool and developing their ability to handle progressively larger loans. The programs
have had great success using these methods-loan repayment rates for group or individual pro-
jects using solidarity group or individual loans were at least 90%, and often 98% or better.
Costs: A primary objective of projects that serve established micro-enterprises is to offer credit
to large numbers of people, in amounts small enough for them to handle, and with effective
guarantee mechanisms. If the solution is to be more than a stop-gap mechanism, the program's
costs must be held within bounds.

5.5 Limitations

Although the clients of these projects are concentrated in the poorest communities, they are
typically not the most destitute. The beneficiaries of these programs tend to be long-term urban
dwellers who have several years of business experience. They also live in densely-populated urban
enclaves close to the market sources of raw materials.
The grouping mechanism also limits those selected for assistance. Groups select their members,
leaving out those considered to be poor risks or recent migrants who might be good risks but who are
unknown. Commercial bank programs are even more selective and generally require entrepreneurs to
have physical assets or co-signers. Some selection process is necessary to ensure good payback;
however, except indirectly as employees of businesses that have expanded as a result of assistance, the
most needy will probably remain unserved by projects which assist more established enterprises on an
individual basis.
In spite of these limitations, however, the advantages of such programs can be summarized as
The program can keep costs per beneficiary down.
Clients are easy to identify and service.
Programs are not dependent on elaborate organizational arrangements and astute leadership.
Such programs may prove to be readily replicable for the above reasons.
Finally, note should be taken that the benefits accumulating to borrowers are a result of capital's
relative scarcity for the poor. The programs described above provide "rations" of low-cost credit. If
capital markets were to operate efficiently and without heavy distortions of the kind which exist in
most developing countries, and if they were to effectively serve the smallest enterprises as these pro-
jects have shown possible, small-scale enterprises would be able to compete for markets more effec-

tively. Although outside the scope of this study, the need for financial market reform in many coun-
tries should not be overlooked.


The second major division of assistance methodology is that of projects which assist new enterprise
efforts. Among these we studied community-based projects and group-based projects.

6.1 Community-Based Projects

The intensiveness of enterprise development activities of the community-based projects which
create new enterprises can be analyzed along a continuum. Some of the programs that intervene least
(e.g., Bangalur Layout) provide credit to the project participants, but little else. On the other hand,
some of the programs that intervene most (e.g., the Institute for Cultural Affairs, Kenya) create com-
plex organizations and manage them until local community people are able to assume responsibility
for them. Most projects, of course lie somewhere in between.
Bangalur Layout, Bangalore, India. Located in one of the poorest communities in Bangalore,
India, this project moved into enterprise development after five successful years of integrated
community development. It works with 120 families that have a strong interest in "improving
themselves." With the assistance of a local bank, the project has facilitated the financing of 75
new businesses, the average loan being $61.25. These small commercial operations are identical
to those commonly found in the community, so no additional skills or management training is
necessary. Business ideas are presented to the staff by those who are soliciting a loan, so a com-
mitment to the business to be started has already developed. Administrative costs are nominal
for this program which is largely run by community volunteers.
National Christian Council of Kenya. The National Christian Council of Kenya (NCCK) works
throughout the country in primary and secondary cities. The vast majority of the beneficiaries
are extremely poor women. Income is on the order of $15 per month and the average number of
dependents is 6.5. These are essentially traditional people in a state of transition towards more
formal economic activities. They have little "business" experience and low skill levels.
The NCCK program both assists existing enterprises and helps in the establishment of new
cooperative enterprises in conjunction with other community improvement efforts. These sim-
ple cooperative ventures-promoted by NCCK social workers with no special expertise in enter-
prise development-use the skills people already have, such as sewing and animal husbandry,
as their starting point.
The cooperatives which are formed market their goods collectively, sometimes through shops
run by the NCCK, and arrange for the collective purchase of raw materials. Sometimes they
work in the same shop together. When these groups are successful, beneficiaries, many of
whom have heretofore only marginally participated in the economic system, have increased
their incomes by about a dollar a day. Administrative costs of these groups are moderate.
The Village Polytechnic Program, Kenya. The Village Polytechnic Program in Kenya trains
poor youth at a low cost compared to traditional vocational education projects. It does so by
involving a community in an assessment that determines the skills needed in the local commu-
nity and then utilizing local skilled artisans as trainers. Early in their training, the youths sell
their products cooperatively to defray part of the training costs. Part of the sales income is
deposited in a fund that will help establish a cooperative enterprise for the group after the train-
ing program has been completed. This fund is also used to purchase tools for setting up new in-
dividual businesses or to help group members make the transition to wage labor in a factory or
Village Polytechnics are set up at the initiative of the local community with little staff in-
tervention. After two years of successful operation, the Polytechnic is eligible for government
assistance to expand the program, but the program is structured so that initiative remains with
the local community.

Institute for Cultural Affairs, Nairobi, Kenya. A comprehensive and intensive approach to new
enterprise development has been adopted by the Institute for Cultural Affairs8 (ICA) project in
Kawangware, a large squatter settlement on the outskirts of Nairobi. Although there are several
ICA projects underway in Kawangware, the largest is a highly labor-intensive urban agriculture
project. The scheme is based on single-acre units being worked by five-person teams, each hav-
ing a team leader. The major crop is French beans, which are harvested every ten weeks
throughout the year. Each acre is divided into three rotating plots with 1/3 maturing, 1/3 being
cultivated, and 1/3 seeded. There are currently two farms in operation as well as a demonstra-
tion farm, which also serves as a training site.
The project is managed centrally. All farms have access to a single equipment pool, a central
supply service and a shared irrigation scheme. Credits are extended on an in-kind basis for all
inputs. Salaries are paid through a central finance unit.
In sharp contrast to projects for assisting existing enterprises which assume that with more
capital the owner will find the market for increased sales, or to community-based projects like
that of the NCCK that help organize and orient small-scale already existing groups, the
Kawangware project is functionally so complex that it would soon fail without continuing and
extensive staff input. Consequently, it is managed directly by the ICA although it is assumed
that eventually the local Association will take over managerial functions. This transition is seen
as a long and intensive process.

6.2 Salient Features of Community-Based Projects

Characteristics of effective community-based programs include the following:
Direct Promotion. Usually, programs are promoted directly within communities by experi-
enced staff workers who are known to the people in the locales. This type of promotion is
necessary to determine legitimate local priorities and to gain the trust of people who are isolated
from the mainstream of social and economic activity and have little or no experience with for-
mal credit and technical assistance institutions.
Intense, locality-specific assistance. Services are provided to specific groups and areas.
Centrally-located services, such as credit through banks and management assistance available
on request, have not proved effective.
Range of services. Because of the great diversity of needs of the population reached, these pro-
grams often provide a range of services extending well beyond the core elements of employment
and income generation, including day care centers, literacy training, nutrition programs, com-
munity organizing and advocacy.
Client selection. Clients are selected informally on the basis of personal knowledge of the pro-
Focus of services. With the exception of the Bangalur Layout, services are delivered to groups
of clients organized into cooperative enterprises. Several reasons are given for grouping
1. to reach more people with less staff time;
2. to provide a guarantee mechanism for the loan, since few beneficiaries have collateral;
3. to lower fixed and variable costs involved in enterprise start-up and operation;
4. to increase the sharing of skills, experiences and aptitudes among the population reached;
5. to provide mutual reinforcement during a difficult transition process.
Marketing. Marketing is a difficult problem, and perhaps, the most serious challenge faced by
these projects. Target businesses generally provide low quality products and services, work in
very limited markets and lack access to the more profitable sectors, and face intense competi-
tion from both the formal and informal sectors. In response to these difficult realities, the
Village Polytechnic Program, for example, attempts to identify needs within the immediate
locality. A second alternative, practiced by NCCK, involves a direct marketing intervention

3The Institute for Cultural Affairs is a U.S.-based PVO.

(both domestically and internationally) on the part of the agency itself. None of the programs,
however, have come up with a wholly satisfactory answer to the marketing dilemma.
Credit. The provision of credit is an essential element of the projects studied. Credit is delivered
as a part of a comprehensive assistance package. As most clients have never borrowed from
formal credit channels, the programs are generally conservative and cautious, being diligent to
match carefully credit terms with the needs and abilities of the borrowers. An aspect of this
conservative approach involves very close supervision and the granting of in-kind credits, ex-
cept in the case of retail businesses. Interest rates charged are lower than commercial rates and
collateral requirements are waived. More important, perhaps, is that the terms of the loans (the
interest rate, the amortization period and the principal) are carefully adjusted for each in-
dividual case. The high degree of flexibility and close supervision together appear to account
for the very low default rates experienced by the programs.
Training and technical assistance. Most projects dealing with adults do not engage heavily in
skills training because of the high costs and inability of adult clients, especially women, to free
up enough time. The focus of the training is on on-site managerial and technical assistance to
complement and build on existing skills. A different approach is taken in youth projects, such
as The Village Polytechnic Program, in which long-term higher-level skills training is under-
taken in response to specific needs at the local level.
Enterprise promotion. Reflecting the complementary approach of the training components, ef-
forts are made to tie spin-off enterprise initiatives to what is economically feasible and to ex-
isting economic skills and talents. Thus, most projects help promote such activities as handi-
craft production, bookkeeping, sewing, etc.
Management assistance. The management assistance provided reflects the basic assistance
needs at this level, in the areas of costing of labor, pricing, marketing, and credit utilization.
Staffing. Projects take great pains to recruit staff from within the communities in which they
work. Most senior administrative staff in many of the programs began as field-level personnel.
The programs are also highly decentralized, with relatively small and autonomous units free to
make many of the important decisions affecting the beneficiaries.
Wider significance of projects. The relationship of many programs to local and national
governments is a critical aspects of their wider significance. Several have demonstrated an abil-
ity to attract public sector involvement and support to the level at which they operate. The
Village Polytechnic Program, for example, which was started by NCCK, is now run by the Ken-
yan government.

6.3 Group-Based Projects

In contrast to the community-based projects that promote the development of new enterprises
within the context of a single community, other projects form new enterprises organized as a produc-
tive group with no special effort to relate these to the larger community. One of the most creative ex-
amples of this type of project is presented below.
National Association of Educated Self-Employed Youth (NAESEY), Madras, India. NAESEY
creates new enterprises by separating into its component parts large complex businesses. Each
resulting unit then receives support assistance as a separate business while at the same time re-
maining an integral part of the whole. One of NAESEY's projects, for example, divided a ver-
tically organized dairy enterprise into its constituent milk production, collection, processing
and distribution components, resulting in easily managed tasks, each performed by self-
employed individuals with little business experience.
Rural youth receive loans to purchase one to three cows to start milk production. Other
youth receive loans to be set up in businesses for milk distribution, feed distribution and pro-
viding veterinary services. Each youth's business is linked to all the others involved in the pro-
ject to create an integrated production and distribution scheme.
There is a strong sense of group loyalty among the young owners who view this project as a
movement as much as an opportunity to earn a living. Average income in the milk business is
$65 to $100 per month-quite high by Indian standards. When the milk project is fully
developed, 1,000 new jobs will have been created. Program costs are completely covered by a

1% levy on the gross sales of each business. There is no subsidy.
Several factors seem to account for NAESEY's success. First, it selects businesses that have a
large unmet demand and that can be broken down into smaller component parts. Second, each
of the small businesses which were set up is simple enough to run, such that training programs
are unnecessary. Finally, the charismatic leadership of the founder of NAESEY infused all
aspects of the enterprises with enthusiasm that has made participants feel they are an integral
part of a growing movement.


The positive impacts of the various projects observed have a social component and an economic
component, which are necessarily interdependent.
Evidence from several programs indicates that in many cases incomes of assisted businesses in-
creased significantly. Most of the respondents from programs studied in the Philippines agreed that
without these loans their income probably would not have increased much faster than the inflation
rate (15% a year). In many cases their income more than doubled.
The difference in earning a dollar a day to meet the needs of an average family of 5-8, and $2 a day
is dramatic: children may be sent to school, the sick can see a doctor, housing can be upgraded, and it
becomes possible to save for future investment in the business.
There is also evidence of increased employment-e.g., a seamstress hires another woman to help
part-time to make tortillas; a candymaker now hires her two sons. A study of the Banco del Pacifico
program in Ecuador showed a 20% increase in employment in the businesses assisted, and this was
accomplished with no subsidy and no loss to the bank.
Participation in a solidarity group tends to increase one's involvement in other social and com-
munity activities. Participants in the programs in the Philippines were more likely to give others
business advice and to participate in community improvement projects after they had joined the pro-
gram. Conversations with members of solidarity groups revealed that the groups had become a
source of mutual assistance and support for them. The dedication and sacrifice of the leaders of the
solidarity groups was also noted. Participants in bank programs were active in encouraging others to
join the program, as were the participants of all other programs.
Enterprise development was an integral and important component of the process of community
upgrading in the community-based projects. In one program, the Working Women's Forum, there
was a major effort to improve conditions through political pressure. With articulate leadership and
the strength of five thousand organized women behind them, the Forum has been able to improve
conditions in a public market, and to bring an end to police harassment.
The sections that follow present the general lessons learned from these projects. They will provide
a basis for the discussion of what those projects imply for donors and practitioners, and for the ac-
tivities planned in PISCES Phase II.


CHAPTER 8: Characteristics of Effective Projects
CHAPTER 9: Lessons Learned


Despite the diversity of beneficiaries, the different types of implementing organizations and the
varied environments in which they operated, in the most effective projects we found one precept to be
universally valid: Program inputs reflect the plans and desires of those they serve and to the degree
possible stay close to the level of skills and knowledge that commonly exists in the community. When
this precept is violated, project complexity and cost per beneficiary increase, while the number of
people who can be served decreases significantly. Projects that respond to what people want and
which orient assistance according to the level of skills and knowledge of the business owner enable
the following:
Efficient delivery of credit. Existing businesses can utilize profitably small amounts of capital.
They presumably have already thought through how they can expand their sales. Sources of
raw materials, the skills necessary to transform them and the market remain essentially the
Setting up new businesses. New individual businesses can be set up more easily when they are
no more complex than others that are common in the community. This way they can use the
assistance of interested neighbors with business skills when they have a doubt or need support.
Enterprises consisting of large numbers of new separate businesses can be set up when the task
performed by each individual business within the system is well defined and the relation bet-
ween different businesses is clear.
Providing job skills training. Inexpensive training programs are possible when the skills are
known in the community and can be taught by local artisans.
Assisting cooperative enterprises. Cooperative enterprises can be established more easily if they
are built on a group that is already working informally together, if they share a common pro-
duction technology and if they can identify a local market.
Programs which follow these principles tend to:
be simple and low cost;
actively involve the community or groups in the planning process.
They also tend to:
use community volunteers for promotion, for outreach selection, for providing business ad-
vice, and for managing very small loan funds;
spread rapidly, by word of mouth, after an initial project implementation phase with very little
promotion; and
employ staff whose expertise is community organization, not business.
Even though they spanned three continents and served a range of beneficiaries with a variety of
programs, the effective projects frequently exhibited similarities in respect of the following elements:
program design, staffing, outreach, selection, credit, bookkeeping and managerial assistance, job
skills training, and marketing assistance. Each of these elements will be discussed below in turn.

8.1 Project Design

Every project described in the case studies which accompany this report is the product of an ex-
tended process of project design as well as of a continuous process of change since project inception.
Most were developed only after an intensive exercise was carried out to identify the problems of poor
people. Most important, the major source of program modification seems to have come from daily
interaction with program beneficiaries. Good project staff has the ability to listen.
The case studies suggest in general that projects should be designed with the participation, and
focused on the needs, of the beneficiaries and their local community, rather than attempting to im-

pose upon them an externally-designed formula program. Even if it were possible to design a pro-
gram without local inputs-which is doubtful-it would probably not be desirable. The staff,
through interviewing potential program beneficiaries, develops contacts in the community and gains
an appreciation of the needs and abilities of those whom their projects will serve. They then may in-
corporate this knowledge into their program design. Projects that do not incorporate new informa-
tion can remain static, stagnate, or drift off course. Also, projects that consult beneficiaries are more
successful in involving them in programs.
Probably one of the most important design elements of these projects is flexibility-the ability to
adapt programs to meet the changing needs of their beneficiaries. This attribute finds its counterpart
in the accommodation pattern of informal-sector businesses.

8.2 Staffing

It was frequently observed that the field staff of these projects are usually not trained in business.
The most important skills are the ability to relate to people in the poor community and to organize at
the grass roots level. In the Banco del Pacifico program, for example, part-time employees who are
also university students completed detailed business analyses. In the Manila Community Services
programs, community volunteers perform many of the functions of selection and loan approval.
None of those persons were employed on the strength of their "business" expertise per se.
A good case can be made for using this level of staff for field work. One obvious reason is cost.
Several students can be hired as part-time employees for the same cost as an experienced business
school graduate. Second, promoters working with credit programs typically spend very little time
with each business owner-the forms to be filled out are simple and do not require special qualifica-
tions to administer. Most of their time is spent identifying potential clients, explaining the program
and impressing upon them the importance of regular payback-tasks that would quickly frustrate
and bore more highly qualified staff. Third, the work is rewarding. The often young promoters see
working with micro-businesses as challenging and fulfilling an important social function. This is
demonstrated by their enthusiasm, commitment, and hard work.
Most programs recognize, however, that the generalist field staff needs someone at a higher level
with business expertise to advise them or to approve loans. This can be provided within the program,
as in the Self-Employment Assistance Program of the Ministry of Social Services and Development
of the Philippines, where loan proposals developed by social workers are reviewed by a Project
Evaluation Officer who can veto the proposal if it does not seem feasible. It can also be done outside
the program, as in the programs coordinating their services with local banks where the bank officers
make the final decision after the field staff develops a proposal. Indeed, many programs have found
it advantageous to separate the functions of "packaging" from those of loan approval.
When this kind of backstopping is not available it is often mentioned as a key need. Thus the social
workers of the NCCK stressed their lack of skills in selecting economically viable projects, a concern
which was shared by Manila Community Services, Inc.
As programs intervene more directly in the process of enterprise development-e.g., in respect of
selecting viable businesses, job skills training, marketing, and establishing larger cooperative ven-
tures-the need for technical expertise increases. Yet, assisting uneducated, often dispersed, informal
sector entrepreneurs is vastly different from working with even small formal sector business people.
Adapting the skills of the technician to the realities of promoting businesses at this level is a major
area of needed innovation.

8.3 Outreach

No program we studied simply opened a micro-enterprise office in a central location and started to
provide services. It is doubtful that such an effort could be successful even if tried. To reach the
poorest community residents, program staff will first have to promote the idea directly in the com-
munity. This type of promotion is necessary to gain the trust of people who may have a profound

sense of isolation and who may have little or no experience with formal credit and technical assistance
Successful programs have promoted their assistance services through the following mechanisms:
house to house censuses of business activities combined with explaining the program;
adding business enterprise components to an ongoing community development effort, in which
case project staff already know people in their community;
"piggybacking" business programs on groups developed by other organizations possibly for
other purposes; and
setting up offices in the midst of markets and hiring representatives of the local market leader-
ship to work in the local office.
Once it is perceived by tiny business owners that the projects are a "good thing", they tend to be
self promoting. In several programs, staff that previously worked in outreach are now working full
time to process applications. As we talked with participants they frequently mentioned how they con-
vinced others to join the program.

8.4 Selection

Once the program has informed people about the project, it must select those who should receive
assistance. Although selection procedures vary from program to program, they are evidently quite ef-
fective as evidenced by high payback rates (in the case of lending programs), which implies that credit
is being used productively.
The most important selection criterion seems to be the individual's reputation among other com-
munity residents and local business owners, since few borrowers at these levels have a significant
amount of collateral. For example, in group programs, group members determine who is credit wor-
thy enough to be a member-a serious decision, since either the group leader or the other group
members (depending on the project) are responsible to pay in case of a default by one of the
members. Even in credit programs where loans are secured through inventory or a co-signer, initial
selection may be based on the recommendation of community leaders, program participants, or other
people with whom the applicant has had a credit history.
The second part of the selection process is generally some kind of business or project analysis. The
detail in which this appraisal is done may vary from a bank officer spending a few minutes with each
client in a group session called by the solidarity group leader, to a complete cost-benefit analysis with
projection of profits based on the purchase of certain equipment and raw materials. Typically, after
the initial application for assistance is made, a field worker will visit the owner at the place of
business to verify that it exists and to explain the conditions for assistance. Some programs have their
staff fill out extensive reports on each client and the business which supposedly includes the objective
information needed to make a decision on whether or not assistance should be granted. Other pro-
grams collect very little information. There seems to be little relation, however, between the amount
of information collected, and success as measured by high payback, once again underscoring the im-
portance of good reputation as the most important indicator for selection. The challenge which pro-
grams have dealt with creatively is how to assess who is a good risk.

8.5 Credit

Owners of businesses desire credit more than any other services, and several projects have been
remarkably successful in developing mechanisms to grant very small loans at relatively low costs
while ensuring loan repayment.
Assuming that the program has selected a good client, several generalizations can be made about
approval of, and collecting on, very small loans:
Loan amounts: To reach the smallest businesses, the projects we observed delivered first loans
averaging $12 $200, depending on the project. Loans for the slightly larger micro-businesses
served by bank projects tend to be higher: $200 in India, and $1,100 in Ecuador, for example.
Minimum loans of the Money Shops in the Philippines were $125. The first loan should be very

small for two reasons: first, it tests the individual's ability to repay; second, it avoids over-
burdening the business with more money than can be invested wisely.
Staging: To minimize risk both to the program and to the client, loans to very poor people
should be staged when possible. For example, in the Bangalur Layout program in India, when a
woman was granted a loan to start a kerosene distribution business, she was given a $54 loan to
rent all the necessary equipment and purchase kerosene. With two additional loans of $125
each, she was able to purchase a cart and a bullock. Each subsequent loan was paid back before
the next was granted.
Terms: Most programs appeared to provide a first loan to existing businesses for no more than
three to six months. A series of small loans with increased amounts repaid quickly presents a
manageable risk to both the businesses and the program. After business owners have a proven
record of payback and business expansion, they can be considered for a longer term loan for
equipment or installations. Programs starting cooperative businesses, however, often grant
loans for longer periods, arguing that businesses need more time to begin to accumulate sav-
ings. This is especially true if there is a considerable investment in equipment and installations.
Interest Rates: It is generally thought that interest rates for micro-businesses should be low.
Yet, if interest rates do not cover costs of risk and administration, financial institutions have
little incentive to lend more than that decreed by government regulations, or by their sense of
corporate responsibility. While those who receive loans at concessionary rates have an impor-
tant advantage, many others equally well qualified, will not receive loans because of lack of
funds. Loans even at comparatively high interest rates are generally more advantageous for the
micro-business borrower than would be the alternative of securing funds from a money lender.
Others argue convincingly that the owners of the smallest enterprises should receive a conces-
sionary interest rate, at least for their initial loans, so that their businesses can become better
established. Alternatively, the amount of time for paying back the loan can be extended.
Resolution of this issue is beyond the scope of this study. A project funded by A.I.D. in
Bangladesh is experimenting with variable interest rates up to 35 percent per annum. Evalua-
tion of that study may throw some light on this issue.
Frequency of loan payback: Loan payback periods should reflect the cash flow cycle of the
economic activity in question, and the time frame in which the client is used to thinking.
Retailers generally pay their solidarity group leaders daily, since they purchase and sell their
stock daily. Clothing or shoe manufacturers might pay their loans back on a weekly or monthly
Loan collection: Almost all the programs are businesslike about loan payback to maintain good
relations with financial institutions, encourage good habits among beneficiaries and avoid the
depletion of the loan fund. This is accomplished through several mechanisms:
group members pay group leaders;
loan holders pay the "Money Shops" daily;
banks hire local people as loan collectors and pay them a commission; and
loans are collected by project staff.
All programs maintain some flexibility in loan rescheduling because of sensitivity to the financial
impact of sickness in the family or some other emergency. Loan rescheduling tended to be quite fre-
quent in programs at the lowest levels of beneficiaries.
If these loan collection mechanisms fail, program staff follow up vigorously. They, or the banks,
can employ a number of sanctions, including halting further loans until outstanding loans are repaid,
taking legal action, and repossessing equipment. Generally, the incentive of future loans and the peer
pressure from other group and community members are sufficient to keep the rate of payback high.

8.6 Bookkeeping and Management Training

While there is apparently no lack of entrepreneurial talent for starting and maintaining small
trading and manufacturing activities, the entrepreneurial skills required for larger, better organized
businesses are generally lacking. For example, the few dollars of daily transactions of small traders,
service-providers, and manufacturers are rarely recorded. People sell, perhaps set money aside to

purchase stock or raw materials, and use the rest for family necessities. Often their methods are inef-
ficient: there are too many stoppages in production, and products are not well displayed and
To overcome these limitations, some programs have attempted to train business owners in simple
bookkeeping and management. This has brought mixed results because it is difficult to convince
owners of micro-businesses of the necessity of business training, since they often perceive that their
own informal systems are adequate at this level. At the same time, it is difficult to translate apparent-
ly simple business concepts into terms understandable to largely illiterate or functionally illiterate
slum dwellers who keep no records of any kind. At the minimum, what is required is that the notion
of the business's economy must be kept distinct from the family economy in the mind of the en-
In addition to more formal management training, upgrading of at least rudimentary management
skills may occur informally through conversations between staff members and program participants,
and conversations between project beneficiaries and others in the community. Project beneficiaries,
especially group leaders, explained to us how they gave advice to others in the community about mat-
ters such as what line of business to get into. Understanding how business expertise is exchanged in-
formally through conversations with staff and among the business owners themselves, is an area that
should be more thoroughly investigated.

8.7 Job Skills Training

Many of those living in urban areas are unskilled and illiterate; most of these people are destined to
work as unskilled laborers, hawkers, or petty traders. Some of the unskilled will find jobs where they
can learn trades or be apprenticed. In addition, a good case can be made for providing special skills
training opportunities for the youth of the very poor. For instance, with training in carpentry,
automobile mechanics, radio repair, or sewing, particularly when supplemented with management
training, people who might not otherwise be absorbed into formal sector wage employment can start
their own businesses and earn more money than they could as petty traders or unskilled laborers.
Our study of training components of programs revealed that:
in areas where demand is high for skilled workers (urban Kenya, for example), most training
program graduates will be hired by larger firms (rather than starting their own businesses),
where their incomes will be higher than those of unskilled laborers;
in areas where the demand for skilled labor is low (such as Metropolitan Manila), a large pro-
portion of the graduates will remain unemployed because they do not have the attitudes, capital
or business skills to start their own businesses; and
if trainees are to start their own businesses after graduation, programs must provide training in
basic business skills as well as a loan fund, supervision and encouragement after the course is
A combination of job skills training, business training, and intensive follow-up is essential if the
job skills learned are to be put into practice. Separating technical training from business training and
follow-up is a major limitation of most vocational education programs. The Village Polytechnic Pro-
gram in Kenya creatively dealt with this problem by organizing students into work groups that start
producing to defray the cost of training from the earliest months. The program tries to provide small
amounts of capital to graduates so that they can start their own businesses. Although it has had mix-
ed results in enterprise creation because of a shortage of staff to follow up and assist the graduates,
its mechanism is certainly worthy of further experimentation. The key is to distinguish among the set
of occupational skills those that are critical from a technical point of view, and those essential to en-
trepreneurship and business management.

8.8 Marketing Assistance

The provision of marketing assistance is an additional support mechanism which seems sorely
needed. For many small enterprises, marketing problems (i.e., lack of assured demand) will continue
to form the greatest constraint to their growth and prosperity.

Most of the enterprises run by the poor produce and/or trade very basic and simple goods and ser-
vices, usually in highly competitive markets. Due to lack of access to large and assured markets for
their goods and services, micro-enterprises seldom can achieve even rudimentary scale economies,
thereby limiting their profit/income potential. To counter this circumstance, programs either assist in
the identification of stable marketing channels, or establish central marketing places for the goods
produced by client enterprises. Simply put, in the absence of market opportunities there is no purpose
to any of the other enterprise upgrading activities discussed in this paper.
In practice, limitations on the marketing side take several forms. For example, demand for han-
dicraft items can be highly variable, and for that reason may not be a reliable source of income. Pro-
ducing simple consumer goods, such as clothing and footwear, may be subject to competition by
large-scale firms. There is also the problem of static final demand if the local economy is not expan-
ding. Attempts to overcome this problem by exporting the goods produced can be logistically com-
plex, may lead to severe exploitation, and/or expose entrepreneurs to the risk of becoming special-
ized in areas of production which are heavily dependent on market forces well beyond their control or
Perhaps the most effective approach for dealing with marketing problems, adopted by some pro-
grams, is to identify carefully the demand for skills and products within local communities and then
match the areas of training and enterprise promotion to these needs. In the Village Polytechnic Pro-
gram, for example, local management committees are required to assess the local need for particular
skills before selecting the training courses to be conducted. Another approach seen in several of the
programs reviewed involved the direct intervention of the assisting entity (e.g., the PVO) in the iden-
tification or establishment of marketing channels for client enterprises.


9.1 General Conclusions

The urban informal and micro-enterprise sector provides a large and in some countries an in-
creasingly important source of income and employment. It is estimated that the Third World
will need 782 million new jobs between 1980 and 2000. Since more people are crowding into
cities (the rate of population increase in many cities exceeds 5 percent per annum) an increasing
proportion of these new jobs will need to be created in the urban areas. Currently from 20 per-
cent to 50 percent of those working in the cities are employed in the urban informal sector, and,
in many areas, this percentage is increasing as larger scale industries, services and commerce
have proved incapable of expanding rapidly enough.
The micro-businesses of the urban poor face many problems. These problems include, in many
areas, a policy environment that provides concessions to larger businesses while saddling
smaller businesses with excessive regulation and outright harassment, lack of credit at commer-
cial interest rates, lack of access to raw materials and equipment, and lack of access to adequate
The programs described in this study demonstrate that it is possible to assist informal sector
micro-businesses. These programs have:
1. assisted significant numbers of the smallest already existing informal sector businesses with
initial loans of less than $100. Administrative costs are relatively low, and payback rates
often range from 90 percent to 99 percent;
2. helped the poorest people enter urban economic activities by providing loans of less than
$20. Other very small micro-retailing businesses were established with loans averaging $60;
3. successfully intervened to create new businesses that link together suppliers of raw
materials, producers, and markets, while increasing incomes at each level;
4. trained poor youths at relatively low cost, and provided the necessary experiences and
follow-up support to help them start new collective and individual businesses; and
5. established cooperative businesses where people working together were able to pool
resources and equipment and to sell collectively.

Programs have significant impact on the family and community. Although evidence is scattered
and often impressionistic, our initial observations are that:
1. programs that assist the smallest of already existing businesses often increase the income of
the owners substantially. Many who were earning one dollar a day are now earning two
dollars or more. New individual and collective businesses often provide one to two dollars
of income a day to those with marginal economic activities who are outside even informal
sector economic activities. New income is most commonly used for basic necessities, such
as food, health care, schooling, and shelter. As these businesses expand, new employment
is often created for the family or neighborhood;
2. there are also non-economic impacts. In some projects enterprise development is a core
around which a comprehensive effort of community change is organized, while in others,
enterprise development has emerged out of community improvement efforts. At least one
project helped form an organization of poor women entrepreneurs that led to improved
conditions in the markets and a lessening of police harassment. Project participants in the
Philippines tended to provide more business assistance to each other, and to help more in
community improvement efforts, than before they joined these projects. Increased self-
confidence and motivation is notable in all programs; and
3. finally, projects mostly assist women entrepreneurs. In general, the smaller the size of the
businesses reached, the larger the proportion of women business owners.
Enterprise assistance is a strongly felt need among the poorest urban dwellers.
1. Many projects moved into enterprise development even though their original goal was com-
munity development or to provide social services. The urban poor often made it evident to
project staff that their most immediate need was earning an income.
2. The intensity of this need is demonstrated by the extremely rapid growth of these pro-
grams. Many could have served a larger clientele if they had additional funding for loans
and staff expansion.

9.2 Program Setting

Each program appeared to be responsive to the obstacles and opportunities presented by the local
setting and the characteristics of the beneficiaries. In general, the needier the population, the more
long-term, intensive, and comprehensive is the program.
Project development and implementation may be facilitated where certain preconditions are met.
For instance:
if a government policy favors the urban informal sector, then banks and other financial institu-
tions tend to be more receptive to extending credit to this level directly or through local in-
termediary organizations;
if the local population is rapidly increasing and if economic conditions are improving, then the
local market will also be growing, and new opportunities will tend to open up at the bottom as
more established informal sector firms expand to serve new markets,
if there is adequate physical infrastructure, then it will be easier and cheaper to transport raw
materials and finished goods;
if the project beneficiaries live close to the city center, then markets and supplies and needed
contacts will be closer at hand;
if the community has a tradition of working together, possesses trust and solidarity, and is open
and experienced in working with outsiders, then the initial barriers of suspicion of outsiders
(and of each other) will be easier to overcome; and
finally, if the program beneficiaries are long-term residents, already own their own
microbusinesses, have enough income to save as little as a few cents a day, and are literate and
have job-related skills, then program inputs with each business may be less intensive.
On the other hand, when the local setting is less favorable:
credit must often be managed and provided by the project because banks are unwilling to lend;
skills must be taught because they are not common in the community; and
markets must be found externally because they are not available locally.

Projects may work effectively when the local setting is not favorable and the level of beneficiary is
very low, but assistance is more protracted, more intense, and more uncertain in its results.

9.3 Types of Projects

Projects must be responsive to particular relationships among economic and political conditions,
the community setting, and the characteristics of the beneficiaries. It has been found that programs
tend to work through:
the community, when the needs to be addressed are basic services, and when the beneficiaries
have no, or only very marginal, economic activities;
groups comprised of business owners, when the principal needs are loan guarantees for credit,
and a mechanism for mutual support within the larger community; and
individuals, when the basic need is credit that can be guaranteed through inventory, previous
credit history, or a co-signer.

9.4 Project Objectives

Project objectives must reflect the differing needs of the levels of beneficiaries they serve.
The objectives of community-based programs tend to include access to basic services, commit-
ment to community improvement projects, generation of increased self-esteem, basic job skills
training, support to very poor enterprises, and the creation of new individual or collective
The objectives of group projects tend to favor the efficient and rapid provision of credit (usual-
ly in small amounts), improving environmental conditions for informal sector businesses, and
increasing family income and employment through expanded businesses in the informal sector.
The objectives for projects that assist individual enterprises tend to emphasize increased income
and employment in poor communities.
The conclusion of this study is that all three levels of beneficiaries should be served by informal
sector assistance projects. The benefits of the programs examined have to be carefully weighed. It is
possible to reach large numbers of business owners at level III through commercial bank projects,
thereby increasing family income and generating a considerable number of new jobs. Projects at this
level can break even or make a profit. Level II solidarity group projects may significantly increase
family income and generate employment. The cost and complexity of these programs are relatively
low. Reaching people with marginal economic activities or who are outside even informal sector
economic activities, however, tends to be more difficult. Although in this last instance the neediest
people are assisted, the greater project complexity involved means considerable effort is necessary to
reach large numbers.


CHAPTER 10: Implications for Donors
CHAPTER 11: Major Challenges for Donors and Practitioners


The number of projects that we have studied is small. The proportion of the informal sector that
has been served by these projects is minuscule. Yet these experimental efforts show that the smallest
economic activities of the urban poor can be assisted, often very effectively. Assistance is delivered
through a variety of programs, with objectives appropriate to the strikingly different needs of the
various levels of beneficiaries.
None of what we are reporting here should be construed as a comprehensive justification for
massive direct assistance to the informal and micro-enterprise sector. Put more modestly (and ac-
curately), we are attempting to highlight how the projects we examined point to a developmental
doorway that has been opened a notch by highly motivated and innovative individuals and organiza-
tions that believe in the effectiveness of the "bottom-up" approach. Without question, major
economic and financial policy reforms are also in order in many countries, and may lead to substan-
tial improvements for this sector. But, as indicated at the outset of this paper, favorable policy in
itself may not constitute a sufficient condition for assisting effectively the self-initiated economic
enterprises of the urban poor. Based on what we have seen, we wish to promote acceptance of the no-
tion that whatever the policy environment, donor agencies, together with cooperating governments
and local organizations, can and should at least make a serious attempt to provide direct assistance to
informal sector and micro-enterprises as a method of accelerating the alleviation of poverty.

10.1 Characteristics of Implementing Organizations

To understand what these efforts imply for donors it is important to review briefly the
characteristics of the implementing organizations. The diversity of the organizations that implement
these programs is striking-small local PVOs, more sophisticated PVOs with a national scope, ex-
patriate PVOs, government agencies, and commercial banks. Few of these programs work in isola-
tion. Most have close ties with other organizations (most frequently with local banks that provide
credit) and with various local and governmental agencies.
Despite their diversity, these organizations have several characteristics in common:
strong, highly-respected and often charismatic leaders who are committed to assisting the poor;
dedicated and hardworking field staff who are willing to work for low wages to be involved in a
program they believe in;
decentralized organizational structures which extend decision-making responsibility to field
a high degree of autonomy that allows field staff the flexibility to adopt strategies they feel are
appropriate and to modify and improve strategies over time; and
a compact size that permits intensive staff contact and the exchange of ideas.
Also, most program administrators maintain that the adoption of bureaucratic organizational struc-
tures with prescribed selection criteria and heavy supervision, would decrease efficiency and limit
their ability to assist the poor.
Not surprisingly, the types of organizations that work at each level are distinct:
Community-based programs usually are directed by private and voluntary organizations (local,
national, and expatriate). Community-based programs appear ideal for PVOs, since they re-
quire grass roots organizing skills more than business skills, intensive contact with those receiv-
ing assistance, highly flexible promotional systems, the mobilization of community volunteers,
and active community involvement in the development process.
Most group-based programs are also directed by PVOs, which are the logical choice for this
type of program for many of the same reasons as mentioned above. Significantly, however,
three group-based programs studied are directed by local governmental agencies-Community

Development (El Salvador), Ministry of Industry (Philippines), and Department of Social Ser-
vices and Development (Philippines). The first two programs are relatively small, autonomous,
newly-formed units functioning within their larger parent organizations. As in the PVO pro-
grams, the staffs are generally enthusiastic and highly committed. The Department of Social
Services and Development program provides enterprise development assistance as a regular
part of its casework services.
*Most individual programs work through commercial banks. Here too, the banking programs
often are based on special units administratively separate from general banking functions. They
use highly simplified business systems and selection criteria, and personnel are usually
specifically trained.

10.2 Types of Projects to be Funded

These experimental efforts and many others like them can be encouraged. (They can also be easily
distorted by the wrong kind of, and too much, assistance.) Donors can facilitate this process at three
levels. They can:
strengthen small ongoing local PVO business development efforts, or enable small local PVOs
with strong community programs to begin PISCES-level business development efforts. Some
of the more successful programs-the Bangalur Layout, the Working Women's Forum, and
the Manila Community Services programs, to name three-were facilitated by grants provided
as they were getting started;
enable large national PVOs, large cooperatives, national development foundations, and
government agencies with a history of efficient delivery of services and an interest in assisting
this sector, to set up special units and programs to reach PISCES-level enterprises; and
strengthen and expand ongoing PISCES-level programs of PVOs, banks, and government
agencies and organizations.
The PISCES regional teams, in their last visits to the field, began the initial designs of projects that
would assist in each of the above three categories:
In Bangladesh, an "umbrella" PVO is being set up (funded by the local A.I.D. mission) to pro-
vide assistance to non-governmental organizations working with small and micro-enterprises.
Since there are few projects actually assisting the smallest level businesses in Bangladesh, the
first task is to identify interested local organizations. It is expected that many of the groups
identified will be small and community-based.
To facilitate the exchange of ideas and mutual assistance, and to identify other organizations
to participate, the small enterprise office will set up an advisory committee of project directors.
The advisory committee will play a key role in the next stage, when small pilot demonstration
projects will be designed, thus helping to ensure that programs will be responsive to local needs.
The "umbrella" PVO will also help arrange for the funding of these small pilot efforts,
ideally using requirements for proposals and reporting that will not exceed the capabilities of
these small organizations. The small enterprise PVO will also monitor and evaluate projects
and act as a central clearing house and broker between donors and the local organizations.
Similar small enterprise organizations could be set up in other countries. Local groups in the
Philippines have expressed interest in this approach and are now setting up a foundation for
this purpose.
In the Dominican Republic, the A.I.D. mission funded a study of the informal enterprise sector
that was carried out jointly by the Dominican Development Foundation (FDD) and ACCION
International/AITEC. The FDD, with many years of experience in extending credit to groups
in the rural areas, has made establishment of a small enterprise unit for the urban areas one of
its top expansion priorities. The study has provided the FDD an opportunity to learn about the
sector and its problems. For the A.I.D. mission, the study has helped to identify bilateral pro-
gramming priorities for the cities. Specific opportunities for creating new PISCES-level enter-
prise development units in organizations as diverse as banks, cooperative federations, larger
local PVOs and government agencies were also identified.

In April 1981, based on the FDD/AITEC study, the A.I.D. mission in the Dominican
Republic awarded the first tranche of grant funding to the DDF to help finance technical
assistance and the establishment of a revolving loan fund for PISCES-level small enterprises.
Focussing initially on enterprises in and around Santo Domingo, the capital city, the program is
expected to expand its reach into five secondary cities during its second year of operation.
In Kenya, the local A.I.D. mission and the National Christian Council of Kenya (NCCK)
agreed in September 1980 to upgrade a broadly-based community development program run by
NCCK to include more effective and wide-reaching enterprise assistance. In contrast to the ef-
fort described immediately above, which creates a whole new organizational capability, and
focuses on a formerly unfamiliar target group, the principal purpose of the NCCK grant is to
provide funds for expansion, and technical backup to community workers already delivering
essential non-enterprise-related services to the PISCES target group.
In Egypt, pre-feasibility work was completed by a PISCES sub-contractor in Spring 1981 to
develop on behalf of the A.I.D. mission in Cairo proposals for two PISCES enterprise
assistance projects for two Egyptian PVOs, and the design for creating an Egyptian in-
termediary assistance organization capable of developing and supporting by itself further
PISCES projects like the first two. The two demonstration projects will provide assistance to
the Coptic Evangelical Organization for Social Services (CEOSS) and the Helwan Upgrading
Scheme (HUS) respectively. The "intermediary" capability is proposed to be established in the
first instance in a U.S.-based PVO operating in Egypt, Catholic Relief Services (CRS), with
subsequent transfer of these support functions to an Egyptian entity, which CRS will help to
Other types of activities that might be funded include:
the small enterprise development efforts of expatriate PVOs;
visits between the staffs of projects to facilitate the exchange of ideas;
special training programs for banks, PVOs, and government institutions;
efforts to assess or change government policy favoring the informal sector; and
increasing the availability of small loans through local credit institutions.
Funding these types of activities may have important implications for donors. While some of the
large programs may be able to absorb enough funding to justify the costly and time-consuming pro-
ject development sequence required by A.I.D. (requirements are similarly complex for other major
donors), most of these projects will be much smaller, at least initially. Since these small projects are
often the only ones reaching the bottom of the economic scale, if donors want to assist this sector,
they will have to find ways to work with these organizations and support their projects.
Given the characteristics of these organizations, donors will need to:
spend a good deal more time just to locate appropriate intermediaries;
develop simpler mechanisms for arranging loans and grants, and for doing initial project
develop a more flexible and responsive position to reflect and be congruent with the evolu-
tionary and experimental nature of effective organizations;
relinquish some of the control presently exercised over projects, so that organizations with
roots in local communities can maintain that sense of ownership that is the very essence of what
makes them work; and
restrict the amount of money they try to move, as many excellent programs could be facilitated
with only small amounts of additional funds.
It is expected that at least in the initial stages, many of the projects will be funded by A.I.D. and
will use Operational Program Grants (OPGs)9 to local organizations. Regular USAID development
loans and grants are also envisaged for use in later projects. Alternatives for funding include the
Small Project Fund of the Inter-American Development Bank, the Inter-American Foundation,
Private Agencies Collaborating Together (PACT), and AT International, all being organizations
with similar commitment to funding informal sector and micro-enterprise assistance projects.

9 An OPG is a funding mechanism normally used by an A.I.D. overseas mission to support a development activity of a U.S.-
based or host country private and voluntary organization operating in that country.


For donors, the major challenge will not only be to upgrade and increase the size of larger
projects, but to assist flexibly large numbers of small local efforts, and build these up to serve
more people. Where appropriate, projects should be given adequate assurances by donors that
with growth, and the expansion of their need for more resources, such resources would be likely
to be forthcoming.
For practitioners, some of the major challenges for reaching the smallest economic activities
of the poor, are as follows: (These are also indicative of the types of efforts that donors might
help to facilitate.)
Reaching smaller businesses. Some programs have been able to reach smaller businesses, or are
at least contemplating doing so. For example, The National Association of Educated Self-
Employed Youth, which began by assisting unemployed university students, is currently
assisting village youth with much less education. The Calcutta "Y" program, which provided
job skill training exclusively to educated youth, is now helping untrained rural people start
businesses. The tendency of many projects, however, is to gradually increase the size of the
businesses assisted. It seems to require a strong commitment to assist the smallest businesses,
and considerable innovation to ensure that they will be reached.
Increasing technical competence. As long as programs work with the owners of existing small
businesses which are expected to produce and/or sell more without further program assistance,
the major challenge of project development is to design systems for appraising and administer-
ing loans, and for delivering simple, basic business guidance. Where programs provide a wider
and continuing range of services, however, there are several areas where more comprehensive
outreach and assistance capabilities need to be developed, including:
guidelines for selecting or creating businesses with significant potential for increasing their
owner's earnings;
methods for teaching rudimentary business concepts to illiterates, and for providing simple
assistance to business owners;
local market studies and programs to develop and secure national and international
methods for improving production techniques; and
ways of dealing with a raw material constraints.
Flexibly assisting different types of local small enterprise opportunities. A limitation of many
programs is that they only address one area of need-credit assistance to small existing
businesses, for example-while other needs are ignored. A major challenge in program design
might be the development of a "package" of simple enterprise development activities that
could be understood and implemented by the field staff. Such a "package" of activities might
incorporate ideas from several of the programs studied, such as:
assisting tiny existing businesses organized in solidarity groups (e.g., PRIDECO/FEDEC-
CREDITO program);
having solidarity group leaders administer a small discretionary loan fund that would help
the poorest would-be group members enter economic activities such as hawking and vending
(e.g., Manila Community Services);
promoting cooperative businesses, consisting of producers of similar goods or services who
are interested in working together-perhaps for the collective purchase of raw materials,
equipment or marketing (e.g., The National Christian Council of Kenya); and
financing the training of youth by local artisans through the sale of the goods and services
produced by the groups of trainees (e.g., The Village Polytechnic Program).
Reaching large numbers and institutionalizing small programs. As projects reach more people,
the intensive, ad hoc and personalized system of promotion that served the program when it
reached smaller numbers, will need to be streamlined. Authority will need to be delegated to
less skilled (and perhaps less dedicated) promoters, and more systematic record keeping pro-
cedures will need to be introduced. At the same time, programs must continue to be flexible and
innovative if they are to serve the smaller businesses as well. Increasing the size of a program
without losing flexibility is another major challenge faced by these programs.

Using evaluation and feedback as a tool for change. Many programs are unresponsive to the
target group's needs because they are overly complex. Some also do not meet their clients'
needs as well as they might because they lack procedures for incorporating into future program
directions feedback from the community served. Similarly, lack of impact evaluation or close
monitoring leaves some programs ignorant of how clients are actually (rather than presumably)
using their assistance. Oversights such as these can, and routinely do, lead to such anomalies as:
projects which provide social services to people whose most urgent felt need is not social ser-
vices, but simply a small loan to purchase more stock for their businesses;
projects which use complex, costly systems for assessing the economic viability of businesses
when much less information would serve as well; and
projects which provide technical training that is not utilized or not needed at this stage by
As one examines the most successful programs, one often is struck not by how much they do, but
by how much they do not do. Rather they leave to the beneficiaries themselves the major responsibil-
ity for selecting who is to be served, for deciding what assistance is to be provided, and how it is to be
used. In such cases, the "outside" resources of the project per se merely "nudge along" this ongoing


The examination of programs that reach the smallest economic activities of the urban poor was en-
couraging. These programs are for the most part very new, however, and reach only a tiny fraction of
those that potentially could be served. Their impacts on the beneficiaries and on the larger commu-
nity are also imperfectly understood, as are the ways donor organizations can assist these and similar
efforts in the field.
On April 29, 1980, the PISCES team held a workshop to review the findings of PISCES Phase I,
with 75 representatives of A.I.D. and other agencies and practitioners in attendance. In the lively
discussion that followed the formal presentations, several areas of concern were noted that bear
careful consideration if A.I.D. (and other donor agencies) is to commit significantly more resources
to supporting the urban informal enterprise sector:
How does program impact vary with different types of assistance reaching different substrata
of the poor population under differing local conditions?
How do programs most effectively work to achieve their goals?
Since many programs are small and dependent on charismatic leadership, committed staff, and
close ties to the local community, what significance do they have for reaching people on a larger
scale under less ideal circumstances?
How can donor agencies best assist efforts to provide more help to the urban informal sector?
Recognizing the need to answer these questions, A.I.D. has contracted ACCION Interna-
tional/AITEC, which has in turn subcontracted with Partnership for Productivity and The Develop-
ment Group for Alternative Policies, to attempt to address these issues over a three-year period. This
project, to be known as PISCES Phase II, is outlined below.
1. Demonstration Project Development. Over the life of the project, six PISCES demonstration
projects will be designed, funded and implemented in collaboration with A.I.D. missions
overseas. As mentioned earlier, projects developed are expected to reflect at least three
assistance modes for donors:
the creation of local "intermediary" or "umbrella" organizations, the functions of which
will be to identify small local efforts, help design projects and provide a conduit for funding
for these projects;
the provision of intensive assistance to local development organizations interested in
establishing a capacity for PISCES-level enterprise development; and
the expansion and technical upgrading of ongoing PISCES-level enterprise development ef-
The use of different approaches should provide donors with valuable insight on how they can
optimally assist the urban informal sector. It is also expected that the demonstration projects
will use a variety of methodologies, including providing enterprise development assistance

within the framework of an overall community development effort, and providing assistance
directly to groups and to individual entrepreneurs.
2. Design a methodology for evaluation. As important as the development of specific projects is,
the most significant output of PISCES Phase II may be to use the demonstration projects to
answer fundamental questions on the impact of these programs, the relationships among
specific program inputs and changes in the target population, and the implications of these
findings for the role of A.I.D. and other donor agencies and practitioners. The issues to be ad-
dressed have never been successfully explored for programs of this type, so the methodology
should, in itself, be of interest to the development community.
3. Monitoring and evaluation. For the monitoring and evaluation systems to generate the data
needed, the project or program to be evaluated will have to perceive evaluation as a beneficial
and nonthreatening project component. Evaluation guidelines will be flexible in order to permit
the inclusion of issues and concerns of the local agency, and results of the evaluation will be fed
back in a way that will contribute to better project/program planning. As always, the impor-
tance of close working relations with the local organization is paramount.
Since not only the impact on the beneficiaries will be measured, but also the way specific pro-
gram inputs have caused these changes, both the program and its impact on beneficiaries will be
monitored. In addition, the strictly economic monitoring and evaluation of program impact on
the beneficiaries will be expanded to include social indicators as well as changes in the
businesses assisted. For example, in the PISCES Phase I studies, our impressions were that
several programs facilitated a positive community orientation towards change; also, the fun-
damental way these businesses were seen to operate (in terms of management, production and
marketing) changed as a result of the program.
4. Dissemination and workshops. In addition to developing demonstration projects and monitor-
ing and evaluating them, an integral part of this project concerns the dissemination of the
results to donors and practitioners. Dissemination will be achieved through several
mechanisms. Each member of the PISCES team is a spokesperson for the project, and will have
numerous opportunities to explain PISCES to interested people, and to assist groups with pro-
ject development. Also, the reports written for PISCES Phase I, and the reports to be written
for PISCES Phase II, will be distributed to the network of persons now known to be interested
in the PISCES approach, as well as to those whose interest these activities may help to
Workshops will be another major vehicle to disseminate information and to receive feedback
from scholars and practitioners of informal sector assistance. There will be at least two interim
workshops and a final workshop held over the life of the project. One of the interim workshops
will bring together operatives from all of the PISCES demonstration projects in a "cross-
fertilization" exercise, in which experiences on project operations, liaison with funding bodies,
evaluative and similar information will be exchanged.
5. Secretariat. The PISCES staff will design and maintain on a continuing basis a centralized
monitoring system for supporting the field components of PISCES Phase II. This
"secretariat" will provide an institutional memory, and will be the point of cognizance for
monitoring, evaluation, analysis and dissemination of the experimental information generated
in the course of executing this project in the field. It will also serve to integrate this information
with similar information on other ongoing projects not affiliated with PISCES.


Barnet, Richard J. 1980. "The World's Resources, Part 3, Human Energy," The New Yorker,
Volume 56, No. 7, April 7, 1980, pp. 46-115.
Byerlee, Derek and Carl K. Eicher. 1972. "Rural Employment, Migration and Economic Develop-
ment: Theoretical Issues and Empirical Evidence from Africa," African Rural Employment
Paper No. 1, Department of Agricultural Economics, Michigan State University, East Lansing,
Chuta, Enyinna and Carl Liedholm. 1975. "The Role of Small Scale Industry in Employment
Generation and Rural Development: Initial Research Results from Sierra Leone," African Rural
Employment Paper No. 11, Department of Agricultural Economics, Michigan State University,
East Lansing, Michigan.
Fass, Simon. 1980. The Economics of Survival, unpublished manuscript prepared for USAID,
DS/UD, Washington, D.C.
Georgia Institute of Technology. 1975. "An International Compilation of Small-Scale Industry
Definitions," Industrial Development Division, Engineering Experiment Station, Georgia In-
stitute of Technology, Atlanta, Georgia.
International Labour Organization. 1972. Employment, Incomes and Equality: A Strategy for In-
creasing Productive Employment in Kenya, International Labour Organization, Geneva.
Liedholm, Carl and Enyinna Chuta. 1976. "The Economics of Rural and Urban Small-Scale In-
dustries in Sierra Leone," African Rural Economy Paper No. 14, Department of Agricultural
Economics, Michigan State University, East Lansing, Michigan.
Marris, Peter and Anthony Somerset. 1971. African Businessmen: A Study of Entrepreneurship and
Development in Africa, Routledge and Kegan Paul, London.
Nihan, Georges and Robert Jourdain. 1978. "The Modern Informal Sector in Nouakchott,"
International Labour Review, Volume 117, No. 6, November-December 1978, pp. 709-720.
Peattie, Lisa. 1976. "The 'Informal Sector' and 'Marginality': Some Dualistic Conceptualizations in
the Light of Field Research," M.I. T. Monograph. Cambridge, Massachusetts.
Sawyer, Susan M. "A View from the Bottom: Human Resource Potential Among the Self-Employed
Urban Poor." ACCION International/AITEC Monograph. In Preparation.
Smith, David A. A. "Characteristics of the Informal Sector in Asia and Africa." ACCION Interna-
tional/AITEC Monograph. In Preparation.

Part II
Case Studies: Africa

by Fred M. O'Regan and
Douglas A. Hellinger
The Development Group for Alternative Policies




Chapter 1: Introduction ......................................................... 60

Chapter 2: The Urban Community Improvement Programme of the
National Christian Council of Kenya (NCCK) ........................... 63

Chapter 3: The Village Polytechnic Program (VP), Kenya ............................. 83

Chapter 4: Institute for Cultural Affairs (ICA) Kawangware Community
Upgrading Project, Nairobi, Kenya ..................................... 101

Chapter 5: Tanzania Small Industries Development Organization (SIDO) ................ 107

Chapter 6: Artisan Training and Credit Program of the Centre National de
Perfectionnement des Artisans Ruraux (CNPAR), Upper Volta ............. 121

Chapter 7: Women in Development Project (WID-Swaziland) Ntonjeni,
Swaziland ......................................................... 127

Chapter 8: Indigenous Business Advisory Service (IBAS) Banjul,
The Gambia .............. ..... ................................ 133

Chapter 9: Centre d'Education a la Promotion Collective (CEPEC)
Yaounde, Cameroon ............................................... 137

Chapter 10: Institut Panafricain pour le Developpement (IPD) Douala,
Cameroon .......................................................... 141

Chapter 11: General Findings and Conclusions ...................................... 145



This exploratory study was undertaken in late 1979 to examine and assess various methodologies
utilized by income- and employment-generation programs which directly reach and assist the very
poor in urban and peri-urban areas in Africa. The principle objective of the research was to abstract
elements of structure and process which seem to be related to effectiveness in assisting people at this
economic level. A synthesis of these key programmatic factors is presented at the conclusion of this
There are two distinct features of the study. First, it is not concerned with the informal enterprise
sector in toto, as are most studies on this subject. The informal sector in Africa comprises a broad
range of enterprises in terms of size and relative sophistication; not all people engaged in economic
activities in the sector are necessarily poor. Accordingly, this study was undertaken with the specific
purpose of examining those programs which assist the very poor who are (i) engaged in self-employed
activities of one form or another, and (ii) not normally assisted by conventional small-scale enterprise
Second, the study focuses upon assistance methodologies utilized in ongoing projects to reach and
assist this segment of the population. Thus, it should prove useful to professionals working with
donor and other assistance agencies which wish to either initiate or strengthen programs of support to
income-generating activities among the very poor in African urban and peri-urban areas.
The research was carried out in two phases. On the basis of an initial search through secondary
sources, an exploratory trip was made to directly contact and outline the assistance methodologies of
various projects which appeared relevant to the purposes of this study. An effort was also made in
preliminary project selection to include programs which collectively served populations in and
around both primary and secondary cities in East, West, and Southern Africa; an attempt was also
made to include both Anglophone and Francophone countries. The only change in original itinerary
occurred when a visit to Ghana had to be cancelled on route.
As is normally the case, many of the projects identified through intermediary channels differed
from the descriptions rendered, with some proving to be more relevant to the research and others less
so. At the same time, other projects were identified through further investigation in the field. All pro-
jects deemed relevant to the research are included in this report. They are:
-The Urban Community Improvement Program of the National Christian Council of Kenya,
which supports income-generating activities as part of its integrated community-upgrading pro-
-The Village Polytechnic Program (Kenya), which offers informal training and enterprise-
development assistance to youth throughout the country;
-The Kawangware Community Development Project of the Institute for Cultural Affairs
(Kenya), which promotes employment generation as a major part of its general community
development strategy;
-The Small Industries Development Organization (Tanzania), which provides technical and
managerial assistance to locally promoted industries on a national basis;
-The U.N.D.P. Women in Development Program (Swaziland), which is engaged in the formation
of production groups involving very poor women;
-The Centre d'Education a la Promotion Collective (Cameroon), which has initiated artisan-
assistance activities complementary to its ongoing community education program;
-The artisan-assistance efforts of L'Institut Panafricain pour le Developpement (Cameroon),
which focus on the upgrading of the artisan sector in a major urban settlement;

-The Centre National de Perfectionnement des Artisans Ruraux (Upper Volta), which provides
training, technical assistance, and credit to a network of artisans throughout the country; and
-The Indigenous Business Advisory Service (The Gambia), which extends managerial assistance
and promotes credit extension to local entrepreneurs.
As the time spent with these projects during this first visit by necessity differed from one project to
the next, the level of detail and analysis on each correspondingly varies. At the same time, concerns
over publication of information, such as budgets and funding sources, which were considered sen-
sitive by some program administrators have been respected in all such cases.
Consistent with the methodology established for the work on all three continents, one pro-
gram-the Urban Program of the National Christian Council of Kenya-was selected as the focus of
an in-depth study. This project was chosen on the basis of its offering a wide range of income-
generating and other supportive assistance to extremely poor clients in both primary and secondary
cities. To broaden the scope of in-depth analysis, a follow-up study of the Village Polytechnic Pro-
gram, which concentrates on training, was also undertaken. All of the field research in Africa was
conducted between April and August of 1979.
As a limited and exploratory effort, this study was not designed to produce conclusions on
methodology that are universally valid for application to every employment- and/or income-
generation effort among the urban poor in Africa. While the projects which were selected for in-
depth analysis (and upon which many of the conclusions are based) employ most of the assistance
techniques utilized by the other programs examined, they are limited to the context of one country on
a vast and diverse continent.
An additional constraint in drawing conclusions arises from the nature of the programs themselves
and their clientele. The urban and peri-urban poor in Africa constitute a very diverse group in terms
of ethnicity, age, sex, type of employment, skill levels, and degree of poverty relative to the rest of
their respective nations' populations. At the same time, the programs identified serve different
groups in different ways. Some, like the Village Polytechnic Program, train youth, while others, such
as the Swaziland Women in Development Project, extend technical assistance and credit to artisan
groups. Similarly, some of the programs service inner-city slum areas, while others deal with peri-
urban or secondary-town populations.
Despite its limitations, however, we believe the study brings to light many important elements of
program methodology related to reaching and assisting the urban and peri-urban poor in Africa.
Quite a few commonalities in structure and process emerged from an analysis of the various pro-
grams, and the more in-depth studies undertaken in Kenya have allowed for a more thorough ex-
ploration of some of these key factors. We are therefore confident that the conclusions presented
provide an indication of those programmatic elements which are important in the attempt to effec-
tively assist the economic activities of the very poor. In this sense, we believe an important ground-
work has been laid both for further investigation in this critically important area and for the
strengthening or initiating of assistance efforts.


I. Project Identification

The Urban Community Improvement Programme
of the National Christian Council of Kenya (NCCK)

Principals: Ms. L. Kadzo Kogo, Director
Mr. Charles Gikonyo, Director, Small Business Scheme
and Handicrafts Industries
Mr. Nelson Kibathi, Outreach Coordinator, Nairobi

Researchers: Fred O'Regan and Douglas Hellinger, The Development GAP

II. Setting

Kenya has experienced tremendous urban migration since the early 1960s. Nairobi, one of the
largest cities in East Africa, has become a classic example of urban dualism, with sophisticated com-
merical and industrial sectors, on the one hand, and sprawling squatter-settlement slums, on the
other. The Mathare Valley and Kawangware-two of the largest settlements-have combined
populations of over 150,000. On a smaller scale, secondary cities such as Mombasa and Kisumu are
experiencing similar urban problems. In the words of NCCK,

Kenya like any other developing country is experiencing rapid changes in the society. The
changes have brought about social problems which were never faced by the traditional
society. This is especially true in the major towns where one finds a multitude of school
leavers frustrated by unemployment, old people isolated from their families, couples whose
marriages are under strain and destitute families living in poverty. These problems are in-
creasingly alarming from year to year.

In Kenya, urban informal-sector economic activity is, by African standards, both widespread and
vibrant. As such, it has been the object of much research and was the focal point of the ILO's well-
known identification of the informal artisan as a legitimate "target" of development aid.* Kenya's
public development assistance programs, however, have not expanded sufficiently to address the
problems of the urban informal sector. With the notable exceptions of the urban Village Polytechnics
and fairly recent housing projects supported by the World Bank and USAID, assistance to the urban
poor has come from the private development sector and has been mostly church-related.

III. Project Description

A. The goal of NCCK's Urban Community Improvement Programme (UCIP) is to upgrade the
quality of every aspect of local squatter-community life, principally by helping people to become
economically independent and to make desired changes in their own lives. Based upon this com-
prehensive perspective, the program is designed to deliver services in the areas if housing, health,
education and literacy, nutrition, child care, and employment.

B. Brief Description and History. The National Christian Council of Kenya is the nation's pioneer
agency in urban development. Its approach in all areas of development is to identify unmet needs
*See ILO, Employment, Incomes and Equality: A Strategy for Increasing Employment in Kenya, Geneva: ILO, 1972.

among the poor, begin organizing communities around these needs, initiate service delivery, and then
advocate the adoption and expansion of the new program by the public sector. The Urban Commu-
nity Improvement Program operates in Nairobi, as well as in the secondary cities of Mombasa,
Kisumu, Eldoret, Nakuru, Kakamega and Nyeri. The Mathare Valley in Nairobi was chosen as the
initial site for assistance because of its extreme poverty (per capital income estimates range from $13
to $20 per month), its lack of essential services and infrastructure (despite its close proximity to the ci-
ty center), and its particular social characteristics (NCCK estimates that 80 percent of the adult
population is female, with an average of six children to each woman).

C. General Structure and Function.
1. Organizational Structure. NCCK is a constituent organization representing about forty distinct
member churches and private, mostly religious associations within Kenya. It is governed by a general
assembly, made up of member church representatives who meet at least once a year, and a variety of
committees which oversee the diverse functions and departments of the organization. The organiza-
tion is headed by a general secretary, who reports to the assembly and its executive committee and is
responsible for all financial, administrative and staff functions. The purposes of NCCK are both ec-
clesiastical and developmental, with the latter purpose apparently dominant. Its ecclesiastical func-
tions include facilitating inter-church cooperation and communication, publicizing and promoting
church efforts, channeling international funds for church construction and other such activities, and
strengthening members' approaches to religious and family-life education. The Council is noted for
speaking out on major moral and social issues, such as the refugee problems of East Africa and in-
terethnic rivalry in Kenya.
The development assistance functions of NCCK are far-reaching. One of its most significant
development roles is that of a conduit of private, mostly church-related, international funds to local
communities and representative organizations. Through its Projects Endorsement and Priorities
Committee, the Council channels roughly $250,000 each year to forty local self-help projects. These
funds are received from private donors, including Christian Aid (Britain), KED (Germany), and
NCCK also delivers a broad range of technical, managerial, planning, and training services to
development projects and service programs of its own. To do this, the organization employs a staff
of approximately 120 people, who are divided into various departments. These include the Depart-
ment of Rural Development, the Urban Community Improvement Program, the Village Polytechnic
Support Program; the Department of Education and Training, and the Cottage Industries (handi-
crafts) Program.
Although the various departments coordinate activities among themselves and come under the cen-
tral control of the General Secretary, they are somewhat autonomous. Each is administered in-
dependently, operates under its own budget, and receives earmarked development funds from inter-
national entities. Most of the departments are overseen by a sectoral committee appointed by the
general assembly.
The Urban Community Improvement Program (UCIP) is one of the larger, better known, and
most important programs of NCCK. It provides housing, nutrition, small-business, and organiza-
tional assistance through local community social workers to the urban and peri-urban poor in
Nairobi and secondary cities.
The director of UCIP is Ms. L. Kadzo Kogo, who has been with the program for five years and
recently received a masters degree in social work in the United States. She is supported by staff both
in Nairobi and the secondary cities. In Nairobi, there are two administrators, seventeen nutrition
workers, two nurses, one midwife, one small-business expert, one community development worker
specialized in resettlement, two social workers, one assistant social worker, and nine community
organizers. Two social workers operate in Mombasa and Kisumu, while Kakamega, Eldoret, and
Nakuru are assigned one each. Community organizers and social-work assistants are also utilized in
these secondary cities. All community organizers are residents of the community and have been
trained by NCCK; some also receive specialized training in technical fields. All specialized personnel,
such as nurses and social workers, are certified in their respective fields. Based on current budget
figures, the average staff salary is roughly $300 per month, which is quite competitive in Kenya con-
sidering that housing and other benefits are also provided.





2. Relationships with Other Programs. The activities of the urban program are carried out in ac-
cordance with a number of other programs, both intrinsic and extrinsic to NCCK itself. Among the
most notable of these working relations are with: (a) the World Bank and Nairobi City Council in the
planning of a self-help housing program; (b) the Ministry of Cooperatives in the training of produc-
tion co-op members in Mathare; (c) all local hospitals and health clinics; (d) the Ministry of Housing
and Social Services in the areas of Village Polytechnic development and direct social referral on social
services; (e) various local government schools for the purpose of primary-school and literacy educa-
tion; (f) the Kenya Cooperative Development Bank for the extension of credits to small businesses;
and (g) various local churches and community organizations.
3. Role of Beneficiaries. Within the NCCK's organizational structure itself, beneficiaries play no
direct participatory role, but within project development and assistance activities they are directly in-
volved. For example, NCCK was instrumental in helping to form the Mathare Valley Development
Committee, which was composed of fifty representatives drawn from both the local community and
the city's broader private and public sectors. All development programs within the Valley, including
Nairobi City Council efforts, were carried out with the advice and consent of this group. During the
early stages of NCCK's urban improvement efforts, the Committee assisted in fostering public sup-
port for the program's local activities. As assistance was delivered, local committees began to play a
coordinating role; hence the Committee outlived its usefulness and ceased to function.
The local-level coordinating committees are composed of chiefs, District Officers, village leaders,
and representatives from UCIP-assisted groups. Leadership in these groups revolves each year, with
NCCK social workers providing leadership training. The goal of both NCCK and the villages is to
create integrated programs which, in time, the latter can carry on themselves.

D. Funding. Exact figures on total funding of NCCK programs were not available. However, cur-
rent figures on some of the urban program components do give a fairly solid picture of the scope and
emphasis of various NCCK activities. Total funds budgeted for urban housing, for example, equal
$2,678,494; of this $442,200 is for program costs, while $2,326,295 is used to cover capital costs
associated with housing projects and the construction of community centers. The budget for com-
munity social work (social services) is roughly $100,000 for all seven cities within which the program
works, while the total, published budget for the small-business program is $37,879.
Most funds for NCCK are provided by international agencies. No detailed figures on donations
were available. Major donors include ICCO of Holland, EZE of W. Germany, the World Council of
Churches in Geneva, and CODEL and Church World Service of the United States.

E. Beneficiary Characteristics. The people serviced by the Urban Community Improvement Pro-
gram are indeed the poorest of urban residents in each of the serviced cities. As previously
mentioned, the population of the urban and peri-urban squatter settlements in Mathare Valley suf-
fers from extremely low per-capita income and consists in large part of women with dependent
children. Ethnically, the entire urban population being served incorporates a diverse mixture of tribes
from throughout the nation.
It is interesting to note that although there are many skilled and semi-skilled artisans residing in
slums like the Mathare Valley, the actual beneficiary population of the urban program in many cases
is below this skill level. The majority are women and youths who, for the most part, have had neither
the training nor traditional apprenticeship opportunities which would provide them the necessary
skills to compete in the informal sector. This population group is clearly distinct in character from
the urban, self-employed artisans assisted in other African development programs.

F. Project Activities.
1. Approach. The general approach to assistance of UCIP is to: (a) work with the community in
defining and prioritizing problems to be attacked; (b) organize the community to begin working
toward the solution of these problems; (c) institutionalize both decision-making and development-
action capabilities within the community; (d) deliver services and funds in support of these efforts;
and (e) advocate, to the government and the general public, continued support (in the form of needed
services and relevant policy decisions) to the community.
All assistance activities revolve around the core activities of the social workers and community
organizers. Social workers are sent into depressed urban areas where they work with local popula-

tions in identifying local problems and finding practical solutions. More specifically, the social
workers are directed to ". . help people enhance and more effectively utilize their own problem-
solving and coping capacities; establish initial linkages between people and resources systems;
facilitate interaction, modify and build new relationships between people and societal resource
systems; dispense material resources; and serve as 'change agents' . specifically employed for the
purpose of creating planned change."
Into the early 1970s, NCCK social workers handled cases individually, adopting social case work as
their operational method until it became clear that this method was no longer adequate. In many in-
stances, whole communities were found to require assistance, often in a material or financial form,
and basic economic problems were growing faster than they could be solved. As it was considered
futile to continue attacking root economic problems at an individual level, emphasis shifted to group
work, where it remains today.
The NCCK has typically begun its work in poor communities in response to crisis situations, such
as the outbreak of cholera in Mathare Valley in 1969. The organization responded in that instance by
successfully organizing the people to put in a piped water system in order to avoid eviction from the
land. Generally, action is not taken until the social workers have been able to informally survey, or
assess, the needs of the people and organize the community. Community organization is carried out
through the process of community meetings, which are always coordinated with the local chief and
sub-chief and carried out in consultation with the local District Officer and/or the local Community
Development Officer. Initially, the NCCK social worker helps organize groups and assists them in
determining their most pressing social and economic problems, as well as possible solutions. A deci-
sion is then made on how to attack the major problem, or problems, immediately facing the com-
Subsequently, people from the various communities (Mathare Valley, for example, is organized
into nine villages) will approach the social workers with requests for assistance on specific local prob-
lems. Once the latter decides that the number of requests reflects a community problem, a communi-
ty meeting is called and the group decision-making process is utilized again to decide upon the action
that should be taken. The NCCK nutrition program grew out of the Mathare social-work program in
this manner, as did the small-business assistance effort. In both cases, simple surveys were carried out
prior to project design, with the focus on the types of existing economic activities, family
backgrounds, and local demand patterns of a limited section of Mathare.
One of the principal needs which has surfaced in almost all cases, however, has been the need to
find income-earning opportunities. In dealing with this problem, NCCK has addressed the issue of
unemployment, which it has found to be a root cause of much of the suffering in urban areas. The
majority of the people who come from the rural areas into these towns are illiterate, have very little
formal skills training, and, hence, are ill-prepared for urban life. They are therefore unable to find
worthwhile work (and end up living in slums where housing is the cheapest), to afford nutritious
food, and to provide school fees for their children. NCCK endeavors to create employment for these
people and/or to prepare them for employment. It is with this in mind that in the early 1970s social
workers began to encourage the formation of groups in which young and old were taught such trades
as traditional handicraft production and dressmaking. After training, they were expected to form
cooperatives or find employment in established firms. At the same time, NCCK set up a series of
handicraft-production workshops, which are now administered by the Cottage Industries Program
rather than by UCIP.
As the training and organizational assistance proved insufficient for the creation of new enter-
prises, UCIP social workers tried to convince formal enterprise programs to provide assistance. Un-
successful in this endeavor, NCCK then established the Small Business Scheme (SBS) under UCIP in
1975. It was designed to provide management and financial assistance to small-scale enterprises in the
urban and peri-urban informal sectors of Nairobi. The next two sections present descriptions of
specific NCCK employment-generation activities, including the operation of the SBS in Nairobi and
other programs in the secondary cities.
2. Nairobi. In Nairobi, UCIP's social workers recommend clients for the SBS program on the
basis of their need, reliability, and accessibility to NCCK staff. Most have no regular employment or
salary and may have about $70 in cash on hand. (For those even worse off-usually women who can-
not support their children-the SBS may make available a small grant of about $14 to buy produce
which is then sold to generate some family income and allow for reinvestment in more produce.) The

social worker then brings the prospective borrower to the administrator of the SBS for an interview
and further screening. The client's plan and request for financial assistance are reviewed to determine
how much capital the borrower would be able to handle; this process is facilitated if the person or
group has a record of borrowing from NCCK in the past. Clients who have outgrown the NCCK pro-
gram, or are financially better off to begin with, are referred to commercial lending institutions.
The administrator also asks for an identity card and requests that a loan application be completed,
with the help of the social worker if necessary. That form, entitled "Nairobi Urban Squatters' and
Low-Income Areas Small Business Loans, Assistance and Training-Creation of Employment Under
the Small Business Loans Scheme-Business Loan Application Form," requests the following in-
1. name, identity card number, district, sub-location (plot), parents' names, home address, name
of chief at home;
2. marital status, number of wives/whether husband is alive, number of children, number in
secondary school, primary school, nursery school and at home;
3. amount of money spent monthly on school fees, clothing, housing, and food to feed the whole
family, plus total amount spent on all the children in one year;
4. name of the business, postal and business addresses of the enterprise, monthly rent, nature of
present or proposed trade or business, length of time in this trade, type of business (private or
limited company, registered partnership, unregistered partnership, or registered business),
photostat copy of certificate of registration, present or intended number of regularly engaged
employees, and the name, address, and occupation of each partner, if applicable;
5. other employment status, other salary or income, other business interests (including farming),
educational level, amount of commercial or technical training received, and person who keeps
the books;
6. amount of loan required, amount of monthly repayment expected, average monthly profit ex-
pected with loan, details on how loan would be used, and a complete budgeted proposal for
loan use;
7. nature and value of security offered, including land, buildings, machinery, vehicles, tea stumps,
coffee trees, other cash crops, or cattle dip; if no security to offer, give names and addresses of
three guarantors, which can include businessmen, M.P.s, councilors, accountants, managers,
senior public or private sector officers, advocates, priests or pastors, or other trustworthy peo-
8. estimated value and list of present saleable stock, average total goods purchased monthly,
average sales per day/week/month, average monthly gross profit, names and addresses of a few
good customers, details and copies of outstanding orders, bank where applicant has a current
or savings account, if any;
9. owner of present business site if not owned by applicant, degree of permanence for applicant of
present business premises, whether permission has been granted by owner to trade there,
whether the government or the Nairobi City Council has approved the premises, and whether
the applicant has received a Government trading license or a NCC or other kiosk card; and
10. number and total size of loans received from NCCK, and source and date of any other business
or agricultural loans received (or applied for) in the past five years.
In addition, signatures are required under the following statements:
-"I understand as a condition of the loan and agree to employ at least 75%o of business labour re-
quirements out of bonafide residents of the area/villages where the business is situated."
-"I understand that: (i) If I am granted a loan I must start and/or continue to maintain accep-
table books of account. (ii) All the facts given above will be checked at my place of business and
that my application will be rejected outright if I have given any false information."
Given the level of clientele, it is not expected that all items on the form will be completed. After the
relevant information is provided, the application is submitted to, and evaluated by, the SBS ad-
ministrator. His recommendation, along with that of the social worker, is attached to the application
before it goes to a five-member Small Business Committee. The individuals on this loan committee
are not members of the NCCK General Assembly; rather they are appointed by the organization on
the basis of their expertise in business and enterprise development. Disbursements of approved loans
are made by check from NCCK's central accounting office to the borrower's bank account, which he
or she must open to get the loan. The loan agreement contains a draw-down schedule, and the pro-

gram administrator, with the help of the social worker, checks to see if the initial disbursement is us-
ed for the purposes laid out in the agreement before the next one is made.
The management assistance component of SBS was initiated after the completion of an assessment
of the needs of the intended beneficiaries. A survey carried out by NCCK when the program was in-
itiated revealed that the beneficiaries usually identified the lack of money and adequate facilities as
their major problems. However, it was discovered that a lack of management know-how was also an
important problem facing most of the enterprises. NCCK therefore employed a full-time small-
business administrator, who, in collaboration with officers from the government's Cooperative
Development Department, provides technical advice and expertise to these people.
The intensity of the management assistance provided to a client is decided on a case-by-case basis.
For example, it can be a prerequisite to funding for a group lacking a bookkeeping system, or it can
be extended supplementally when an adequate accounting system already exists. Regardless of the
client, the primary focus of all training is on teaching them how to record sales and purchases, cost
their inputs-including their own labor-and mark up their goods in order to produce a profit. After
the discipline of making daily bookkeeping entries is established, monthly close-outs are taught.
Costing is particularly emphasized with commodity retailers, who must learn how to cost their stock.
All individuals and groups are taught to physically separate their revenue into three bags-one to be
the source of funds for the purchase of new stock and for loan repayment, the second for covering
labor costs, and the third for profits. In this way, they can see how much of the money they are able
to personal consume or save.
In addition to assisting them with pricing and cash accounting, the program administrator also ad-
vises clients on marketing, joint purchasing of materials on a wholesale basis (from a factory, if
possible), licensing, cooperative registration, and how to get access to public extension services,
among other things. These matters are taught in weekly sessions, with follow-ups with group leaders,
treasurers, and financial managers. As NCCK's clients are extremely poor and have very limited en-
trepreneurial and technical skills, no fees are charged for the training and assistance.
Just as NCCK's approach to the delivery of the social services evolved from a case-by-case to a
more group-oriented approach, SBS financial assistance has moved from an individual to a group
orientation. There are many reasons for this, not the least of which is that searching for an individual
loan defaulter in a place like Mathare can be a hazardous, impossible task. The increased interest in a
group orientation is also due to the greater ease and cost-effectiveness of training and the greater
financial discipline practiced by group managers responsible to the other members. Leadership in
these groups rotates annually, unless the same officers are chosen at the yearly elections. It has been
found that this enhances mutual trust, while also spreading responsibility and the acquisition of
financial skills.
This preference for group lending was operationalized in 1978 when a "Trade in Group" program
was announced, wherein loans would be made to groups. Four groups were organized in areas of
charcoal selling, meat butchering and retailing, second-hand clothes marketing, and patchwork
material production. The Ministry of Cooperative Development was approached and responded
favorably to the idea of registering these groups in a cooperative society (the Mathare Kogeria Handi-
craft Society) so as to allow them access to a number of services. These services include training
facilities in simple bookkeeping at a Nairobi cooperative college and the acquisition of loans from the
Cooperative Bank of Kenya.
It has proven easier to monitor the use of funds by members of the Society because an official from
both the Ministry of Cooperatives and NCCK are signatories to bank accounts. In fact, monitoring
may be unnecessary, as group members check on their financial officers and are directed to report
any misuse of funds to the officials mentioned above. Success in the cooperative area has led the SBS
administrator to encourage the development of other trade groups in such areas as woodworking,
leather work, metal work, bicycle repair, and the retailing of such commodities as fruit, vegetables,
and fish.
SBS loans are made at a 3.5-percent annual interest rate, apparently taken on the average outstand-
ing balance. NCCK considers this to be the maximum it can charge retailers, who usually work on a
10-15 percent mark-up, and allow them a fair profit. The mark-ups of these retailers are often limited
by government controls on certain basic commodities, and, operating at low volume, this places them
at a great disadvantage. After a two- or three-month grace period, monthly payments are required,
with the clients making the payments directly to the NCCK/UCIP central office; that office issues a

receipt and also notifies the SBS office of the repayment. The amortization period granted the bor-
rower is determined by the size of the loan, type of business, size of enterprise, and volume of sales.
Larger clients may get as much as two and a half years to repay loans for the purchase of inventory or
tools, while very poor clients dealing in low volume may be given only three months.
Total lending in 1977 and 1978 amounted to twenty loans for $8599. Individuals accounted for 68
percent of the total, with such loans ranging from $67 to $934; average loan size was $366. Groups
received the remaining 32 percent of the loan capital in this period. NCCK lent three groups with a
total of 21 members a total of $1400 ($67/member), while providing the largest (162 members) $1333
worth of financing. Except in two or three cases, repayment has been very regular. Eighteen thou-
sand six hundred dollars is budgeted for SBS loans in 1979, and group lending should increase
substantially while individual lending drops off.
3. Secondary Cities. The social workers of UCIP began working in the secondary cities of Kenya
at the same time as they began their work in Nairobi. Since then, they have helped organize a number
of groups in five urban areas and have delivered or facilitated the delivery of assistance in the areas of
organizational development, education, training, and marketing. Financial assistance is also
necessary, but, although some credit has been available through NCCK's Cottage Industry program,
the Small Business Scheme does not operate in the secondary cities. Nonetheless, NCCK's effort
through the UCIP social workers and the Cottage Industries program has helped a number of groups
develop considerable potential for growth as small-scale enterprises.
a. Mombasa, the country's second largest city with a population of 371,000, has been a site of
much NCCK activity. The Tototo Home Industries Project has operated in Mombasa since 1967
under the auspices of NCCK's Cottage Industries Program, and UCIP social workers have worked
there in association with Home Industries in both urban and nearby rural areas since 1969.
The objective of the Tototo Home Industries Project is to train and assist girls, women, and men in
the lowest income groups to produce and market handmade articles, while generally participating in
the economic and social development of the area. As many as four hundred people, mainly women
and girls, presently benefit directly from the project. These include young girls with limited education
who are trained in dressmaking; poor urban women who are given workshop space for training, pro-
duction, and income generation in dressmaking piece work; and twelve organized groups of rural and
urban women who are provided markets (and some technical assistance and business advice) for their
handicrafts and other products made with local raw materials. All operations are supervised by the
director, Elvina Mutua. A designer and a product-quality advisor assist the various groups, while an
NCCK store, with a staff of five, purchases and sells, at a fifty percent mark-up, the goods produced
by the groups and the workshop.
The Tototo Workshop (Towosho), situated in old town Mombasa, is one of the programs run by
the NCCK Project. The program employs and trains more than seventy women and girls in
dressmaking, and has a five-person staff. The staff includes three teachers responsible for the train-
ing, a general supervisor, and a production supervisor.
At any one time, there are two distinct groups receiving training. Training category "A" currently
contains some fifty girls who are taking a dressmaking course. These are girls who do not qualify for
secondary schools and whose parents cannot afford to put them through private schools. In 1975,
twenty school leavers were accepted into the course; the number of trainees increased to twenty-five
in 1976, thirty in 1977, forty-six in 1978, and finally fifty in 1979. Due to this large number and the
limited capacity of the workshop, training is delivered by two instructors in four daily two-hour
shifts, with the girls taking turns on the six available machines. In each of the first three years, an
average of seven girls were referred by NCCK social workers as needy cases and paid no fees. This
number has increased by ten or fifteen and the $6.50/month paid by the other girls is not enough to
cover all the training expenses. Tototo also cannot afford to purchase the two new sewing machines
which are needed, nor hire a highly qualified teacher to train the girls to a Grade I Government Trade
rest level and diploma.
Currently, the 18-month course prepares trainees to a Grade II level, which qualifies them for jobs
in factories, shops, and Village Polytechnics, as well as for self-employment. In 1975, for example, of
the seven girls who finished training and passed the government test, one was helped by her family to
open a business, another was employed in a factory, and a third by a private shop, while four others
went on to category "B" on-the-job training. In 1978, when sixteen girls completed one-and-a-half-

years' training, thirteen passed the exam and went out to find employment or start their own
business. The thirty others receiving training in 1978 completed their course in July 1979.
The category "B" training and production program shares the same, limited space with the
straight training component. Thirty very needy women-mainly unmarried and divorced
mothers-are referred to the project by NCCK social workers operating in the Mombasa slums.
Their training, which is continued until the individual finds employment, consists of making dresses
by hand, by machine, and through the process of tie-dying. The women are paid for what they make,
earning an average of $32/month in 1978. On the average, leavers are employed at a starting wage of
about $41/month. In the event leavers are interested in self-employment, the women are encouraged
to first learn how to hand sew, for even if they were to set up a cooperative, the cost of a sewing
machine might be prohibitive. This training in hand sewing calls for the women to work at home,
bringing in their work to be checked each week.
In the meantime, other women are working on machines, while others are turning out finished tie-
dye products. These products include dresses, shirts, and tablecloths produced in a variety of designs
on contract to shops, which, in turn, sell to both the tourist and local markets. A technical produc-
tion supervisor is in charge of the whole production process, from design through final preparation.
The products that are sold to the NCCK store are priced to cover all costs, including training, and to
turn a profit. Somewhat faulty, but improving, inventorying and cost accounting systems were
responsible for a slight loss in 1978.
The two training programs are not self-supporting, as trainee fees and the limited sales of student-
made articles together only cover about one-quarter of expenses. Category "B" badly needs financ-
ing for the purchase of more raw materials and two additional sewing machines in order to ade-
quately expand training and production. About $13,000 would do as seed capital for the former,
while $1300 would cover the latter. The project's supervisors feel confident that, with this invest-
ment, the profits from Category "B" production could within one year easily support Category "A"
training, including the salary of a new teacher. In addition, the whole program could use more
physical space.
Since the Tototo training program was recently registered under the Village Polytechnic program,
the Ministry of Social Services has visited the workshop often and has made a $1300 grant. Part of
the grant was used to purchase two sewing machines to add to the three others donated by Bread for
the World of Germany, while the rest went toward teacher salaries. Other grants have been made to
the Tototo Project by such church-related groups as Christian Aid, the Anglican Church of Canada,
and the Swedish Section of the Lutheran World Federation. The project has also received one soft
loan from Germany for purchasing materials, and utilizes bank overdrafts for meeting immediate
purchasing needs.
As far as workshop graduates are concerned, many go back to their rural areas, as a wage of
$40/month can barely support a single woman in Mombasa, much less a woman with children. Those
who would like to attempt self-employment are in need of small loans for the purchase of materials,
tools, and equipment. The case of two women who went through the training and production pro-
gram and set up their own dressmaking shop illustrates the problems associated with initiating one's
own enterprise. Although they were fortunate to have two sewing machines and some limited funds
of their own, they have not had the capital to invest in enough materials to produce at any significant
volume, nor the collateral to secure a loan (which would be risky anyway, due to banks' inclination to
repossess once repayments fall in arrears). In addition, the two partners had to pay $67 for a trade
certificate, $13 in city licensing tax, $16 for disposal services, and $27 for a month's advance rent.
The immediate solution to their financial problem was to rent two additional machines at
$6.60/month each, and start training ten students, charging each $8/month. After six months in
operation, they clear $7/month in this fashion, but hope to expand the production part of their
business as they become better known and are able to obtain credits to purchase materials in bulk.
They have good skills, produce a good cross-section of dresses, and keep a good, simple, daily record
of accounts, but they suffer badly in competition with local Asian shopkeepers.
In addition to the workshop, NCCK, through the work of UCIP social workers, has assisted rural
and urban groups in the production of handicrafts to generate the income necessary to undertake
more stable economic (and sometimes social) endeavors. UCIP often donates initial materials
(deducting their cost when paying the groups after marketing their output) and advises on product

quality and design, new product lines, and simple business practices. Social workers also teach han-
dicrafts as part of their community work. Group workers can earn as much as $40/month, or about
$24 on average. When the market allows a group to make a profit, the group generally invests in
other projects that which is left after their members are paid.
Regarding reinvestment, one enterprise, the Shimoni Group, for example, puts one-quarter of its
profits into a poultry project. At the same time, the Bomani women's group has successfully built a
small bakery and is selling bread; the women at Ngamani on the outskirts of Mombasa are selling
eggs from their poultry project; the Mawani Group is selling firewood; and the Mkoyo women are
building a badly needed nursery in their village. The problem is that the tight handicraft market
severely limits the speed at which these groups can expand their other economic and social projects.
Help has been solicited from the Ministries of Agriculture, Health, and Social Services for the sup-
port of these activities and other ways are being explored to help the women raise more funds.
The Tototo Home Industries store is the principal outlet for workshop products and those han-
dicrafts produced by the other groups. The shop is in good financial shape, with $80,000 in total sales
and a healthy profit margin in 1978. The store's profits, totalling $7123, were used to support both
the training and the group projects; deficits run by those projects can be as much as $17,800. If the
shop has a major problem, it is the lack of sufficient up-front capital to pay its suppliers within a
month's time.
b. NCCK's support for employment and income generation is not as highly developed in the coun-
try's third largest city, Kisumu (pop. 150,000), as it is in Nairobi and Mombasa. As in Mombasa,
there has not yet been established a division of the Small Business Scheme in the city, but NCCK's
local Wananchi Craft Shop does market the goods of various independent groups under the Cottage
Industries program. What other economic activity that does take place under NCCK's auspices is
stimulated by UCIP and its social workers. Upon entering a community, the social worker for
Kisumu, Nerea Aoko Otongla, conducts a general survey, meets with people to determine the com-
mon interests and problems that exist, and helps to form groups for social and economic purposes.
One of these groups, the Town Group, consists of two organizations-a girls' club and a women's
group. The girls' club was formed to help uneducated school leavers, including single mothers.
Group discussions are held, and family planning, home economics, and bead work are taught. The
women's group consists of twenty-nine women, half of whom come from outside the town. All
members of this group are unemployed, but at the community center they make tie-dye materials,
papyrus lamp shades, and necklaces from local beads.
With UCIP assistance, the Town Group was able to obtain two sewing machines, allowing tailor-
ing to be introduced using their tie-dye material. The women are learning how to make dresses, skirts,
shirts and tablecloths, all of which are popular in the surrounding community. Profits have been
minimal, but $2.50 to 6.60 per month has been distributed to each member. The women have now
reached a stage where they need professional guidance if they are to turn out more professionally
finished goods. A tailoring training program has been established, but it lacks the support necessary
to properly assist the tailoring groups.
The Orongo Group, located in a new squatter settlement, has been the most successful of the
UCIP-assisted groups in Kisumu, with some fifty members. The men make fish traps and baskets,
while the women work with fabrics. In addition, land has been acquired for a small agricultural pro-
ject. In 1979, however, local competition wiped out much of the market for fish traps and it was
found that the lake flooded the acquired land when the rains came, so interest and attendance fell
along with group income. Regardless, the members continue to meet on their own. Soon they will be
constructing, on a recently donated plot of land, a building to be used for a meeting place, a nursing
school, and a store for their handicrafts, as well as a bakery for the village.
Another organization in downtown Kisumu is a group of ten to fifteen women that has benefited
from UCIP assistance. Like other groups, it meets twice weekly. It has focused on sewing, tie-dye,
nutrition, home economics, and kitchen gardens, but has not been very active due to individual
household problems.
Thirty-five female members from all three groups in Kisumu have also joined the UCIP's tailoring
program. About half of those are able to pay the membership fee of $1.40. Although the girls can
come to the Christian Fellowship Center daily for training, the young women can meet only twice a
week for a total of only four hours-not sufficient time to learn a trade. Their income from the sale

of their dresses, skirts, blouses, tie-dye materials, and bead products has been small, despite the fact
that most of these products are sold.
As the social worker, Miss Aoko, is an expert in neither tailoring nor dressmaking and is over-
whelmed with her group work, committee meetings, administration, and marketing activities, an in-
structor who can also help turn out quality products is badly needed. Skills training should extend in-
to the tie-dye area, while a grant would be most useful for the purchase of more sewing machines with
which to teach; presently, there are two machines for twenty trainees. In addition to a tailoring in-
structor, a general business advisor for the area is badly needed to help organize groups into
workshops, help them set up books, and assist in the marketing of their goods. This advisor could
also extend assistance to individuals who presently eke out an existence by trading in produce and
other commodities. In addition, a small loan fund would be useful both to groups and individuals.
On the other hand, the Wanachi Crafts Shop has been doing quite well since it was taken over by
NCCK in June 1978. In the first twelve months of operations, monthly sales averaged over $1035,
while monthly rent, shop salaries, and licensing fees totalled about $780 by the end of the period.
Most of the margin is passed on to the various producer groups. These groups could use the
assistance of a designer who could help them redesign their products; NCCK feels that poor or un-
varied design is responsible for a recent decline in the shop's sales. For their part, the groups com-
plain that it is too expensive for them to transport their articles to market, thus NCCK has decided
that it must both hire a designer and purchase a vehicle to cover all of Western Province.
c. In Kakamega (pop. 50,000), UCIP's social worker is responsible for organizing groups among
the city's poor. Mrs. Batroba has been very effective in her work since she started in 1972. In addition
to working with orphans and poor families and helping to start a Village Polytechnic, she has helped
organize three producer groups and one group of retailers. The last is composed of six older, poor
and illiterate women who began by selling vegetables, seeds, and maize and who now sell fish and old
clothes as well. Mrs. Batroba advanced each of them $14 from the NCCK emergency fund to pur-
chase initial stock to sell in the local market. As in the case of the Small Business Scheme in Nairobi,
it is expected that those who receive such grants will be able to begin generating income for their
families by rapidly turning over the produce they purchase. Being illiterate, the women do not keep
books and receive no assistance in that area, as the local social worker does not have this expertise.
Another seven women, all members of the same local church, belong to a knitting group. As a pre-
cooperative, they meet two days a week to produce sweaters and are now employed in different shops
the rest of the time. With savings from piecework and some knowledge gained by one member from a
friend, the group was able to purchase its own machines and move from small handicraft production
into the manufacture of sweaters; UCIP also advanced it some $275 for that purpose. The women
now make an average income of $24/month, and, with their husbands unemployed, this money goes
directly to support their families and pay their children's school fees.
Another group of thirty, very poor, Muslim women, who are organized around their desire for
literacy training, has moved on to handicraft production as well. The social worker saw that some of
the members were able to make such things as mats, baskets, and tablecloths, and encouraged the
others in the literacy class to learn from them. They now purchase palm leaves, sisal, and thread for
very little and turn these materials into income-generating products. Information on exact incomes
was not available.
Finally, a new group of seven women (also from the same church) has been formed and has begun
making brooms from grass. The social worker will be checking the quality of the products before
searching out markets in Kisumu. She feels that new groups like this one lack the experience to deal
with credit; however, the other Kakamega groups, particularly the retailers, could use additional
funds on a credit basis. The program would also benefit from assistance in the areas of skills training,
production management, and marketing.
d. An NCCK social worker began operating in Eldoret in 1969. She originally worked on a case-
by-case basis, distributing milk and food to the poor. The social worker has also attempted to pursue
community organization but has found it difficult because of the highly transient nature of the urban
squatter population in this city of 75,000 inhabitants. The new migrants have not been able to secure
settling rights on their occupied lands, causing an air of uncertainty which makes organizing difficult.
Nonetheless, the social worker has been able to start one small women's group. Established in 1976
with the help of a UCIP contribution of $70 to cover start-up costs, its purpose is to help destitute

women begin to earn incomes for themselves and their families. The group members, which now total
ten, make and sell sisal products and have learned tie-dye. They meet once a week in the Municipal
Social Hall and also work at home.
The social worker has also been pursuing the construction of a community center in Eldoret. She
has been instrumental in finalizing plans for the center and acquiring approval for its construction.
Once the center is built, the social worker will assist women and girls in learning such crafts as weav-
ing, pottery making, tie-dye, bead work, and sewing, and eventually will introduce courses in typing,
bookkeeping, and adult literacy.
e. NCCK has its own community center in Nakuru which helps the social worker there to provide
support to existing groups and promote the organization of new ones. Beyond extending health and
educational assistance, she has assisted four women's groups to develop income-generating
The Doboro Community Group was one of the groups organized with NCCK assistance. The
Community of 3,500 is located twenty miles from Nakuru in the Nesuit forest. The social worker has
started adult literacy classes and has tried to stimulate alternative income-generating activities since
the traditional village collection of honey has been disrupted. Handicraft production and modern
beekeeping are being pursued as substitutes.
A second group, composed of nineteen church women, was organized by a minister's wife. The
purpose of the group is to establish a means through which the members, who are all unemployed
with large families, could earn some kind of living. The church granted the group $40 and each
member makes a monthly contribution of $.65 to purchase wool and thread to make crochet articles
and children's clothes. The products sell well in the community, but generate low profits due to insuf-
ficient sales volume. With the help of the UCIP social worker, the group has applied for a $265 grant
for raw materials. It is believed that this will help generate another $13 per month per person, which
is still insufficient but better than the current monthly earnings of $2.50 to $6.60.
The Tembuya women's group was formed in the early 1970s by the UCIP social worker, but did
not gain momentum until 1977. It started with seven members, who had no steady income and relied
on occasional casual work for survival. Members, however, were able to raise the group's start-up
capital by contributing $1.30 each per month. This was used to buy raw materials to make articles
needed by local working mothers, including wool for making ponchos and materials for children's
clothes. In 1977, membership reached fifteen and income per member grew to about $20 per month.
Output has since expanded and members are now earning about $27 per month.
A fourth group to grow out of NCCK efforts in Nakuru is a small one of six married women, each
with a sewing machine at home. The women use the machines to make garments from scrap material
they buy from local industry. Their incomes are reported to be low, but indispensable, as their
husbands do not make enough to support their respective families.
The Bangladesh Group, a self-help organization registered with the government, operates in-
dependently of the social worker but comes into contact with the NCCK community center because
of the need for marketing assistance.
A handicrafts store has been opened with help from UCIP. The four women's groups contribute
$6.60 per group per month toward rent and a sales-girl's salary. Ten percent of sales also goes toward
the shop's expenses. The store has been successful, in terms of sales volume, although the theft of
about $400 caused a temporary setback. Figures on participant incomes were not available.

IV. Impact and Assessment

A. Nairobi. To more clearly analyze and assess UCIP's work in Nairobi, an informal survey was
conducted of both group and individual clients of the Small Business Scheme. The interviewing of
clients was carried out by UCIP community organizers in The Mathare Valley. Responses from
clients were sought concerning: the use of SBS credits; improvements made as a result of NCCK
assistance; current levels of income, sales, and equipment; the biggest problems of their enterprises;
and NCCK services that were perceived to be most beneficial. Responses were received from the ma-
jority of members of the four cooperative groups formed in the Mathare Valley (with the exception
of a patchwork sewing cooperative which, with over 100 members, is uncharacteristically large) and

from four of the eleven individual client enterprises currently being assisted. The individuals queried
included two tailors, one kerosene and clothing retailer, and one general dry goods retailer, while
butchers, charcoal sellers, patchwork sewers, and second-hand clothing retailers made up the four
co-ops, respectively.
The major findings of the survey are as follows:
1. Of the four cooperative groups receiving assistance, SBS credits played a direct role in the crea-
tion of three of them which now employ 28 people. The fourth group, a patchwork cooperative, has
expanded by 62 members since receiving SBS assistance-although this expansion is also due to
assistance from the NCCK Cottage Industries program. Of the four individual enterprises which
responded, only one had increased employment beyond the owner or immediate family members;
this enterprise (a tailor) had hired two people.
2. The vast majority of SBS credits to these groups were used to purchase raw materials for pro-
duction or stock for retailing. The only other use of credits that was reported was for the purchasing
of minor tools and equipment such as butchery knives and sewing machines. This result is not sur-
prising given the need of people at this economic level to quickly turn over stock and materials to
maintain incomes.
3. Of all 22 clients interviewed, only one had received any assistance outside of that provided by
NCCK. This client had received training in sewing from a Village Polytechnic.
4. Responses identifying the most difficult problems facing the clients' enterprises varied widely
and addressed most of the problem areas commonly associated with the very poorest of informal-
sector enterprises. Responding clients focused on the lack of sufficient capital, tools, materials,
markets, and secure physical space. While it is difficult to abstract a clear consensus from the
responses received, greater emphasis was placed on problems associated with marketing and insuffi-
cient capital. In many cases, problems were reported in trying to sell what was already being pro-
duced or in stock. At the same time, many clients said that they needed more capital-especially for
the purchase of better tools. In addition, most clients interviewed-including all individual
clients-mentioned the lack of secure, well-located premises for production and/or sales as a major
5. The average income of the clients who responded was $36 per month. Monthly incomes, as
reported, ranged from $16 to $80, with individual entrepreneurs at both ends of the income spectrum
and exhibiting higher average incomes than group members. This may be due in part to the fact that,
in general, co-op group members are less skilled than their individual counterparts. On the other
hand, group incomes were reported to be more stable than individual incomes. The average number
of dependents per client-both group members and individual entrepreneurs-was found to be 6.5
6. In response to questions concerning improvements in the enterprise made as a result of NCCK
assistance, the majority of clients noted improved management and bookkeeping as the major ad-
vances. Improvements in tools, stock, and/or materials were also cited. No clear distinctions in the
types of improvements made emerged between individual and group clients, although the former
tended to emphasize stock and sales improvements in addition to better bookkeeping, while the latter
tended to cite better group management and greater unity and cohesion within the cooperative.
Estimated increases in sales ranged from 30 to 500 percent, with the number of exact responses being
too few to abstract a meaningful average.
7. Responses regarding the most valued NCCK/UCIP services varied significantly between in-
dividuals, on the one hand, and group members, on the other, except for credit, which emerged as the
single most valued service within both client categories. Beyond credit, individual entrepreneurs cited
only SBS assistance in locating and purchasing stock and materials. Group clients, however, cited the
full range of NCCK/UCIP social services being offered in The Mathare Valley. In order of client
preference, these services are: nutrition (child feeding program), health (innoculation, health educa-
tion, and nurse-practitioner pediatric services), community and group organization, and individual
social case work. As most respondents cited two to three categories of UCIP social and organiza-
tional assistance, these services, taken together, far outweigh all other types of assistance offered in
terms of client preference-at least in so far as the very poor, group clients are concerned.
This last result is not surprising given the fact that the majority of UCIP clients are at the rock bot-
tom of the economic ladder in Nairobi and are therefore far more concerned with their own survival

and that of their dependents than with economic growth per se. This basic fact underlies NCCK's ap-
proach to all of its urban anti-poverty work.
Although limited in scope and technical personnel, the Small Business Scheme in Nairobi has pro-
duced moderate but significant results. The program is clearly reaching the poorest and least skilled
segment of the urban population and, within this difficult context, has managed to register some im-
portant gains in the areas of group-enterprise formation, credit extension and the upgrading of
management and bookkeeping capacities among clients. While the results of the program are by no
means astounding in terms of increased incomes and enterprise growth, new enterprises and jobs
have been created, and, in most cases, have survived. This viability of enterprises is demonstrated by
the fact that twenty loans, totalling $8590, have been made with only one recorded default. Only one
enterprise (the butchers' co-op) has failed, its members citing lack of capital as the reason.
Improvements clearly seem to have been made by clients in the purchasing of stock and raw
materials, in the upgrading of tools, and in enterprise management. Perhaps most importantly, the
Small Business Scheme seems to be achieving its major goal of affording clients, for the first time,
some measure of economic security and an enhanced perception of dignity and self-worth.
In large part, the success of the SBS itself is probably due to the extremely sound promotional,
outreach, and organizing work performed by UCIP social workers and community workers. This is
understandable since the Small Business Scheme was, in the first instance, planned as a complement
to the social-service and community-organizing network already established in the Mathare Valley.
At the same time, however, the program has added two significant services without which sustained,
independent employment among UCIP clients would not be possible: credit and management
assistance. While the credit component has been rather slow to develop in terms of loan volume, the
scheme is well thought out (see the Analysis section which follows) and seems to be appropriate to the
needs of most clients that it has reached. Similarly, management and general enterprise assistance
seem to be equally significant, since most clients report improvements in the quality and level of their
stock and raw materials brought about by NCCK assistance in bulk procurement, and in bookkeep-
ing, as a result of NCCK training and on-site assistance.
The one missing element of the SBS appears to be in the area of marketing assistance. Although
marketing advice to clients is provided by the SBS administrator as part of management training,
many clients report continuing problems in this area. While most small-scale entrepreneurs (espe-
cially retailers) usually complain of low sales regardless of their actual volume, the low incomes of
SBS clients would seem to indicate that there are in fact some marketing problems. Probably
NCCK's major problem in this regard is a lack of technical personnel. The program has only one
small-business expert who simply cannot maintain a sufficient level of technical follow-up to satisfy
all client needs. The program is still in its developing stages, however, and NCCK hopes to add
technical personnel as increased funding is received and the program expands (see Future Plans).

B. Secondary Cities. A broad canvassing of NCCK clients in the five secondary cities which the
program serves was not possible. The following discussion is therefore based upon informal discus-
sions with social workers, support staff and some clients, as well as upon observations of the pro-
gram's operations in these cities, and a review of program reports and documents.
With the exception of clients in the Tototo Industries' training program in Mombasa, the direct
economic impact of NCCK's work in secondary cities in terms of production, sales, incomes, and
enterprise growth, is somewhat lower than that in Nairobi. This conclusion, however, must be con-
sidered in light of the distinct settings in which the secondary-city program operates and the more
limited objectives of this program at its current stage of development.
To begin with, the majority of secondary-city clients are located in peri-urban areas, are engaged in
subsistence agriculture to produce basic foodstuffs for the family, and therefore do not pursue direct
income-producing activities to the same degree as their counterparts in inner-city slums. These
clients-mostly very poor women with large families-are basically traditional, rural people who are
not accustomed to urban life and who possess very little knowledge of the mechanics of trade in a
cash economy. In Mombasa, for example, a large number of the clients served by UCIP social
workers are squatters in peri-urban areas who have never lived in a truly urban environment and who
have had little exposure to artisan production or trade. In addition, they lack access to potentially
profitable cities for marketing whatever goods they may produce, because they are located far from

the city center and their typically large families limit their mobility. These types of clients constitute a
very difficult segment of society to reach and assist.
As the only assistance entity reaching these clients, NCCK's objective is to slowly introduce
income-generating activities which build upon existing knowledge and skills, patiently attempting to
help these clients to establish viable enterprises of one sort or another. For the most part, its work has
focused on group formation and the production of either simple handicraft items or local primary
goods, such as poultry (Mombasa) and honey (Mombasa and Kakamega). The major exception to
this approach in the secondary cities is the Tototo program in central Mombasa which focuses heavily
upon client training in a new skill area-sewing. In all cases, NCCK has played a major role in
marketing the goods that are produced, through the opening of handicraft stores (Kisumu and Mom-
basa) or by establishing marketing links for the work groups.
This approach, while necessary in the attempt to help generate some form of cash income among
the exceedingly poor, low-skilled, and relatively isolated clientele, constitutes a major challenge to
the social workers who have implemented it. Groups must be organized, product ideas and skills in-
troduced, markets identified, and, in many cases, marketing outlets established. All of this has had to
be accomplished without large-scale funding and/or outside technical and managerial assistance.*
Within this context, NCCK's results have been impressive, especially in the area of group formation
and concomitant social development. Numerous work groups incorporating poor women have been
formed as a result of sound community organizing, and the vast majority of these groups have
established internal democratic decision-making processes and seem to have made significant gains in
achieving a higher level of self-initiation and enhanced control over their social and economic en-
As a result of this effective social work and group organizing (and, in the case of the Tototo pro-
gram in Mombasa, sound training), incomes have begun to be generated by clients. These economic
results, however, have not come about without considerable effort and some trial and error in the
choice of goods to be produced and the identification of marketing channels. The marketing of han-
dicrafts has run into some difficulties, for example, due to the variable demand for these goods in
tourist markets. Marketing such goods from secondary cities, i.e., outside the major tourist centers
of Nairobi and Mombasa, presents additional problems of transport and central-city market iden-
tification. Through the establishment of handicraft stores in Mombasa and Kisumu and a central
marketing outlet in Nairobi, NCCK has played a major role in the marketing of simple items pro-
duced by work groups. However, due to the relatively low quality of handicrafts produced by many
of the groups which have not received the comparatively intensive training afforded to clients in the
Tototo program, incomes to many producing groups have not been very high.
At the same time, demand for fairly high-quality items, such as fish traps produced by groups near
Kisumu, has fluctuated sharply, making it difficult for the craftsmen involved to form stable enter-
prises. Some problems are also present in the social workers' attempts to generate incomes through
such activities as poultry raising and beekeeping. While potentially profitable as group industries,
technical assistance is required in such endeavors to adequately plan production and to determine the
appropriate costing of both inputs and end product. Such detailed business advice, is in most cases,
beyond the expertise of the social workers, and the participation of public-sector, technical advisors
has not always proven to be reliable. As a result, some of the group enterprises seem to be generating
quite small profits and, hence, low incomes for its members.
In large part, the shortcomings in the delivery of technical and business assistance in the secondary-
city program are due to a lack of technical staff to back up the promotional and organizational work
of the social workers. This lack of personnel (in all components other than the Small Business
Scheme in Nairobi and the Tototo Industries Project in Mombasa) is, in turn, due to a lack of funds
at the disposal of NCCK.
Despite such limitations, however, NCCK has rendered impressive achievements in the secondary
cities. In all cases reported and observed, incomes have been generated among very poor clients,
many of whom are receiving cash incomes for the first time. Viable, internally supportive groups
have been formed, and no cases of groups breaking up were reported, regardless of the level of
economic return. As in the case of Nairobi, services, in the areas of nutrition, child care, literacy, and

*As mentioned previously, The Small Business Scheme operates only in Nairobi.

individual social case work are delivered simultaneous with community and group organization. By
all accounts, these services are deeply appreciated by NCCK's clients, the vast majority of whom
receive no other assistance.
Perhaps most importantly, however, clients are given the opportunity for the first time to produce
and market goods through their own labor, thereby increasing their economic capacities and their
sense of individual self-esteem. It was this aspect of their work that most social workers interviewed
found most rewarding. Given the level of poverty and isolation at which this program operates, the
introduction to clients of methods by which they can initiate their own economic activities is in and of
itself a significant achievement, and the commitment and general competence of the NCCK workers
involved in this difficult and sensitive task are clearly exceptional. With technical support, especially
in the areas of training and marketing, and additional funds for enterprise creation and expansion,
there is little doubt that the economic gains of the secondary-city program could be increased

V. Analysis of Methodology

The major points of analysis may be summarized as follows:
1. NCCK's urban improvement program is essentially a social program with economic spin-offs.
Its specific purpose is to reach and assist, in whatever way possible, the very poorest of urban and
peri-urban squatters. The organization realizes through experience that clients from this segment of
the population are at a basic physical survival level, and, in most cases, do not possess sufficient
economic knowledge or productive skills to make them competitive even within the informal sector.
Thus, the goals of the program are "not to make them rich," but rather to afford the very poor some
measure of physical security together with greater control over their own lives and an enhanced
awareness of their own self-worth.
2. Consistent with this view, the program is based upon outreach (through personal contact within
poor communities), comprehensive needs assessment, and community and group organization.
Perhaps the most distinguishing aspect of this program is the fact that it operates almost entirely
within the squatter communities-community educators are recruited from the communities and they
remain to work there. At the same time, social workers work with these educators and organizers to
comprehensively assess local needs, while beginning to organize the community around meeting these
These two essential program elements-direct, continuous personal contact and local needs assess-
ment-have allowed NCCK to a) plan service programs which are directly related to client needs and
priorities; b) establish trusting relations with squatter communities and thereby generate support for
programs within the communities; c) form a decentralized network of community-based personnel
through which services can be promoted and delivered, and d) identify the poorest people within
communities who are most in need of services. In short, the formation of such direct and continuous
outreach links within communities is a critical factor in NCCK's success in identifying, reaching and
assisting the very poor.
3. NCCK understands that the problems and needs of the poor are multifaceted in nature and can
vary in type and intensity from one setting to the next. Therefore, its basic program development
methodology calls for the initial establishment of successful service efforts to meet priority needs
within a community, and then the building of additional programs on top of the existing promotional
and service structure to increasingly meet total client needs. As a result, a diverse array of service pro-
grams have been developed by the organization in its work in various communities with which it is in-
volved. NCCK's high degree of flexibility in responding to priority needs as they arise is best ex-
emplified by its work in the Mathare Valley of Nairobi. Health problems were initially identified as
the major priority in Mathare and a community preventive health system was thus initiated. This was
followed by the establishment of programs in nutrition, child care, literacy, employment, and hous-
ing. Such compounding and expansion of services over time, together with community organizing, is
undoubtedly a major factor in NCCK's ability to establish significant levels of trust and popularity
within local communities.
4. The fact that employment services have not been among the initial services delivered by NCCK
to the very poor reflects the fact that the most immediate needs of clients at this level are often those

of a physical nature, i.e., food, health maintenance, nutrition, and shelter. This certainly appears to
be the case with NCCK's clients, the majority of whom are poor women with dependent children. It
is therefore NCCK's contention that basic support services must precede or accompany any
employment-generating efforts at this level.
5. NCCK's responsive, diversified approach to service delivery is based upon a decentralized
organizational structure. While administrative and financial management services operate in a cen-
tralized manner, program planning, budgeting and fund-raising activities, as well as control over
day-to-day program operations, are left to those directly involved with the distinct programs and sub-
programs. At the same time, field staff are extended significant responsibility and latitude in forming
relationships within local communities and in delivering services. This decentralized decision-making
structure affords NCCK both flexibility in terms of diversified program planning and the capability
to respond quickly in meeting client needs in the areas of program initiation and service delivery.
6. Perhaps the most critical factor in NCCK/UCIP's success is its sensitive, committed and highly
competent staff. While salaries within the organization are generally competitive in Kenya, total
benefits in most cases do not equal those at comparable civil service levels. NCCK must therefore de-
pend upon factors other than financial remuneration to attract and keep competent personnel. The
organization's professional and para-professional personnel find NCCK's autonomy, together with
the independence extended to staff and a shared sense of commitment, to be more attractive than the
more lucrative employment which many of them could obtain elsewhere.
7. It should also be noted that the network of field staff already in place within local communities
provides the outreach and assessment mechanism through which clients to be assisted in self-
employment are identified and selected. As the selection of clients is based upon economic need and
accessibility to local social workers (for the purpose of follow-up), the selection process is informal.
Such informal selection seems highly effective, however, since community workers know the local
communities and residents well and can therefore identify clients who are truly needy and reliable.
8. Field staff are also in a position to maintain intensive personal contact with clients throughout
the assistance process. This intensive follow-up is a crucial aspect of the program, as many clients are
being introduced to formal economic activity and enterprise assistance for the first time. These peo-
ple require significant personal attention to gain self-confidence and acquire the basics of enterprise
management. Such attention is extended from the beginning in the SBS application and selection pro-
cess in Nairobi, with potential clients usually being assisted in filling out their questionnaires and ac-
companied by field staff during their interview with the SBS administrator.
9. As the field workers know the clients well, the latter are not referred unless staff are fairly cer-
tain of acceptance. Also, no attempt is made to secure a credit for the client until the SBS ad-
ministrator is satisfied that their financial management capabilities have progressed to a sufficient
level. These steps are indicative of NCCK's patient attempt to bring clients along at an appropriate
pace. It is aware of client limitations and is careful not to push too much assistance too soon. The low
failure rate of client enterprises is in all probability related to the adoption of such an approach.
10. NCCK has limited financial and technical resources and therefore lacks the capacity to engage
in wholesale, specialized training in a variety of technical fields. It thus attempts in all cases to build
upon the existing productive skills and enterprise knowledge of its clients. After utilizing their per-
sonal knowledge of clients to identify economically viable trade areas, field personnel advise in the
formation of enterprises and then concentrate on financial and management assistance. Hence, the
majority of clients are engaged in trade areas relevant to their backgrounds and experience, e.g., han-
dicraft production, the retailing of basic goods, etc. Where extensive training has been carried out,
such as in the Tototo program, the focus is on sewing-a skill that is at least somewhat familiar to the
women involved. This approach is also quite appropriate to the needs of clients, as most of them are
extremely poor, have many dependents and therefore cannot afford the time to attend lengthy train-
ing courses without earning some income in the process.
11. Group enterprise formation has become a critical element of NCCK assistance, especially
among the poorest and least skilled of clients. As most clients are not entrepreneurs by choice, and
would as soon engage in steady wage employment if it were available, individual entrepreneurship
has not been the focus of the program. Rather, clients are advised to form collective enterprises in
order to share knowledge and skills among themselves, provide group guarantees for credit, purchase
raw materials and market products in bulk, and increase their accessibility to professional assistance

from both NCCK and other sources. In addition, NCCK believes that the poor must become organiz-
ed at all levels if they are to effectively demand increased access to resources and gain further control
over their lives. In large part, however, NCCK's group work with clients is carried out to enhance
self-confidence among clients through internal group support and a shared responsibility in decision-
making. The rotation of group leadership and group management responsibilities among members,
as advised by NCCK, seems to be a very effective mechanism for promoting trust among group
members, many of whom have not previously worked together. The viability of most of the work
groups which have been formed is evidence of the organization's success in this endeavor.
12. The use of separate funds as a means of teaching accounting and financial management to
clients seems to be an innovative and highly effective management-assistance technique. As most of
the clients are illiterate and lack any formal knowledge of bookkeeping or management, the physical
separation of cash income into distinct "accounts" is an excellent method of introducing discipline in
financial management. Judging from client reports of improved bookkeeping and the low default
rate in the credit program, this method has worked exceedingly well.
13. Flexibility also characterizes NCCK's delivery of financial assistance to client enterprises. As
previously stated, clients are selected informally, and field workers, in conjunction with ad-
ministrators, determine the timing, level, and type of financial assistance to be extended. Clients
receive financing when they are judged ready to effectively utilize such assistance, i.e., after they have
established their enterprise and adopted the organizational and financial management procedures
recommended by NCCK.
The type and terms of this financing are determined on a case-by-case basis to meet specific client
needs. Thus, both individual and group clients who have generated no sales activity and therefore
have no basis upon which to absorb credit, can receive grants to purchase initial stock, materials
and/or simple tools with which initial income can be generated. In Nairobi, very small cash credits
are extended on a short-term basis to clients who have already begun to generate income; larger
credits are extended on a longer-term basis to clients once they gain a more secure financial footing.
This ability to adapt financial assistance to specific needs is undoubtedly a critical element in NCCK's
success in enterprise assistance at this level.
14. At the same time, tight control over the utilization of funds is maintained through the
monitoring of client expenditures by the SBS administrator and through intensive follow-up supervi-
sion by field staff. Realizing that the viability of working with the very poor must be demonstrated if
increasing support is to come from the public sector, NCCK has been very diligent in guarding
against high default rates. As in the process of client selection, intensive personal contact in loan
supervision and follow-up has proved to be the key to success in this effort. In addition, NCCK has
been successful in keeping program costs per client relatively low-perhaps as low as $145 per person
per year, even in the early start-up stages of the SBS program. There is reason to believe that, as the
program expands and a greater percentage of the loans are delivered through cooperative channels,
cost per client will be lowered further.
15. An examination of the program also calls attention to the need to provide marketing assistance
and technical training as a complement to management and financial assistance to enterprises at low
levels of society. While the majority of NCCK-supported enterprises seem viable, the rather low
quality of the goods and services produced, together with the difficulties of marketing inherent to all
informal-sector activities, poses the problem of possible enterprise stagnation in the future. To
counter this potential problem, further and rather intensive assistance in either the establishment or
identification of marketing channels must be undertaken. At the same time, training and technical
assistance in costing, production planning, and skills upgrading will also be necessary. NCCK is well
aware of the upgrading needs of the program, but currently lacks sufficient financial resources to ac-
quire technical personnel to meet these needs.

VI. Future Plans

Currently, NCCK/UCIP plans to upgrade the enterprise-assistance efforts of the Small Business
Scheme in Nairobi and extend the credit and technical assistance components of that program to the
secondary cities of Mombasa, Kisumu, Kakamega, Nakuru, and Eldoret. The two basic elements of

this improved and expanded program would be 1) a team of four new technical extension agents
hired to cover the Nairobi, Mombasa, Kisumu/Kakamega, and Nakuru/Eldoret areas, and 2) an ex-
panded revolving loan fund which NCCK would like to increase to a total capitalization of approx-
imately $105,000 by 1982. NCCK is presently seeking international assistance to help them achieve
these goals.*
To effectively incorporate these new components into the overall program, the technical extension
agents would provide back-up business advisory services to the social workers in each of the cities; ex-
pand program outreach; coordinate the delivery and collection of loan funds; and deliver basic
managerial and accounting assistance to individual and group enterprises. Consistent with the pro-
gram's current operations, these extension agents would work directly with their social-work counter-
parts, receiving referrals from the latter as clients are continually identified. They would also assist in
the organization of work groups, in addition to coordinating the flow of credits and delivering on-site
technical assistance. Qualifications for extension agents would include a B.A., or equivalent, in
business administration or economics.
The build-up of a technical staff to handle all direct field work would free the present program
director to handle full-time program administration and management. In this capacity, he would be
in charge of program planning, staff selection and training, central credit administration, and overall
program coordination. The increase in loan-fund capital is being planned to match the expansion in
program activity.
With outside assistance, NCCK has also drafted preliminary plans for the construction of a small
industrial estate which would provide secure, sheltered sites to poor artisans who are currently
operating either out of their homes or in non-secure premises. The development of this small estate,
however, is not being pursued as a priority at this time, as NCCK first wishes to concentrate on the
upgrading and expansion of its current enterprise-assistance efforts.

*As mentioned in Part I, Chapter 10, of this volume, in September 1980 the A.I.D. mission in Nairobi awarded a $275,000
grant to NCCK to expand their program as described above. This grant also represents the first field demonstration to be
designed and implemented as part of PISCES Phase II (see part I, Chapter 12).

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