PAPER WRAP-UP: Who Are the Microenterprise Owners?

Written by Suresh de Mel, David McKenzie and Christopher Woodruff of the World Bank Development Research Group Trade Team, this report is based on a collection of surveys conducted in Sri Lanka between April 2005 and October 2007 and was published in May 2008 as a 35 page document available here.

This report uses a series of surveys conducted in Sri Lanka by the World Bank Development Research Group Trade Team to examine the effectiveness of micro-credit as a source of employment generation in developing countries, questioning whether or not the informal sector is a temporary substitute for wage-work or a stepping stone for entrepreneurs with growth potential. The surveys compare the characteristics of self-employed workers without employees, wage workers and owners of larger businesses with employees.

The data pool, taken in Sri Lanka , consists of 618 self-employed workers who do not have employees selected from three districts in south and southwestern Sri Lanka , 456 wage workers from the same geographic area, 528 enterprises used in a grant study, and 424 owners of enterprises hiring between 5 and 50 employees.

The report argues that finance is not the only obstacle to the growth of microenterprises and attributes the low growth rates of enterprises supported by microlending to a variety of demographic factors including educational background, family background, risk aversion, labor history, and general personality traits.

The survey results showed that up to 75 percent of self-employed workers from the sample show similar characteristics to wage workers and are not likely to expand their businesses by adding paid employees, while the remaining 25 percent have traits similar to large business owners, viewed as nascent entrepreneurs. The analysis showed that ability and attitudes differentiated self-employed own-account workers and wage-workers from Small and Medium Enterprise owners.

Since the survey was conducted over a period of two years, growth over time could also be analyzed. Results showed that at least two thirds of self-employed workers in the informal sector should be classified as wage-workers rather than entrepreneurs and were not likely to expand their businesses by hiring employees. Levels of motivation and competitive attitude were the key dividing factors differentiating own-account businesses that progressed into SMEs and those that remained without hired employees.

The report concludes by suggesting a set of differentiated microfinance policies directed toward the self-employed in developing countries. It suggests that for the majority of own account workers unlikely to grow, policies should focus on increasing income, while those identified as having a higher likelihood of growth, policies should focus on aiding in the transition to employer status.

By Melissa Duscha

Similar Posts: