ENTERPRISE
COUNSELING

ENTERPRISE COUNSELING Contrast views on counselling Approaches to microfinance When to offer counselling Problems with advisory work Levels of non-finance assistance Final comments Ref: Virtual Library on Microcredit http://www.soc.titech.ac.jp/icm Enterprise Development Website http://www.enterweb.org National Business Incubation Association http://www.nbia.org/

ENTERPRISE COUNSELLING Enterprise counselling entails a MFI or its affiliate providing business advice to its clients. This may take the form of some initial formal training required before a loan application can be accepted or disbursed. It may come as part of a loan recovery program where problem loans receive specific business advice on how to improve their operations It may be part of an overall business education program directed at all of the MFI's clients

MFI OUT REACH If the MFI's primary goal is to maximise its potential client base, then business advisory services should allow it to service a wider range of clients than a strictly credit approach. The intent here would be not only to service existing microentrepreneurs, but also to create more of them.

STICK TO ONE'S KNITTING Whether MFIs should provide business counselling is a matter of some debate in microfinance circles. Some take a holistic view of microfinance and argue that one can not look at credit alone. Others purists adopt a credit only approach or at least financial services only.

A HOLISTIC VIEW OF MICRO FINANCE A holistic, "credit plus" approach has considerable attraction in terms of poverty elimination. This approach argues that a MFI should offer a range of non-financial services to include: business development services, training, productive or infrastructure, social intermediation, organisation building, and empowerment. Some, such as the Grameen Bank, would include even social social services such as health, nutrition, education, family planning and that like.

A FINANCE VIEW OF MICROFINANCE The finance view is that MFIs are basically financial institutions and so are best at providing financial services. A purest might argue in favour of just lending services, but most would allow other financial services to be included in an MFI definition. Savings mobilisation normally creates the greatest discussion among micro finance practioneers. In contrast leasing, hire purchase, and insurance can be suggested with little argument.

DECISION FACTORS The decision as to whether a MFI takes one approach or another is a function of its sponsor or organisers, but should be influenced by two factors: 1. the funding available from a sponsor or own resources 2. the socio-economic group and culture to be served. The choice is perhaps best reflected in some USA literature which divides MFIs as training or credit led institutions.

APPROACHES TO MICROENTERPRISE ASSISTANCE Training Led Credit Led GOAL poverty alleviation community economic development CLIENTS welfare recipients and others below poverty line low income persons without access to credit and other business services SERVICES mainly training and technical assistance, client networking, limited lending mainly credit client networking referrals, limited training, and one to one technical assistance DELIVERY group classes, one to one technical assistance group and/or individual loans Source: W. Burrus & K. Stearns, Building a Model: ACCION's approach to microenterprise in the United States, Washington, DC: ACCION International, 1997, p. 7.

TRAINING LED ORGANISATIONS As Burrus & Stearns (1997, p. 7) determined, a training led MFI's focus is usually at a basic business skills development: "business plan preparation, marketing, bookkeeping, and tax preparation [as well as] motivational issues and self-esteem exercises." The initial training is usually intensive followed by frequent client visits. The goal is client financial self sufficiency.

CREDIT LED ORGANISATIONS These services some what more affluent clients who may be self employed but lack access to conventional credit. These organisations provided limited training and advice and more likely to partner with a training provider. The goal is to stabilise and expand client businesses.

CREDIT LED TARGET GROUPS As indicated, the level of development and culture typically determines the choice. In the USA, for example, these credit led programs have been directed at self employed persons lacking access to credit. As Burrus & Stearns (1997, p. 9) explain, they may be marginalised due to "low levels of education or training; weak English speaking skills; low income or low level of asset accumulation, racial, ethnic or geographic discrimination; recent immigration into the USA; poor or no credit history; or other obstacles."

CHOICE EVEN MORE BASIC If the goal is to have one's MFI to be financial self sufficient, providing low cost loans, and being subsidy independent, it is difficult to justify the inclusion of any significant advisory work. It is simply too expensive. Thus, the question is often decided from one's resources. It is the funding that determines the MFI's end target market and the services provided. Microcredit may be all the service it can afford.

POTENTIAL CONFLICTS OF INTEREST Even when funding allows, enterprising counselling may produce some potential conflict of interest. As business advisory officers become involved with a client business, they may gradually take psychological ownership of the project. This may cloud their judgment where they make loan decisions. Where business advice is free, some clients game more from their MFI than others. Fee income for advisory charges makes a potential conflict between the MFI's outreach and self sufficiency role.

ADVISORY UNIT SEPARATED While their positions and size are quite different, much the same debate on whether advice was appropriate or not took place within the formal sector finance and development banks. As the Asian Development Bank (Kohli, 1982, p. 30) commented, DFIs have been instrument in raising the level of technical and management skills either by providing training and information exchange or by organising management seminars and workshops...Some DFIs provide industrial counselling to their clients. Recently, however, some of them have taken steps to set up specialised units for this purpose." Today, most DFIs in the Pacific have left the advisory business.

MONITORING STYLED ADVICE As MFI lending is by nature more risky, particularly as it usually entails less experienced business people, it is important to monitor their progress. As there is little, if any, security, the loan may prove worthless by the time the arrears process chasing commences. This means frequent contact and careful monitoring of its clients is required. The more risky the lending, the more such attention is essential. At least some of this work might be considered enterprise counselling, but there is a question of bias rather than independence.

JUSTIFYING ENTERPRISE COUNSELLING Nevertheless, one can argue that MFIs should provide business advisory or support services on the basis of outreach. Where the local cultural does not encourage individuals to accumulate wealth at the expense of others, formal Western businesses are less likely to start without help. It is not so much as the MFI encouraging people to become commercially active but rather to be so in a Western sense. This development from an income generating activity into a true business is a major step.

ENCOURAGING PLANNING The most basic work is to teach the concept of planning and that actions taken today will determine success in the future. This can be accomplished by means of a planning game. One version was created by the ILO for Fijian villagers, but the concept could be easily adapted to other cultures and climates zones with the income and expenses and their timing changed accordingly. The game doesn't raise Western business concepts but rather the financial impact of more traditional income generating activities in rural areas.

START/IMPROVE YOUR BUSINESS PROGRAMS The next step in developing traditional activities to businesses is to introduce more formal Western business practices. Here the UNDP's Start Your Business programs and other awareness ideas become of value. They raise the idea that other, less traditional business opportunities are also available.

SOAP OPERA AND VILLAGE PROGRAMS Unlike urban areas, village programs need to involve more role playing and entertain with a message rather than a formal lecture with home work. Here play acted case studies can be used with effect. A few minute "soap opera" styled case study followed by group discussion would seem an effective means of making the program interesting but bringing home a message at the same time.

SCHOOL LEVEL PROMOTIONS School students are a promising group for "doing business" programs. After school activities such as the Young Achiever Program or Distributive Education/Work Experience have been used with success in some countries.

NEW BUSINESS AWARD PROGRAMS Where MFI clients have been successful, they need to be promote to maximise their publicity value. Some countries have introduced national or regional contests with cash awards and much local press coverage. While these are often confined largely to urban areas, radio will allow the ideas a wider distribution. Such success stories serve as examples for others considering local business as well as excellent case studies for more formal training programs.

LOCAL ENTREPRENEURS NETWORK People succeed in business through hard work; there are no easy short cuts. There are, however, mistakes that can be avoided. A local small business or entrepreneurs association would facilitate prospective business people to learn from other's experiences. Such bodies would also create networks which in turn may provide additional business opportunities and thus more successes.

MORE FORMAL BUSINESS SERVICES business plan development loan application preparation accounting/book keeping services financial planning marketing assistance tax preparation project evaluation sourcing equity/partnership funds

FURTHER FORMAL ASSISTANCE Besides advice, some MFI/DFIs provide clients with more physical help: access to computers, business equipment, office space, factory space, and clerical assistance. When these services are consolidated in one location, they are sometimes called business incubators. Business incubation might involve just sharing a fulling equipped office or factory or the creation of a microenterprise business technology park.

RE-INVENTING THE WHEEL Even where funding is plentiful, a MFI planner must consider what other agencies are available to provide microenterprises with business training and advisory support. Even at the village level, there are likely to be a number of government agencies and NGOs purporting to provide advice to small business.

GOVERNMENT AGENCIES These would normally include some form of advisory unit within the Ministry of Commerce or Trade. There is also commonly some form of business development officer within the Ministry of Cooperatives. There may also be separate rural business development units, agricultural business extension programs, women in business programs, and trade promotion advisors. Many NGOs, church groups and others also offer some form of advice as part of other programs.

MAKING WHAT'S THERE WORK While it is probably impossible, the money currently allocated of these programs could be made more effective with some planning and coordination. Where a MFI has a fairly local focus, it might attempt to do this. A planning game is needed here as well!

FINAL COMMENTS As mentioned MFI's funding and target group will determine the degree to which it will provide clients and potential clients with advisory services. As the institutions and its target group matures, MFIs should be careful to ensure that these advisory services do not overlap with other programs or develop into an unintended client subsidy.

REFERENCES William Burrus & Katherine Stearns, Building a Model: ACCION's approach to microenterprise in the United States, Washington, DC: ACCION International, 1997. R. Christen, E. Rhyne, R. Vogel, C. McKean, Maximizing the Outreach of Microenterprises Finance: an analysis of successful microfinance programs, Washington, DC: US Agency for International Development, July, 1995. K.N. Kohli and U.B. Lay, Industrial Development: role of specialised financial institutions, Manila: Asian Development Bank, 1982.

Contact Author: Mike Skully Dept of Accounting and Finance Monash University Melbourne, Australia Michael.Skully@BusEco.monash.edu.au