Using Vouchers to Develop Business

Development Service Markets for

Kenya’s Micro & Small Enterprises

Presentation to CWSA Workshop

by
William F. Steel
Senior Adviser, Private Sector
Africa Region, World Bank
28 January 2003
 Why Business Development
Services (BDS) for MSEs?
MSEs play an important role in:
 Poverty reduction and economic growth by
generating employment and incomes
 Empowerment of low-income workers
 Development of entrepreneurship & skills
BDS can raise MSE productivity by
addressing key constraints:
 Low skill levels
 Weak management, financial accounts, marketing
 Low level of technology
 Weak linkages and support systems

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Shortcomings of Previous
Approach to MSE Assistance
Old Supply-driven approach:
 Intervene with services provided or contracted
directly by donor project or government agency
 Train x number of people in z years
Shortcomings:
 Potential private providers are crowded out
 Services not adapted to real needs of clients
 No sustainability when subsidies run out

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Rationale for New Approach
to Developing BDS Markets
Vision: Diverse services adapted to
meet demands of large share of MSEs
affordably
Under market development approach:
 Increased demand & willingness to pay
 Providers have to adapt methods & content to
targeted clients
 Sustained & expanding provision of services

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Old Supply-driven Approach
Provider looks to government/donor

BDS
providers
Government/ (public agency;
Donor $$$ donor program)

Beneficiaries
Private BDS providers
Most private providers left out
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New Demand-led Approach
Provider has to market to clients

Government/ Training
Donor $$$ providers

$$$

Clients
(MSEs)

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New Demand-led Approach
Facilitation of both demand and supply

Gov’t/ Funds Facil- Upgrading

Training
Donor itator providers
Information

s idy r) $$$
b e
Su uch
(vo

Clients
(MSEs)

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Some Examples of BDS

Training Technologies
Information Consultancy
Advice Communications
Linkages Networking

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Why Demand-driven Approach?

Supplying pre-determined packages of

services doesn’t work well because:
 MSEs vary widely in capabilities and what
business services can benefit them
 Needs assessment cannot fully capture
what will work for which MSEs, nor
anticipate changes in market
 Each MSE may want different combination
of BDS

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Why Vouchers?
 Demand-driven
 Trainee chooses and pays with voucher
 Encourages private sector to respond
 Fills information gap
 Directory of providers and services
 Incentives
 Reduces cost to clients
 Reduces risks and raises profits to providers
 Transparent way of delivering subsidy to
jump-start market development

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Drawbacks of Vouchers
 Complex, costly to set up
 Can distort true market by
subsidizing the transactions
 Subsidies can become addictive,

hard to phase out

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 Kenya Voucher Program
 Started just for training delivery:
 Upgrade skills & productivity in existing micro &
small enterprises (MSEs)
 Give women technical skills to start up
 Shifted to market development approach
 Introduced upgrading for training providers
(vouchers for training of trainers)
 Extended to other, more individualized BDS
aimed at SMEs (small & medium-scale enterprises)

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Training, Technology/BDS, & Microfinance
Vouchers: Micro & Small Market Segments

Basic Voucher Training Programme Technology & Specialised

technical STANDARDIZED
BDS Voucher technical
skills TRAINING
Training Institutions Programme skills
Skilled Craftworkers
Consulting Firms TECHNICAL
ASSISTANCE &
Entrepreneurship SPECIALIZED
& management TRAINING
skills Self- Micro Technology Product
emplo institutions
improvement
yed Large firms
Small BUSINESS
DEVELOPMENT
Jua Kali Assoc. SACCOs SERVICES
Consulting firms
Mobilize & Service providers
manage own Problem-solving
savings/credit FINANCIAL Business planning
MicroFinance
SUPPORT & development
Voucher
INSTITUTIONS
Training
Access external Microfinance Inst’ns
Coop & other banks Programme
funds
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Implemented Mainly through
Private & Non-gov’t Agencies
Management
• Needs assessment
• Standards
• Prequalification/directories
Ministry
• Voucher issuance/redemption
• Validation PCO
• Evaluation

Private
allocation agencies Business
• Applications consulting NGOs Associations
• Sell vouchers firms
to

Vouchers Vouchers

Micro and small

enterprises

Vouchers Vouchers
Training and
business Private trainers,
Craftworkers Public training
development firms institutions
service providers

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Kenya Voucher Programme:
Performance 1997-2001
 37,606 training vouchers issued,
about 32,606 trained (60% women)
 BDS to 608 clients; microfinance to 65
 US$8.7m disbursed ($2m being processed)
 Impaired by frequent changes of Ministry
& “Permanent” Secretary (6 in 4 years)
 Retarded by slow, delayed flow of
budgeted funds
 Severe delays paying service providers
 Trainers won’t offer new courses (in
programme) till paid for previous ones
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Demand Response, 1997-2001
BAFs Applica- Vouchers Training/
issued tions issued services
received provided

Training 85,835 65,000 37,606 33,025

programme

Technology 4,000* 2,744 1,324 1,268*

/ BDS
programme

*Subject to final verification

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Supply Response, 1997-2001
Allocating # # Selected
Agencies Applicants
- Training VP 1007 212

- Technology/BDS 400 77

Service Providers

- Training 3400 745

- Technology/BDS 1200 306

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Kenya Voucher Programme:
Impact
 Very positive for those trained
 Significant increases in employment,
assets and income for enterprises
 Increased willingness to pay cash
directly to providers for subsequent
training (40% have done so)

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Kenya Voucher Programme:
Unanticipated Benefits
 Skilled craftworkers emerged as leading
training providers (TPs):
 Most-demanded by voucher clients
 Adapted apprenticeship system to a more
convenient format
 Some have added training as a business line
 Formed Assoc. of Tech. Transfer & Enterprise
 Jua Kali Associations empowered
 Provide members with useful information &
vouchers
 Many have formed SACCOs to help address
financing needs from own resources
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 Lessons Learned
 Administer in private sector, not through
Government Ministry
 Provide training-of-trainers and other support to
upgrade TPs, especially those from SME sector
 Market development works, but takes time
 Demonstration effect: Clients willing to pay for
further training (=> need to reduce subsidies)
 Need exit strategy:
• Providers may become oriented toward vouchers rather
than developing better products for mass market
• Slow payment in Kenya forced TPs to cater more to the
market, not subsidies

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