The market-based approach to enterprise assistance—an evaluation of the World Bank's market development grant funds
When technical assistance to enterprise development is justified then instead of subsidized central facilities, which have often been ineffective, the assistance should aim to develop the market for business know-how. Grants targeted to firms that want to buy business services are more likely to achieve this aim because they can stimulate a competitive response from independent providers of services. 'Matching grant funds' have been used to develop the market by targeting small, efficient firms with the potential for growth, but lacking information or know-how. The World Bank has completed and evaluated eight projects of this type. The net impact of the eight projects, as described in this article, has, however, been uncertain. While their direct output benefit (in terms of increased exports or sales) appears to have been good, sustainability and development impact seem to have been weak. Operating costs have in some cases been high and implementation has been delayed, raising questions about their ability to mobilize the services market. In one case, a project in Mauritius, the first evaluation claimed outstanding results in terms of rapid response and increased output, but a subsequent study shed doubt on the market impact, showing that most firms would have purchased the business service anyway, without the grant. For such programmes, emphasis should not be on the growth of exports and output, but on the growth of the market for services. Grant funds have to be carefully justified in terms of development impact, and better designed, if they are to be cost-effective and to achieve their potential market-making objective.
BDS interventions that subsidize transactions are often thought to hinder market development by signalling that BDS can be obtained at an artificially low price. The justification for voucher programmes has been that MSEs are offered the chance to try out training at a temporarily reduced price, and if service providers respond to this opportunity, MSEs' lack of experience of the benefits of training is overcome, and they continue to purchase training at a higher level in future. This article discusses the economic rationale for intervention, then considers how to measure the short- and long-term development effects of incentives such as voucher and matching grant schemes. This is illustrated through an evaluation of the development impact of a recently ended voucher programme in Kenya, which shows signs of success in creating permanent market expansion in BDS training for MSEs.