The market-based approach to enterprise assistance—an evaluation of the World Bank's market development grant funds

David Phillips

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.