Boosting micro business to fight poverty
26 November, 2013
Boosting micro business to fight poverty
To boost micro entrepreneurship in Georgia and fight poverty in the country, non-governmental watchdogs reviewed programs supporting the micro business and provided recommendations to authorities. The Community Development Center (CDC) and Consulting and Training Center (CTC), in cooperation with Georgian Small and Medium Enterprises Association (GSMEA), implemented the monitoring of special programs aiding micro business development in Georgia since the 1990s, and produced the report on 15 November 2013.
The report is based on analysis of the experience of Georgian
and international organizations supporting micro business activity. It identifies major shortcomings of state policy in Small and Medium Enterprises (SME), and suggests new approaches.
Three major factors were considered during the research: acute poverty, ineffective remedies for that poverty, and the new government’s interest in the SME sector as one of the effective tools with which to overcome poverty. As a matter of fact, the SME sector is considered as the muscle of the economy in developed countries, as it is a driving force for job creation and social welfare.
According to economic analysts, small enterprises are crucial for creating a competitive business climate, alleviating social disparity, and reducing unemployment. This sector is the most flexible and reacts quickly to market trends, easily adopts new products, and is mainly oriented toward the local market.
So the low level of activity in the SME sector in Georgia affects its social and economic picture. In Europe, for example, SME employs 67.1% of the workforce, and its share in Value Added Tax averages 56%, whereas in Georgia SMEs make up just 17.9% of the entire business sector, employ 43% of workers, and its share of VAT is 21.8%.
The research group selected ten small business supporting organizations, and did in-depth interviews with their representatives. The research made clear that grants aiding start-ups in micro entrepreneurship is an effective tool for creating jobs in groups with low social status and income.
SME development grant programs increase access to financial resources necessary to set up businesses, especially in regions where capital is scarcely available due to high interest rates on loans. On the other hand, grants are preconditions for banking credits, since those who have earned grants often have more experience and competence, thus making them better clients for banks.
According to the researchers, the start-up related grant programs are important to raise awareness of entrepreneurship and develop needed skills, especially when non-formal educational opportunities for adults are lacking. And grant programs may last for two to six years, while offering educational and consulting training even before the grants are delivered.
Start-ups also encourage community development, and enhance job creation, service, and product supply opportunities. They facilitate gender balance and raise the social status of beneficiaries.
However, positive results for successful beneficiaries may cause envy and rivalry. Besides, almost half of micro business projects financed through grants are less sustainable in a long-term prospect. But in spite of shortcomings, the research revealed that micro-entrepreneurship programs are an effective vehicle for economic and social integration of poor people into the workforce, and should be encouraged.
Therefore the authors of the research recommend Georgian authorities to boost micro entrepreneurship from both legal and taxation points of view, and also to work out certain incentives to this end.
First of all, a state framework mechanism supporting micro business should be created. This mechanism will insure the effectiveness of each state special program, and will prioritize target groups, work out major challenges and ways to meet them, insure coordination within the state structure, collect data-bases and analyze principles. The state should in addition work on educational and consulting programs, and create access to start capital through grants or subsidized credits. Finally, the authors of the report emphasized the importance of implementing micro entrepreneurship programs at the level of municipalities.

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