An important consideration for a collaborative and partnership approach to small and medium enterprise (SME) development for any (development) program is that the sustainability of entrepreneur development depends to a large extend on demand-driven micro enterprise development support in terms of technical skills, technology and organizational sustainability. Once SMEs are more firmly established their individual support demand starts to diversify and can no longer be provided within a project setting.

Government agencies, branch organizations, entrepreneur representative organizations, service providers, all have a role to play to ensure adequate business development services. Development Connect and its partners can play an important role in analysing, linking, facilitating and developing capacity of key organizations to make this happen or support emerge of new organisations such as farmer networks and extension offices.

The (non-limiting) overview of issues in the textbox below emphasizes the merit of a multi-stakeholder and partnership approach, where different actors take the lead in different elements of the system providing important considerations and an indication of the diversity of issues to be addressed to ensure sustainability.

The overview also provides guidance to the institutional assessment (enabling environment and value chain design) which would need to be conducted at the start of any new program. This is an area where Development Connect can assist.

Environmental sustainability; business externalities can cause environmental damage and degradation, which need to be addressed in advance, especially since any micro enterprise (MED) development objective is to improve livelihoods AND communities. In case substantial (local) externalities cannot be avoided, business models should be deemed unfeasible and should not be promoted. Also, the real risk exists of an ever increasing number of SMEs in the same geographical area depending on the same natural resource base, therewith creating unsustainable resource use over time. An analysis of what level of harvesting (and number of entrepreneurs) the resource-base can sustainably accommodate is required, as well as how to “control” SME expansion;

Climate Change; based on existing scenarios the impact of climate change (CC) on the natural resource base in e.g. water sources, agricultural production and on availability of forest products, is substantial. Much is therefore already known about possible CC impacts and subsequent CC vulnerabilities of rural households (and entrepreneurs). These therefore need to be addressed in the underlying environmental sustainability of the business plans of the SMEs, especially those who depend on natural resources;

Social sustainability; a group based enterprise model may work well and is empowering for the members. However, group dynamics may change over time especially if the business evolves and more financial resources become available. Not all group members may be perceived as contributing equally while, depending on the type of business, profits are shared equally. Once groups become successful their move into more formal organization structures, like cooperatives, needs to be supported with organization development support. At the same time the higher visibility of such organization poses a risk of political capture, which may be one reason why groups consciously opt not to formalize their organization;

Business life cycle theory; linked to the social sustainability, organizations go through different stages of development requiring different forms of organization and competences. Not all entrepreneurs or groups will be able to grow as per these growth models, which in itself is no problem as long as their sustainability is achieved. For Development Connect and its partners it is important to understand organizational development processes from the life cycle point of view, to better decide upon support requirements for different stages of organizational development;

Livelihoods approach; rural poor have highly diversified livelihoods to minimize risk and to be able to absorb shocks of changes in their environment and within their households. In many cases this has served them well. The push towards more up-scaled business practices means a high dependency on one livelihoods activity and entails a major mind-set shift. This may not always be possible nor recommendable given volatile contexts and past failures of supply-driven development projects. The fact that some SMEs do not up-scale should therefore not be approached solely from the point of view that this is a failure (since it is defined as a development target), but that this can be a well informed decision of SMEs enabled by the capacity developed through Development Connect’s support;

Financial sustainability; business plans are often based on a yearly assessment of average income and expenditures. The calculation of costs and incomes can further improve and especially the implicit cost of replacement of subsidized equipment. Even though businesses can be from this perspective sustainable, expenditure patterns over the year may not match up with income patterns, causing acute and structural liquidity problems. Furthermore, external and internal shocks can easily deplete existing capital and can cause a business failure. Promoting saving groups as part of “group enterprises” is one aspect of the SME model which could mitigate these risks, for which data needs to be collected on income-expenditure patterns, business risks, to which extent saving groups can bridge liquidity gaps and mitigate shocks and when external financing would be temporarily required. This data is also required also in relation to the proposed linking of entrepreneurs with Inclusive Finance Institutions;

Access to (Inclusive) Finance; access to finance beyond what e.g. saving groups can provide internally is important for enterprise sustainability and growth. In the absence of collateral of most SMEs and in a context of often relatively high transaction cost, it needs to be identified how finance can be accessed by SMEs considering the above mentioned complex and varying liquidity demand. Bankability of SMEs would in the absence of collateral often depend on a ‘bankable’ business plan and Development Connect can help assess if existing business plan formats and guidelines fulfill such requirements. Furthermore, once demand has been identified and specified, collaboration with Inclusive Finance Institutions and programs needs to be facilitated;

Natural Disaster Risk Management; the impact of natural disasters can be severe in terms of human life and physical damages. Preparing fully for any kind of disaster is especially for SMEs not possible, but they can be supported in becoming more resilient to external shocks and in dealing with a rapidly changing environment. Preparing contingency plans and identifying in advance assets (financial, social), which can be called upon in case of emergency can be integrated in the business plan development.

Equality and empowerment; one of the underlying objectives of Development Connect’s pro-poor and inclusive approach is empowering the most vulnerable for self-development and for sustaining their SMEs and related associations. Different approaches and means of support create different identities and dependencies and have different empowering potentials and results. It is recommended to analyze the tools and approaches used on their empowering or disempowering effect (intentionally and unintentionally);

Political analysis; it is recommended to apply a formalized political analysis especially at local level of the natural resource and SME context. Adding this analysis will help in better understanding and designing mechanisms for sustainability and on how to deal with and influence different (political) interests and power relationships;

Transparency and accountability; there is an increased relevance for integrating internal and external accountability mechanisms and transparency measures in the system design;

Corporate Social Responsibility (CSR); the goal of CSR is to embrace responsibility for the business’ actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Stimulating that business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms is critical.