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In the past 20 years there has been a revolution in the provision of credit and other financial services for small enterprises and the poor. Microfinance, pioneered by the Grameen Bank in Bangladesh and other institutions in Latin America and elsewhere, has made it possible for poor people for the first time to access reasonably priced financial services from regulated formal institutions. More recently, another closely related revolution has started, which may have the potential to be equally dramatic.

Small enterprises need credit but they also need many other services. They need skills, information, individual advice, marketing channels, raw material supplies, premises, record keeping and accountancy, equipment and technology, repairs and maintenance. In addition to all these services, the smallest businesses in particular also need representation through effective forms of association, to protect them from official harassment and to ensure that their interests are taken into account in local planning and other decision-making processes. Without these other services, credit alone may do no more than add the burden of debt to all the other problems entrepreneurs have to face.

Governments and foreign donors have until recently responded to these needs by trying themselves to provide the services; they have provided industrial estates, training and extension services, raw material supplies, common facility workshops, new business incubators and a whole host of other services. Government bodies and nongovernment organizations have also attempted to promote associations to represent the interests of small and micro-businesses. Despite, or perhaps because of, heavy subsidies, these services have generally been inadequate in quantity and of poor quality. They have often been hijacked by the most powerful and least needy businesses, and their main effect may have been simply to crowd out potentially more effective private suppliers and initiatives.
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Document Type: Research Article

Publication date: December 15, 2005

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