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International experience has proved that entrepreneurship promotion
and small business development is an effective approach for creating
new jobs, reducing unemployment, and generating income. Small
enterprises are an important and integral sector in the market
economies of developed countries as well as transition countries.
In countries in transition, many micro-entrepreneurs lack access to
working capital. Without adequate working capital, entrepreneurs’
abilities to expand their businesses, create an inventory, and overcome
short-term cash flow problems are severely restricted. Field
studies have shown that most entrepreneurs believe that money alone
will solve all their problems. They are often unaware of other
important success factors (see Figure 1). Few entrepreneurs
trust commercial banks and most are reluctant to seek bank assistance.
Even if bank lending was readily available and in demand, most new
small businesses cannot post the collateral necessary to obtain a
loan. Although credit is often available from moneylenders, the
interest rates are prohibitive, ranging from ten to twenty percent per
month.
Entrepreneurs with access to Micro Finance (MF) programmes can access
an array of services which are required by the MF as part of the loan
packages,
In rural areas a significant portion of the population in transition
countries derive their livelihoods from rural income-generating
activities: these may include animal husbandry, market gardening, and
crop production, etc. Newly privatized land is often under-utilized as
farmer’s lack the resources to procure the necessary inputs. For
most of the rural population, it is difficult to obtain financing to
expand rural businesses. The expansion of rural production is also
limited by the lack of market outlets for produce. Processing
facilities for primary products to add-value are few and far between.
Under such circumstances, the implementation of a tailor-made credit
programme as an (integral) part of regional economic and rural
development projects can be particularly beneficial as it disburses
capital directly to needy target groups.
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