Asia and the Pacific Rural enterprises and poverty reduction

Importance of Rural Non-Farm (RNF) Enterprises for Poverty Reduction Rural non-farm sector and employment is a vital source of income and employment Non-farm economy accounts for 40-60% of employment, and rural non-farm economy accounts for up to 50% of rural employment in Asia Non-farm economy is particularly important for households with less than 0.5 hectare (earn 30-90% of income through non-farm sources)

Importance of RNF Enterprises for Poverty Reduction RNF Self-employment and casual and regular wage employment comprise: –Household or livelihood enterprises –Micro-enterprises –Small-enterprises RNF fosters linkages with farm sector through production, consumption, capital, and labour linkages Linkages between rural and urban areas through supply of inputs, marketing of outputs, and subcontracting between rural and urban enterprises

IFAD’s Experience in Promoting RNF Enterprises Since 1978, IFAD has supported 60 projects and programmes with components on developing rural micro and small enterprises (RMSEs) In 2003, a third of IFAD’s ongoing projects in in the Region included RMSEs-related activities IFAD-supported projects promote RMSEs by –Facilitating access to financial and non-financial services –Improving access to markets –Creating a supportive institutional environment

IFAD’s Experience in Promoting RNF Enterprises: Financial Services Microfinance has historically been central in IFAD- funded projects as a catalyst to empower rural poor – especially women – and building local institutions Channels of credit: –Individuals –Self-help groups –Linkage banking –Equity financing through apex institutions –Second-generation credit for the rural poor

IFAD’s Experience in Promoting RNF Enterprises Rural microfinance alone, though, is not a panacea in the fight against poverty Two issues: –its effectiveness in reaching the extreme poor and the “missing middle” of entrepreneurs –its suitability for longer-term investments and poverty reduction For RMSEs to graduate from livelihood level to growth- oriented level, there is a crucial role for skills training, production technologies and market linkages

IFAD’s Experience in Promoting RNF Enterprises: Non-Financial Services Non-financial services comprise: –Management-oriented or “business” training –Production-oriented or “technical skills” training –Entrepreneurial development training IFAD has attempted to correct past imbalances by providing raising awareness about business opportunities, and providing technical assistance Results of these interventions have been mixed

IFAD’s Experience in Promoting RNF Enterprises: Access to Markets Market access is crucial for RMSEs (ability to operate in local, national and export markets) They usually suffer from lack of –Physical access to markets –Market-related skills for competitive markets –Information on markets and opportunities Assistance in improving access to markets has not always received adequate attention

Creating a Supporting Institutional Environment for RMSEs RMSEs cannot be effective in a policy and institutional vacuum Governments can create a conducive framework for RNF sector development by promoting –Macroeconomic and sectoral reform policies –Programmes and projects for financial, physical, social and human infrastructure IFAD can assist governments in adopting prudent policies for RNF sector

Major Issues and The Way Forward Placing strong emphasis on business development/ non-financial services Enhancing women’s ownership Improving market access and infrastructure Targetting of vulnerable populations and scaling up of their activities

Issues for Discussion What innovations by IFAD and other partners are needed to better design and implement projects for rural enterprise development? What complementary roles should IFAD, governments and other partners play to promote rural enterprises in marginal areas and for disadvantaged sections of rural poor (women, indigenous peoples)? How can we link household or micro-enterprises in rural areas to larger, growth-oriented enterprises in semi-urban/urban areas? How can we assist the rural poor in enterprise development in the context of macro policy changes, including trade liberalization?