Building the Capabilities of Entrepreneurs in Developing Economies: A Case Study in Developing a Program to Enhance Entrepreneurial Capabilities

Freeman, Barbara; Haworth, William (2014). 'Building the Capabilities of Entrepreneurs in Developing Economies: A Case Study in Developing a Program to Enhance Entrepreneurial Capabilities' Paper presented at the annual conference of the HDCA, 2-5 September 2014, Athens, Greece.

It is a well-established that small-and-medium enterprises (SMEs) are the primary engine of economic growth, productivity, and job creation. Globally, 300 million SMEs are responsible for more than two-thirds of the jobs created in emerging markets. Yet, a huge SME Funding Gap, estimated at over US$2 trillion (Shinozaki, 2014), persists. Most SMEs face two major barriers that constrain their development: (1) Access to finance, specifically securing adequate capital that enables entrepreneurs to expand and scale their businesses over long-time horizons, and (2) Access to advisory services that continually help develop human capabilities and organizational capacity. This SME funding and capabilities gap is especially problematic for women-owned firms.

The International Finance Corporation (IFC), as the private sector arm of the World Bank, has a duty to help develop the private sector in emerging markets in ways that reduce poverty and increase shared prosperity. IFC is collaborating with UC Berkeley, and The SME Group to develop a cross-sector (public, non-profit, private) social innovation to drive human and economic development and the creation of millions of 'good jobs' in emerging markets. We are currently developing an investment structure that provides long-term patient capital to 300,000 SMEs, which is integrated with ongoing personalized and flexible learning options for entrepreneurs who typically have little time and may face other constraints and/or have limited formal education.

The key to helping SMEs succeed lies in our diagnostic assessments and digital platform. Our assessments enable us to precisely identify knowledge, skills and attitudinal gaps (e.g., financial literacy, management, drive) that will be addressed through personalized mentoring. Our methodology combines conventional risk scoring methods with psychometric modeling to identify and assess entrepreneurial upside potential instead of focusing solely on downside risk.

Critically, our assessment methodology is specifically designed to be inclusive and capture human potential along a capabilities spectrum. At one end is the challenge of identifying and assessing SME entrepreneurs who may not recognize themselves to be entrepreneurs; for example, a community of women, acting independently who on aggregate serve as a 'firm,' with one woman making sweets, another sewing, another arranging flowers, and together, as a team they are providing for the wedding industry. At the other extreme, is developing a method of supporting entrepreneurial teams that are rapidly expanding their companies yet face a skills shortage as they hire new employees to keep up with sales growth. In this case, our challenge is supporting high-potential enterprises to grow whilst they concurrently need to develop the capabilities of their newer employees, who may be intelligent, enterprising, and motivated but may lack specific skills.

Our approach blends technology (big data, learning/business analytics, digital/mobile access) with on-the-ground local mentors and specialist networks. We are working with Google to ensure technical accessibility to our services (broadband/speed, mobile devices, etc.). Our team understands, however, that to facilitate business expansion and genuinely improve SME decision-making and long-term capabilities, access to resources is only a starting point. We need to assess capabilities rather than resources to establish the conditions that enable entrepreneurs to grow their businesses in ways they have reason to value (Walker & Unterhalter, 2007). Thus, our services must be relevant to an entrepreneur's real-life circumstances, available as and when needed, and take account of the vastly differing learning requirements of entrepreneurs due to their capabilities, education, firm size, growth stage, and sociocultural and economic context.

We are formatively studying our target population (across countries, cultures) as we iteratively develop this solution. In this session, we explain how the Capabilities Approach has framed our social innovation and share our research findings, specifically focusing on our capabilities assessments and mentoring methodologies.

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