Enhancing entrepreneurship in Sri Lanka: the provision of business development services (BDS) by microfinance institutions to support the self-sufficiency of microenterprises.

Abstract

The literature shows that microenterprises can make a significant contribution to the economies of the developing world but that such firms face considerable challenges, especially during the start-up phase. Microfinance initiatives in the form of micro credit and business development services (BDS) are recognised as helping such firms to address these challenges as the provision of finance and support in the development of key skills can facilitate start-up and foster growth. Given this context, this study investigates how microfinance institutions (MFIs) in Sri Lanka use BDS to support the aspirations of entrepreneurs and employs the lens of co-production to analyse how the parties work together to support microenterprises. For the purposes of this study, co- production is defined as the combined efforts of two parties who jointly determine the output of their collaboration. The multiple case study method was used and data were gathered by conducting 51 in-depth interviews with microfinance officers, owner managers and with an external trainer and a BDS consultant involved in the process. The findings of the study reveal that MFI counsellors and owner managers of microenterprises use BDS to co-produce generating outcomes that help them both improve their performance. The findings also reveal that a number of contextual factors, such as client selection, social mobilisation programmes, planning, performance evaluation and financial sustainability influence co-production in BDS. Moreover, the findings show that aspects of the counsellor/owner manager relationship, such as expertise, readiness, follow up by the counsellor, owner manager willingness, and counsellor-owner manager communication and interpersonal relationships enhance co- production. This study contributes to the BDS literature as there has been a dearth of studies conducted on this area. Moreover, by focusing on how contextual factors influence co- production, the study fills a gap in the co-production literature. The recommendations provide useful information to policymakers (e.g. collaboration between the government and MFIs in catering for poorer people) and practitioners (e.g. use of low cost methods such as mentoring and on the job training for counsellors), which should help inform future strategies in this field.