Supporting self-employment and small-scale entrepreneurship: potential programs to improve livelihoods for vulnerable workers

This paper provides a review of the profiles of the subsistence entrepreneurs and their constraints, and the landscape of current entrepreneurship programs and the evidence on impacts, and discusses the potential role of public policies for the livelihoods of subsistence entrepreneurs. Worldwide over a half of workers are self-employed, but a significant fraction of these self-employed jobs are of low productivity subsistence entrepreneurs. The focus of the entrepreneurship programs to support these self-employed in poverty is to improve their livelihoods rather than promoting cutting-edge innovation and business growth. Evidence of successful programs is limited and program designs often seem ill suited to the needs and characteristics of these subsistence entrepreneurs. Given the market failures faced by subsistence entrepreneurs, interventions that complement safety net programs with well-targeted support to promote productive self-employment may hold some promise.Jel codes: O12, O16, J24

Individual characteristics such as education, age, and gender are important determinants of employment status including self-employment. On average, own-account workers and agricultural workers have low educational outcomes, while employers and wage workers tend to be better educated. Self-employment also tends to follow a strong life-cycle pattern and to become more common with age (figure 2). However, there is large heterogeneity across countries.
For instance, self-employment is quite common, even among youth, in countries in Sub-Saharan Africa, particularly in agriculture. Gender effects also tend to be country specific. In Sub-Saharan Africa and South Asia, women are more likely to be self-employed than men.
More women than men work in wage employment in  Own-account workers are a heterogeneous group.
Profiling analysis suggests that among less successful entrepreneurs (own-account workers), there are some that have the characteristics of the more successful (employers). 2 For instance, a non-negligible proportion of own-account workers have seemingly similar characteristics to employers (table 1). Similarly, employers Source: Based on data from Gindling and Newhouse 2014. compared to only about 20 percent in either Europe and Central Asia or Latin America and the Caribbean. 3 For instance, Grimm, Knorringa, and Lay (2012) defined 10 percent of business owners as "top performers," based on their accumulated capital and its profitability. The likelihood of being a top performer increases with characteristics such as age, education, and "entrepreneurial spirit." The researchers then obtained the propensity to be successful and find those who have similar success propensity among unsuccessful ones (so-called "constrained gazelles"). Thus, high performers, constrained gazelles, and entrepreneurs with low potential coexist in the market.

What are the constraints facing the self-employed and small-scale entrepreneurs?
Potential constraints and factors that may affect productivity and earnings can be classified in two groups: individual and environmental (

Skills
The ability of individuals to develop a business activity, solve problems, make financial decisions, manage risks, or find clients depends on their skills. Basic numeracy and literacy skills seem to be a precondition to setting up and operating a business, but these skills are often lacking due to low levels of education, particularly among subsistence entrepreneurs. Low levels of cognitive skills affect the capacity of individuals to interpret and process information about events that can affect their business and require strategic actions. Low cognitive skills also limit the capacity to choose viable economic activities in the first place and to learn from failure or success (Heckman, Stixrud, and Urzua 2006). In Ghana, for instance, about 80 percent of workers with lower secondary education self-report that they are 4 See Pierre et al. (2014) and Valerio et al. (2014) for the summary methodology and findings from the STEP skills measurement surveys.   figure 5), and reducing safety net expenditures and their associated opportunity cost (B in figure 5). In addition, there can be positive externalities resulting from potentially higher investments in human capital.

Individual constraints
One set of programs would aim to improve the earnings generated by current activities, without attempt- 2 What programs exist to promote self-employment and small-scale entrepreneurship?
This section presents an overview of an inventory of 106 SSE programs, including both organizational approaches and specific entrepreneurship projects that aim to improve the earnings opportunities for self-employed workers, (see figure 6 for regional arrangements. Unfortunately many existing programs are unlikely to be suited to the needs of subsistence entrepreneurs. 6 The review was based on an entrepreneurship inventory that documents characteristics of SSE programs, and supplementary interviews with practitioners and experts. An emphasis was placed on programs that target the self-employed and businesses with 10 employees or fewer. Some programs discussed here are organizational approaches such as curricula or tools for entrepreneurial training that are adaptable to various projects (e.g., the International Labour Organization's Know About Business initiative). Others are projects with heterogeneous implementation details. The inventory was drawn from three sources: (1) the Entrepreneurship Education and Training (EET) database created by the World Bank Team (see Valerio, Parton, and Robb 2014a and 2014b for more information on the database), (2) the Youth Employment Network (YEN) database; and (3) relevant World Bank projects with "entrepreneurship" and "self-employment" as keywords in the main stated objectives. In selecting programs for the inventory, the focus was on programs that directly address constraints of individual beneficiaries with respect to business activities as opposed to indirect approaches-such as the construction of business infrastructure, capacity building of financial institutions, or the facilitation of financial inclusion without the promotion of business activities.

Targeting, eligibility, and selection
Definition, identification, and selection of beneficiaries are often the greatest challenge in program design.    If proven effective, such tests will allow commercial banks to assess the credit worthiness of lower-income individuals who lack collateral and credit.

Technical components
Program services were classified into four technical components: training, access to finance, advisory and mentoring services, and networking. The majority of programs provide combinations of these services: the  Training is by far the most commonly offered service (figure 9). Conversely, direct provision of access to finance is the least prevalent service offered, with only 30 percent of the projects reviewed providing it.
Instead, many programs (67 percent of organizational approaches and 60 percent of projects) report that they link beneficiaries to outside financial services.
Projects that involve the private sector for service delivery are more likely to provide access to financial services than purely publicly implemented projects: 28 percent of public projects, 32 percent of private projects, and 46 percent of combined public-private projects provided direct access to finance. The low utilization of access to finance in the programs reviewed may reflect the fact that the main objective of financing projects such as microcredit programs is often consumption smoothing without promoting entrepreneurial activities. Over half of the programs reviewed provided the two remaining services-advisory services and mentoring and networking.

Training
Training is a key method for building entrepreneurial capacity. About two-thirds of the projects in the inventory use traditional classroom-based training; workplace training, including apprenticeships and on-the-job training, is used in 26 percent of the projects. There is great variety across programs in terms of training intensity and duration. In fact, some programs literally customize trainings to each group, without having a standard approach even within the program.
Among the many topics covered in SSE programs, business-related training predominates, including business planning, general business and marketing skills, and financial literacy and capability (figure 10a).
Foundational skills training such as numeracy/literacy or vocational training is less prevalent. In Latin America and the Caribbean, vocational training is particularly low, with only 6 percent of programs providing such content. South Asia, on the other hand, is the most likely to provide vocational content, with half of the programs that include training addressing vocational content.

Financial services
As mentioned above, only 30 percent of the projects reviewed have a component that directly provides access to finance, while 60 percent link beneficiaries to outside financial services. Figure 10b shows the specific types of direct financial products programs provide.
Cash grants, scholarships, and prizes are the most common form of financial support, followed by microfinance. Sixty-three percent of the programs providing access to finance in Sub-Saharan Africa, 100 percent of those in Latin America and the Caribbean, 67 percent of those in South Asia, and 86 percent of those in the other regions provide grants, scholarships, and prizes.
Meanwhile, savings and loans group, as well as microfinance tend to be concentrated in Asia.  b. Financial service products a. Training topics more than any individual could. Specifically, the project encourages the formation of savings groups that seek to overcome banks' reluctance to work with small entrepreneurial activities by combining assets; members submit a joint financing request and repayment plan to banks. Through these linkages, more rural businesses are able to access finance. Not surprisingly, a higher percentage of programs targeting potential entrepreneurs provide networking services (62 percent) than those targeting existing entrepreneurs (48 percent).

Institutional arrangements
Implementation arrangements vary across the pro-  Related to the weak monitoring and evaluation system, many programs tend to focus on output indicators (e.g., number of beneficiaries trained, number of toolkits dispersed) rather than outcome indicators. Several do track outcome indicators (figure 12), including: labor market activities (e.g., employment), income (e.g., profits/ earnings), business knowledge and practice (e.g., bookkeeping), business performance (e.g., sales), financial behavior (e.g., loan take-up), attitudes (e.g., confidence), and others (e.g., indicators capturing the result of regulation reform or public infrastructure investments).
Not surprisingly, the most frequently tracked outcomes of interest include business performance such as sales, number of paid employees, or inventory amounts.

What do we know about impacts?
There is limited evidence regarding the impacts of entrepreneurship programs, and the results are mixed.
Of the programs reviewed that have been evaluated, only around 30 percent have had positive results, but the size of these impacts is usually small. What seems clear is that stand-alone interventions-especially access to credit on its own-are less likely to make a difference. This finding suggests that targeted beneficiaries face multiple constraints, and effective programs may need to integrate several services.

General considerations in the design and implementation of programs to support subsistence entrepreneurs
The livelihoods of those engaged, or who can engage, in self-employment or small-scale entrepreneurship as a subsistence activity could be improved through SSE programs. The objective of such programs would not be to identify "gazelles" and help them grow, but to support those who are engaged in subsistence activities even if they lack growth potential. The implication is that government interventions should be properly Profiling and understanding the skills, capabilities, and constraints facing potential beneficiaries is, therefore, critical to the design of programs that are able to serve the vulnerable. The profiling method will depend on the context, but it is likely that survey instruments and objective indicators are cheaper and more reliable than the more subjective assessments of program managers, counselors, or expert groups. (Some frequently used instruments to profile individuals and assess constraints can be found in the appendix.)

Identifying and selecting business activities
There are two approaches to identifying business activities. A participant-driven model, which is similar to that used in traditional entrepreneurship programs, is one in which individuals select their business and join the program. The other model is project identified. In this model, the project identifies, ex ante, profitable business activities in a region or sector through some type of assessment and guides participant start-up activities to the selected industry or business type. Both methods have pros and cons and are likely to be more relevant to some groups than others.

Participant driven
In this approach, participants self-select into a program usually by applying for support, submitting a business plan or idea for review, or participating in offered services (figure 14). Among those who already have an idea about a business or who operate actual businesses,

Figure 14. Support for participant-driven businesses
Source: Based on SSE program inventory.  This is a standard approach that entrepreneurship programs typically take for business development.

Specifications for very vulnerable/selfemployed Examples
The strength of this approach is that it empowers beneficiaries by helping them come up with their own business ideas. The self-employed will choose ideas that match their skills and interests. In addition, they For this model to reach out to more vulnerable and subsistence entrepreneurs, the following considerations in identifying viable business opportunities for support should be taken into account: ∎ Entrepreneurship awareness and sensitization should be a priority so that applicants see themselves as potential business people.
∎ Outreach activities need to be considered, as subsistence workers with limited social networks are the hardest group to reach.
∎ Applications should be simple, given the target group's lack of education and skills.
∎ Potential beneficiaries would need support in preparing these applications in selecting types of activity and requested services.
∎ There should be a mechanism to judge whether businesses/activities are economically viable; this is crucial in avoiding market saturation.

Project identified
In this case, the project identifies, ex ante, business opportunities through market and subsector mapping and demand surveys ( figure 15). The opportunities include both current activities that can be transformed to increase productivity and earnings, as well as new activities that could be introduced. In some cases, business opportunities can be flagged by the private sector. In others, an assessment would need to be conducted; this is usually part of a study of subsectors or value chains, and takes into account the availability of natural resources, infrastructure, regulatory environment, and human capital. The accuracy of such assessments has been debated, which should be taken into consideration.
In this model, participants are expected to develop their businesses within the context of the parameters selected by the project.
Given participants' lack of entrepreneurial traits and ability to develop business ideas, this approach likely has advantages in serving the needs of the less capable entrepreneurs. In addition, this approach, despite its complexity compared to the participant-driven one, holds promise for potential impacts on a large scale.
The project-identified approach includes value chain integration and microfranchising (see table 4 for examples, and box 2 for processes to develop a project of value chain integration).

Value chain approach
Refers to all activities and services that bring a product (or service) from conception to end use in a particular industry. The focus is on the system, on end markets, and on relationships. Usually, this approach upgrades business, services, and communication at every level, using mostly existing players. An opportunity exists to integrate the self-employed that have been catering to the local market.
∎ Access to markets and networks

Table 4. Examples of project-identified models
Value chains-also referred to as subsectors, clusters, or supply chains-are relevant for SSE programs for two reasons.
First, many producers, particularly in farm and nonfarm activities, are connected in one way or another to these chains.
In these cases, horizontal (between channels) or vertical movements within the chain can lead to gains in productivity and earnings. Second, for certain producers of tradable goods and services who are only operating in local markets, connecting to one of these subsectors can be an opportunity to expand sales and earnings. In fact, identifying the right value chains could be a precondition to make SSE programs viable and avoid saturating local markets and bringing down prices and earnings.
Two important processes need to be considered when integrating SSE programs into value chains: (1) mapping the relevant subsectors, and (2) identifying the types of interventions needed to increase earnings (usually by reducing costs, improving quality, and/or increasing productivity).

Mapping the relevant subsectors
There are several methods and instruments to map markets. These methods are often based on interviews with key informants to identify the main actors, their interactions, and their consumption and supply of different products. Since these specialized assessments are usually conducted by management consultants, trade associations, business development service agencies, government development agencies, and NGOs, program and project managers would need to mobilize the necessary expertise. It is important to note, however, that while in many assessments the entry point is a given product, in SSE programs the value chains would need to be selected/designed to be accessible to the target population of beneficiaries. In all cases, many producers of the same goods and services would need to be brought together-primarily because it is often through aggregation that the correct scale of the business can be achieved to compete within a given value chain. Also, aggregation through associations, cooperatives, and firms reduces contact costs, because the program does not have to coordinate with businesses individually.

Identifying interventions to create jobs and/or increase earnings
Once the business areas to be aggregated and the relevant value chains have been identified, various alternative interventions are possible. These will usually focus on one or more of the following: connecting beneficiaries to the value chains; improving production technologies to improve quality, reduce costs, and/or increase productivity; facilitating vertical or horizontal movements within the value chain; or collectively addressing bottlenecks and regulatory failures.
The challenge is to get skills up to the quality standards required by the value chain and to identify viable business for the group. Traditionally, the value chain approach has mostly sought to address the constraints of those already in the value chain, or at its margins. To this end, it is important to identify a value chain that does not only have a high potential for increased productivity, but already includes targeted groups. When trying to integrate new actors (the self-employed) into a value chain, a comprehensive approach that includes entrepreneurship sensitization and business and technical skills development is needed.

Defining core interventions
As discussed, four types of services characterize SSE programs: training of various types, access to capital and other financial services, advisory services, and networking. Given a potentially highly heterogeneous group of beneficiaries and evidence of the effectiveness of comprehensive programs, it is unlikely that successful SSE programs could focus on only one of these services. The findings indicate that the correct strategy is to offer an integrated package of services tailored to beneficiary needs. A good profiling system for beneficiaries is therefore a precondition to structure the package of services and avoid offering "off-the-shelf" benefits.

Training
A general principle with regard to training services in SSE programs is to ensure that basic skills are acquired before moving up to higher-level skills (

Financial services
The goal in providing financial services is to ensure that beneficiaries are able to fund working capital and equipment, and have access to the relevant types of insurance to protect incomes and equipment, and cope with work-related accidents. In general, provision of these services is beyond the scope of SSE programs.
Instead, such programs would need to facilitate access to financial institutions that offer these services (e.g., microfinance institutions). Rather than simply linking individuals with institutions, programs should consider incorporating arrangements to ensure that the necessary services are actually obtained. These arrangements could include assistance with applications, loan guarantees, and creditworthiness assessment, 9 which will likely entail working with both individuals and financial institutions (figure 17).
When it comes to funding working capital and equipment, an alternative to credit is to provide grants in cash and/or in kind. Grants would increase the cost of the program, but might be easier to administer while giving cash-strapped beneficiaries more financial flexibility.
Another alternative is crowdfunding, which was used in a very small number of the reviewed programs; loan guarantees might also facilitate access. These innovations should be developed further and rigorously tested.

Advisory services and networking
Unlike training programs which are offered at a given

Access to finance
Linkage to outside services (credits, grants, crowdfunding)

Referral only
Hands-on assistance for borrowers (e.g., with applications, loan guarantees) TA to lending institutions (e.g., innovations in creditworthiness assessment tools and financial product structures)

In-kind
Cash different stages of production. Vertical linkages may include buying, selling, or contracting arrangements throughout the chain. For example, a farmer gaining access to a wholesaler will strengthen vertical linkages, as will a shoemaker who is connecting to a leather supplier. Vertical linkages do not include supporting service providers such as banks or insurance companies, as these do not directly add value to a product itself.
While horizontal linkages are often facilitated through SSE programs, few programs include vertical linkages.
The value chain inclusion model discussed above has great potential in creating vertical linkages.

Choosing delivery options
The type of institutional arrangements needed to execute the various business processes described above-profiling and assessing the constraints facing

Concluding remarks
Self-employment is the most common type of employment worldwide-and for many, the only alternative. A majority of the self-employed-farmers and own-account workers-are engaged in very low-productivity   Programs should be adapted to address the constraints identified. The following should be taken into account in determining how to prioritize constraints for further assessment: ∎ Those within the scope of the program (e.g., infrastructure may be the greatest constraint, but a  ∎ Modules include (1) financial needs and/or demands; (2) financial perceptions, attitudes, and behaviors; (3) obstacles faced and factors that have an influence on financial situation; (4) current levels of access to, and utilization of, financial services and products (formal and/or informal); (5) landscape of access (i.e., types of products used in terms of transactions, savings, credit, insurance, and remittances); (6) barriers to utilization of, and access to, financial products and services (1) commit to the program, (2) assess the current status, (3) plan the anti-corruption program, (4) act on the plan,