Synergies through Linkages: Who Benefits from Linking Finance and Business Development Services?

Access to financial and business development services (BDS) is essential for the growth and development of micro and small enterprises (MSEs). Over the past decade, these two types of services have most often been provided separately. This paper explores the synergies derived from linking them.

The central hypothesis is that MSEs in developing countries can benefit from linking finance and BDS. It is recognised, however, that this will only happen if the providers of finance and BDS also benefit from the linkage. The paper considers, therefore, the costs and benefits of linking for three main groups of actors:

  • micro and small enterprises
  • financial service providers
  • business development service providers

The paper reviews over 25 examples of linked provision and distils the main costs and benefits for the actors involved. It finds that there can be major benefits, especially for those MSEs that gain access to additional services that are essential for their growth.

In addition, a six-part typology of linked service provision is proposed, based on whether the linkage is voluntary or compulsory for the client and whether delivery is provided through one unified department of an organisation, through parallel departments, or through separate partner organisations. The six resulting linkage types are (i) Unified-Compulsory, (ii) Unified-Voluntary, (iii) Parallel-Compulsory, (iv) Parallel-Voluntary, (v) Partner-Compulsory, and (vi) Partner-Voluntary. Each of these types has implications for the groups of actors involved.

The paper suggests that there is no one best type of linked service delivery, but that the circumstances of local providers and their markets will determine which approach is appropriate. It suggests, however, that voluntary provision is preferable to compulsory approaches, that the ‘unified’ or single department approach should be used sparingly, and that smaller microfinance institutions should attempt to partner instead of adding a parallel department.

This paper should be of value to practitioners and policymakers. It seeks to stimulate a new discussion on MSE growth and employment creation through linked service delivery.

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