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Contributions of micro units to development
Micro and small enterprises have tremendous potential to generate employment. These units also contribute to the national development in terms of the women empowerment, social welfare and economic independence
THERE IS enough evidence to show that micro and small enterprises have tremendous employment potential. Besides that these enterprises also do their best in terms of value-added growth. In other words, they appreciably add to the overtime growth of Gross National Product (GNP). This, therefore, is one of the most important quantitative contributions of these enterprises to the national economy.

Coupled with this, these enterprises also significantly contribute qualitatively in terms of what we term as development. In essence, therefore, micro and small enterprises foster the private sector’s contribution to both growth and equity objectives of developing countries. These enterprises have the potential to contribute to the development process in a variety of direct and indirect ways. Some of these enterprises are closely interlinked and are also overlapping, whereas some are complicated and complex.

In this context, it has to be remembered that such enterprises have extreme heterogeneity, because of which different categories and types of enterprises have different contributions to make to the process of development. Some of them are particularly effective in combating poverty, while others contribute immensely to economic growth and other social objectives. On the whole, therefore, these enterprises contribute to
  • household income and welfare, especially of the lower strata of the society through employment, household well-being, asset accumulation, skill development, and rewarding and durable economic opportunities;
  • self-confidence and empowerment to individuals through social recognition;
  • social change, political stability and democracy by building up confidence of the individuals in all kinds of community-based institutions, the creation of innovative institutional structures based on people’s needs and requirements and by cultivating a feeling of responsibility;
  • distributional and developmental objectives by providing new opportunities to the various sections of the society like the poor, proletariat, tribal, women and the people staying in remote and isolated areas; and
  • the demographic scenario through reduction in birth rates and also in rural-urban migration.

What has been said above is greatly supported both by the experience of developing countries and by the findings of a number of studies in this area. For example, a set of studies conducted jointly by Michigan State University and host of country experts in twelve developing countries makes it very clear that micro and small enterprises are both diverse and geographically dispersed in these countries and that they are highly efficient in the use of resources. The 12 countries are Sierra Leone, Jamaica, Thailand, Honduras, Egypt, Bangladesh, Haiti, Burkina Faso, Zambia, Botswana, Indonesia and Kenya. As we have said earlier, they also contribute immensely to income and productive employment and thus, to overall growth and development. Based on the data, as collected in the above-named research, the following table shows the contribution of micro and small enterprises to income and welfare.

Table: Contribution of micro and small enterprises to income and welfare

New Starts
Total, all
1.Contribution to employment
Share of all existing enterprises
Share of emp among existing enterprises
Source of new emp over the long haul

Av number of workers per enterprise










2. Part-time or full-time activities
Av. Number of months worked per year
Av. Number of days worked per month





3.Contribution to household income
(% of all respondents in category)
100% of household income
50-99% of household income
Less than 50% of household income





4. Contribution to distributional objectives
Percentage of female owners
Percentage of female workers
Percent of employment in rural areas





Source: Liedholm and Mead (1999), Small Enterprises and Economic Development: The Dynamics of Micro and Small Enterprises, Routledge, London and New York. Chapter 7, Page 86.

  1. All data are from the six core countries (Botswana, Kenya, Malawi, Swaziland, Zimbabwe, and the Dominican Republic).
  2. New starts: These are enterprises that have just entered the business
  3. Non-growing enterprises: These are enterprises that have overcome the hassles of start-up, but have not added to their employment since inception.
  4. Small growers: These are enterprises that have survived for some time and have added to their work force since their inception, but their growth has not been up to the mark.
  5. Expanding enterprises: These are enterprises that have expanded to reach the middle ranges of the small enterprise spectrum.

In the context of development, gender issues also occupy an important place. Many interdisciplinary studies combine economic, sociological and anthropological perspectives to investigate the reasons behind the growing concentration of women in the informal sector and to answer a number of questions like, how class and gender are articulated in a concrete working and living situation and how women reconcile with their role in the overall labour market and the tasks performed at home. Thus, the role of women, essentially as wage earners in the informal sector activities, is becoming highly crucial in almost all the developing countries.

Talking of South Asia in particular, it has been seen that inrecent decades the scenarioof division of labour in this region has changed a lot in terms of the contributions of women in society, economy and politics. The gender roles in rural areas have changed and the value of women’s work has added tremendously to productive activities. Their participation in the labour force, thus, contributes immensely to GNP and hence, to economic growth and through that to distribution patterns.

The basic point is that women by and large perform the dual function of a housewife (when their services do not account for GNP) and that of wage-earner (when their services account for GNP). They combine and reconcile these two functions with a perfect trade-off in a highly optimum way, thus adding to the overall well being of the society.

It is also seen that donor organisations also support projects aimed at expanding income-earning opportunities for poor women in the third world countries. They generally favour income-enhancing projects in the informal economy. These efforts have, thus, helped to mainstream women’s issues in employment and micro and small enterprise development. Some of these issues that need the attention of the policy makers are: expanding the demand for women’s labour; opportunity costs of women’s time; integrating the concerns of the poor women into anti-poverty programmes.

The informal sector of any economy, especially its retail component, is of utmost sociological and economic importance. This component is a measure of the extent to which the formal retail sector cannot adequately fulfill the basic role of providing convenient utilities. It is also important in the context of wealth.

It has also been seen that the participation of peasants in wage and informal sector employment alters the dynamics of peasant farming and adds to over all economic development. A positive interaction between farming and off-farm work, essentially in micro and small units, adds to agricultural productivity.

The role of informal activity is also significant in household economic behaviour and adds to the level of living of the members of the household. There is an interesting study in this context, which is based on 100 selected households in Germany with relatively homogeneous socioeconomic and demographic characteristics and which emphasizes the role of informal activity in the context of family well being.

Informal activity also adds to urban economic growth at various levels of urban and national development and plays a crucial role, of course in the long run, in economic growth as far as it is linked with urban development, especially housing and employment.

The fact that the informal modern sector is often a dynamic actor in the process of economic development, frequently out pacing the growth of the formal modern sector, has been very well supported by a study that has developed a general equilibrium model to investigate the conditions under which informal sector increases its capital stock more rapidly than the formal sector. This model also looks at the employment-unemployment effects of the industrial dualism of the over-regulated formal sector and the free-entry informal sector.

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