BDS for MSMEs, Private Sector Competitiveness Project II, World Bank, Uganda 2004

Description
In view of the above observations, the implications for the BUDS program (an existing matching grant facility) are to be reviewed. Market interventions will have to be based upon an understanding of the nature of 'market failure' in the market-segment concerned. A clear recognition of the fact that part of the market is affected by 'demand failure' has major implications for the way a program like BUDS must operate, at least when it intends to create outreach towards the rural areas and the lower brackets of MSEs.

The existence of "underserved" market segments points at deficiencies in BDS supply; either BDS services are not appropriate for the type of MSEs, they are not affordable (not cost-effective), or not "packaged" or delivered in the desired manner. These types of deficiencies in both demand and supply cannot be addressed by transaction subsidies only. Specific interventions, like sensitisation, product development and capacity building for BDS providers will be required. In "graduating" markets effective demand and BDS supply exist, but the market is characterized by 'information failure'; clients still have doubts about the effectiveness of BDS, and providers may still doubt MSMEs readiness to pay. In such markets, transaction based subsidies are particularly effective, as they help both MSMEs and providers to gain experience. Finally, even in mature markets, certain deficiencies may exist that might justify intervention. For instance, when it is observed that in a particular export sector the product standards are not meeting international specifications, there may be justification for assistance in BDS product development or BDS capacity building to overcome the deficiencies in that sector.