Currently, the World Bank and governments around the world have a very limited range of policy instruments that are typically used for trying to foster the growth of the SME sector (largely matching grants, business training programs, and partial credit guarantees). Despite increasing involvement of researchers in evaluating such programs, typically researchers have been involved with World Bank operational policy units only at the time of designing an impact evaluation, when the policies to be implemented are typically already defined.
Moreover, the vast majority of firm research in low-income countries has been focused on the microenterprise sector. This sector has far more involvement of non-government organizations like microfinance organizations, business training providers, and NGOs, who researchers have often successfully partnered with. However, when it comes to thinking about policy interventions with SMEs, the interventions are often far more expensive, and the government is more likely to play a policy role. Yet most researchers find it hard to get their ideas in the hands of those making policy in this space, while operational staff working in one country may find it hard to get their idea across to a country where it has more chance of success.
The goal of the Private Sector Development (PSD) Policy Innovation Lab is to involve researchers (internal and external to the World Bank) to incubate, prototype and develop "off-the-shelf" policy instruments that policy makers and World Bank task team leaders (TTLs) could then scale up. This research project is supported through a grant from the Strategic Research Program. The key idea here is to use economic theory and existing research to develop new or improved policy instruments, and to get these ideas in the hands of those with the ability to implement these policies.
Types of firms and motivating questions
This work is intended to develop policies that will be relevant for firms in Africa, South Asia, and the Middle East and North Africa (these regions are specified by the funding source).
The target is SME firms beyond the self-employed/subsistence level or microenterprise. Since the definition of SME differs across countries and policies, we don’t want to impose a specific size definition, but the target should be firms with paid workers, who have the potential to generate additional jobs, and improve productivity. It could be either for existing firms, or to generate new firms.
A non-exhaustive list of the types of motivating questions that these innovative ideas might try to address includes:
- What kinds of programs should governments offer to SMEs hit by a large aggregate shock such as the global crisis, an Ebola outbreak in the country, or a collapse in tourism?
- How can we best link SMEs to internal or external value chains to increase firm productivity?
- How can we upgrade quality and productivity of existing manufacturing firms?
- What can be done to better take advantage of the activities taking place around growth poles and special economic zones to enable the SME sector to benefit more from these projects?
- Are there innovative ways to help overcome banks’ traditional reluctance to lend to the SME sector? What other types of financial instruments should governments be offering to this sector?
We are looking for policies that would be implemented by national governments and/or included in World Bank loan programs to countries. As a result we are looking for policies that would be implemented either directly through a government program, or through a government entity such as a development bank, export board, SME authority, etc.
What do we mean by innovative ideas?
Just as firm innovation can include both the introduction of new products as well as the improvement of existing products, we are looking for both completely new policies that haven’t been tried at all, as well as for ideas of how to improve existing types of policy instruments.
These ideas should be based on what existing evidence and economic theory tells us, with a clear hypothesis for why your proposed idea might work. For example, the idea might be to develop a new type of insurance product to protect SMEs against external shocks, based on the hypothesis that missing insurance markets are preventing firms from making irreversible long-term investments, and on existing evidence from agricultural contexts that have found positive investment effects from rainfall insurance. Or the idea might be an improvement in the way an existing program is run, based on insights from behavioral economics. The point is to generate ideas that are enough of a change on existing policy to be unlikely to otherwise be implemented, and for which there is a sound economic reason for thinking they may succeed.
We plan a three-stage process as follows:
Stage 1: 2-page concept note
The first step is this call for ideas, following the 2-page template provided. This stage is meant to give researchers and operational staff a chance to put forward their ideas. The template asks basic information such as what the problem you are trying to address is, what your idea is, what the target population/context for this idea is, and why you think this would work.
These submissions will be judged by a small committee to determine a set of ideas that there is interest in developing further.
Stage 2: building the idea
Individuals chosen to develop their ideas for this second stage will receive up to $5,000 to be used for one week of cross-support, travel, or RA time (World Bank staff), or consulting fees (external researchers) to develop their ideas further into a longer note. This stage will also include match-making with World Bank operational staff, to help get the ideas into a form usable for policy.
A key output from this stage will be a "portfolio of innovative ideas", which will give World Bank operational staff a set of new approaches that they can discuss with government ministries when developing new project ideas for helping SMEs. This means that even if your idea does not immediately find an implementer, it can become part of the conversations taking place in policy discussions in multiple countries, helping increase the chances of an eventual trial.
Stage 3: prototyping
The final stage will be to support the implementation of a sub-set of these ideas as a pilot or prototype. This will allow proof of concept and refining of the ideas to take them to the stage where they can be implemented on a larger scale. Currently we have resources to provide $100,000 in support to each of two projects, but the hope is to leverage this through project, country, and trust fund resources. This stage will be demand-driven, supporting activities where there is operational demand to try an idea.