From Unemployment to Self-employment: Developing an Effective Structure of Microfinance Support

This paper examines whether there is a case for government microfinance assistance to enable unemployed people to enter self-employment and to identify ways to improve support.

The paper draws on the findings of a large-scale international research project conducted for the ILO. In the United Kingdom this included surveys of microfinance providers, microfinance intermediaries and unemployed people, and discussions with commercial lenders and senior policy makers.

The paper informs that:

• The state has provided assistance to the unemployed to take up self-employment in the past, mainly in the form of advice and training;
• Financial support has tended to be highly restricted;
• Unemployed people face barriers in accessing commercial loans;
• Lack of access to bank finance often becomes a barrier to entry to self-employment.

Further, the paper identifies problems with the current system, notably:

• Discrimination by banks;
• Differential access to self-employment assistance across the country;
• Difficulties in accessing the most appropriate provision;
• Inefficiencies in provision.

Finally, the paper suggests methods to improve the system:

• Increase commercially-available funds;
• Develop the not-for profit loan sector;
• Government provide funds for loans and grants;
• Rationalize delivery of public sector support at the local level to counter the diseconomies of scale, multiple bidding and confusion over access;
• Focus local provision on microfinance and business development delivered by business specialists.