Combining Strengths: Synergies between Cluster Development and Microfinance

This paper analyzes synergies between UNIDO’s Cluster Development Program and microfinance.

UNIDO’s Cluster Development Program helps micro, small and medium enterprise (MSME) clusters become more competitive by fostering inter-firm linkages and collaboration with local support institutions. In India, UNIDO’s Program improves cooperation between cluster actors by strengthening existing, but non-operational, self-help groups. Closer cooperation between UNIDO and microfinance providers would allow them to focus on individual strengths and jointly offer a comprehensive package to promote enterprise and cluster development with a pro-poor bias. Measures to create linkages between SHGs and local financial institutions include:

• Exploring financial needs of cluster stakeholders;
• Identifying suitable partner institutions;
• Sensitizing bankers to the needs and reality of the cluster;
• Providing training for the economically active poor;
• Monitoring and evaluating outcomes.

Although it may be difficult to transfer the SHG model of microfinance provision to UNIDO projects in other countries, many features of the model remain relevant and can be adapted to local circumstances.