051607: Study to seek information on profits of micro enterprises

By Rommer M. Balaba

Reporter

A World Bank study measuring microenterprise profits in developing countries issued a policy suggestion to ask owners directly for their profits rather than detailed revenue and expense accounts for their small businesses. The bank, from its experience giving firms diaries to record daily revenue and expenses, observed small firms underreport revenues by around 30 percent when asked to list down specific items. Account diaries impact significantly on both revenues and expenses, but not on profits, and that simply asking profits gave a more accurate measurement than detailed questions on revenues and expenses, the bank’s authors Suresh de Mel, David J. McKenzie and Christopher Woodruff explained in their working paper. “Monthly sales are understated when recalled after four months compared to one month. However, there is little recall error associated with annual sales compared to quarterly collection of monthly sales,” they said. “Accurate measurement of profits from microenterprises is, therefore, critical for studying poverty and inequality, measuring the returns to education and evaluating the success of microfinance programs,” the writers added. In the Philippines small and medium enterprises (SMEs) make up over 95 percent of existing businesses but lack of dependable access to finance in spite government programs to promote their financial development and competitiveness. Financial institutions consider these businesses as risky customers because of inadequate independent financial information about them. Ratings firm Standard & Poor’s had suggested giving local SMEs quality rating, as what is now being done in India, to widen financing windows, governance and credibility with their customers. “Sometimes you should just ask for the sausage and not ask how it is made,” the authors said, referring to attempts to better map out microenterprise profit.

 

http://www.businessmirror.com.ph/05162007/economy03.html