investment incentive systems that have often constrained operations of larger enterprises in the formal sector of the economy.

24. Size of an enterprise is- commonly measured by the number of workers, because statistics on employment are more easily available and the fact that employment size is more easily envisaged. In industrial countries small-scale often means less than 200-300 workers. However, in developing countries the average plant size is typically smaller, and an enterprise with 1-49 workers is generally recognized as small-scale. Finer distinctions may be appropriate, depending on the specific issues under consideration. Other measures of size are the value of capital or assets employed, or volume of sales revenue in a given year. Discussions in various forums about the concept of the "informal" sector have led to a general understanding that enterprises in this informal sector are labor-intensive, provide goods and services for the poor by the poor, and offer opportunities to absorb much more employment than do larger firms for any given level of investment.<sup>8</sup> 25. Notwithstanding the diversity of MSB activities, the two most important characteristics common to all MSBs operating in the informal sector are (a) extremely limited access to institutionalized sources of finance, and (b) significant lack of access to business support services such as quality maintenance and control, record-keeping, marketing linkages and efficient business management. The limited access to external finance from institutional sources and the reliance on own sources of capital result in much lower tolerance for operating losses in comparison with the much larger enterprises. The MSB entrepreneur can protect operations against this risk through operative relationships with suppliers and buyers, but usually at the expense of earnings. The related results of "captive relationships" are restrictions on MSBs for sources of business support services as well as for information, particularly about better production and processing technology and emerging market opportunities.

26. The vast majority of private sector firms start very small in terms of both capital and the number of employees. The bulk of initial capital is most often provided by the business promoter's own savings, with funding contributions from friends and relatives. Bank loans are very rare, as is recourse to moneylenders. Bank loans are available in modem industries for which the firm start-up size is not so small, or if the entrepreneur is already established and running other businesses and therefore has an observable and verifiable reputation. As a firm grows in size, the probability of its borrowing from banks improves quite rapidly. Controlled capital markets are likely to penalize small or medium-size firms (covering about 20-100 workers) that aspire to rapid growth which cannot be supported entirely from their own nonformal sources of finance.<sup>9</sup> 27. Nonformal financial markets have dominated the provision of the financial needs of microenterprises. Aside from the savings of the owner-operator and supplemental but

> **8** See, for instance, I. M. D. Little, "Small Manufacturing Firmns in Developing Countries", The World Bank Economic Review, vol. 1, no. 2, p. 212-213.

9I. M. D. Little, "Small Manufacturing Firnns in Developing Countries", The World Bank Economic Review, vol. 1, no. 2: pp. 203-235.

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