**I1**

Vouchers are subsidies to transactions that are expected to promote demand by lowering service cost in relation to its expected value, and by providing liquidity direct to the user. They promote service supply since the currency (redeemable vouchers) used for payment in advance eliminates a part of the supplier's payment risk (compared with ex post reimbursement) while the fact that the vouchers have to be endorsed by the user on completion of training reduces the purchaser's risk. Voucher schemes require close management because of their relative administrative complexity and because vouchers are convertible to cash, resulting in greater exposure to possible collusion and fraud which could be counter-productive for the sustainable development of the services market 3.2 One of the first pilots was an IDB project initiated in 1995 in Paraguay 27, Service providers were screened and registered, with the register remaining continuously open during the project life to promote new entries and competition. Vouchers had a fixed monetary amount that was set to partially cover the cost of the training courses. The voucher received from the trainee was exchangeable by the service provider for cash only on the trainee's completion of the course. Prevention of fraud was handled through screening of training providers and clients, personalization of vouchers, attendance records and site visits, and potential disqualification of providers. Initial assessments in 1999 show that after a learning period there was strong growth in voucher use and in the number of service providers. In some cases enterprise directors themselves started training programs for other enterprises. The diversity and convenience of training provision also improved. However, problems lay in the administration of the schemes.

3.3 A scheme in Peru was less successful. This was because vouchers were distributed to a limited number of donor clients, and their face value was set as a percentage of total cost so that larger enterprises tended to receive larger grants, building in a bias against smaller firms. Fraud was not adequately controlled (especially collusion between trainers and clients ) and a secondary market grew up which distorted the planned pattern of voucher usage. The percentage valuation of voucher may also have led, via collusion, to increases in training course fees. Technical assistance services proved difficult to standardize and control for quality and fraud. The project demonstrated the major importance of publicity and control, and a credible, autonomous managing institution. In other projects low uptake of vouchers has been a problem suggesting the need to carefully identify the target market, set the value of vouchers to provide an adequate incentive to user firms in relation to average service expenditures, simplify voucher acquisition and redemption, and ensure wide publicity, .

# **Voucher Initiatives in the Bank**

3.4 The Bank initiated a voucher project in Kenya in1994,<sup>29</sup> under a scheme known as the Jua Kali (hot sun) program. Tracer studies prior to completion showed that assets, sales, product range and employment were all significantly greater in the grant recipient firms than a control group.<sup>30</sup> Early indications show mobilization of the apprenticeship market and training by entrepreneurs of other entrepreneurs. The mobilization of this previously 'invisible' source of enterprise technical support is key to successful local market development as it provides domestic learning and empowerment. Complications of voucher allocation and collusion are being addressed. The use of Jua Kali associations themselves to allocate vouchers has mobilized additional 'invisible' capacity as the JKAs become participants and not simply beneficiaries in the project. This may be regarded as a critical element of

- 27 See "Paraguayan vouchers revisited: strategies for the Development of Training Markets" Caren. Botelho and Lara Goldmark DAI/ USAID. Hanoi conference paper, April 2000.

- 28 "Developing Performance Indicators for Voucher Programs: The Cordoban Experience, Caren Addis and Linda Fitzgerald." Draft, August 2000.

- 29 Kenya-Micro and Small Enterprise Project 1994.

- 30 "Kenya-micro and small enterprise development project-tracer study for phase one" Netcom Jan 1999.