by Daizen Oda

19 April 2004

Quito, Ecuador: Two years ago, it was extremely difficult for entrepreneurs to succeed in Ecuador. The bureaucracy alone involved in starting a new business, which took between two and six months just to register, was enough to discourage most people. The combination of bureaucracy, high costs and time consuming processes, such as official registration with local and national authorities, resulted in the number of new business start-ups in Ecuador to shrink.

In response to this problem and in an effort to fulfill the Millennium Development Goals (MDGs), the United Nations Development Programme (UNDP) and the UN Volunteers (UNV) programme in Ecuador, launched an initiative to assist and promote small and medium business development in the southern province of Loja.In 2001 and 2002, through the establishment of a Business Development Agency (BDA), UNDP / UNV Ecuador were able to change this unfortunate situation. The success of the pilot BDA has resulted in the establishment of additional agencies in Esmeraldas, Imbabura, Carchi, Sucumbios, Napo, Morona Santiago and El Oro. UNDP Resident Representative in Ecuador, Rene Mauricio Valdes said “The BDAs are an effective tool for reducing poverty by increasing employment and production.”The BDAs are one-stop-shops comprised of ten volunteer specialists. Sonia Mata a national UN Volunteer in Loja said, “our expansion plans focus on rural areas, where access to information and services is limited. Small family businesses, mostly in the agriculture sector, will play a key role in the development of sustainable income generating opportunities,” she said. Rene Mauricio Valdes added, “several of the newly established BDAs are located in the border provinces and as a result, provide assistance to Peruvians and Colombians in border communities as well.”Each volunteer advises entrepreneurs on issues such as book keeping, marketing and financial matters. The BDA also provides clients with access to technology, employment agencies and provides information about consumer rights. Each BDA is equipped with an IT center providing clients with Internet access, enabling new companies to register online, access business directories, commercial data, and other e-commerce services.Starting a new businessFor most entrepreneurs, the first step to start a new business is to retain a lawyer. The attorney begins the lengthy registration process with all necessary authorities. In a country where the average Gross Domestic Product (GDP) per capita is only US $3,100.00, most Ecuadorians cannot spare the equivalent of US $800 necessary to pay the processing and lawyer’s fees. The final obstacle is the paperwork for various regulatory agencies, such as tax collection and remittance required of every business. An owner of a small company spends an average of about 500 hours annually on required paperwork to keep his business open. The combination of all of these factors makes starting a small or medium sized business a difficult and a seemingly impossible task for the average Ecuadorian.Yet, that is only the first hurdle. After completing all of the government paperwork, an entrepreneurmust still find a way to finance his business. To qualify for a loan, an applicant must be able to provide sufficient collateral and commit to pay an interest rate as high as 16%.Looking aheadUNV Specialists advise new entrepreneurs on getting a new business started.Many BDAs are expanding their services into business-related educational programs for young people. The majority of the new businesses have been in the hospitality industry with business and institutional services also comprising a large number of the start-ups. However, the BDA initiative has had a significant impact on a large number of sectors across the country. An example; a vender of medical tools and equipment was recently interviewed and shared his experiences at the Loja BDA. He highlighted that financing is almost impossible, because local banks and financial institutions have policies that demand the presentation of real guarantees / collateral totaling up to 400% of the loan amount. He said “it was a huge relief that the BDAs were able take charge of solving bureaucratic problems that entrepreneurs have to face.”The BDAs have also faced many obstacles in the effort to support the small business entrepreneur. One hindrance was the lack of access to credit facilities for small and medium sized business enterprises. During 1999 many Ecuadorian banks experienced financial difficulties and went out of business. Economic instability created a higher risk for businesses investment, exacerbating the lack of credit opportunities. To overcome the prohibitive requirements to obtain lines of credit and loans, BDAs have worked hard to find alternative financing sources. Negotiations are currently underway with non-governmental organizations (NGOs) to develop and implement the methodology of “Communal Banks”. Further negotiations hope to result in support for rural micro-credit, educational aid loans and training for micro-entrepreneurs.In 2003, some 900 clients sought assistance at the BDAs throughout Ecuador, three times the number of people served in 2002. In addition, the Loja office has reduced the amount of time needed to process the registration of a business to 22 days from around six months, and the BDAs expect to reduce that waiting period to just seven days very soon. Volunteers have also succeeded in finding alternate financing for entrepreneurs, who do not meet the qualifications as set out by the local commercial banks.BDAs across Ecuador are working to foster corporate volunteerism, an idea new to this country. UN Volunteers have arranged and participated in fairs, seminars and workshops to promote the concept of volunteerism across the country. Their efforts have resulted in an increased awareness among local residents and business owners. As a result, local institutions have contributed 51 volunteers to work on improving the organization and infrastructure of the BDAs.