Micro, Small, and Medium-Sized Enterprise Development: USAID Needs to Develop a Targeting Process and Improve the Reliability of Its Monitoring
Fast Facts
Millions of poor families in the developing world earn money from very small businesses. Congress requires the U.S. Agency for International Development to spend at least $265 million a year to support micro, small, and medium-sized enterprises. USAID must target portions of this money to benefit the very poor and women.
We found that USAID planned to spend the required amount on these enterprises, but it needs a process to better target spending toward the very poor and women. Also, USAID hasn't collected the data it needs to adequately monitor these activities.
We made 6 recommendations to help USAID better target and monitor this assistance.
Embroidery enterprises in Afghanistan are some of the businesses that receive this funding.
Highlights
What GAO Found
For fiscal years 2015 through 2020, the U.S. Agency for International Development (USAID) generally planned to spend at least $265 million annually on micro, small, and medium-sized enterprise (MSME) assistance, according to annual reports to Congress known as Section 653(a) reports. We found that planned spending amounts for MSME assistance in operational plans differed from the spending plans in the Section 653(a) reports, with the total planned spending exceeding the annual Section 653(a) report levels.
USAID has not developed a process to support compliance with statutory requirements to target MSME resources to activities that reach the very poor and to small and medium-sized enterprise resources to activities that reach enterprises owned, managed, and controlled by women. We identified three key gaps that impair USAID's ability to develop such a process. First, USAID has not identified the total funding subject to the targeting requirements. Second, although USAID has programs designed to help the very poor, it is unable to determine the amount of funding that reaches this group. Third, although USAID has MSME activities that benefit women, it has not defined enterprises owned, managed, and controlled by women and does not collect data by enterprise size. These gaps leave USAID unable to determine what percentage of its MSME resources is going to the very poor and enterprises owned, managed, and controlled by women.
USAID-Funded Small Enterprise Activities in Georgia, Afghanistan, and Ghana
USAID collected and reported incomplete and inconsistent data in its process for monitoring MSME assistance. USAID surveys its missions and bureaus annually to collect data on the amounts and results of MSME assistance. However, USAID collected and reported incomplete data on its MSME assistance in fiscal year 2019, the year of the most recent report. It did not send the survey to all relevant missions and bureaus, and fewer than half of those that received the survey responded. Moreover, USAID's fiscal year 2019 reporting on assistance that reached the very poor included activities from only three of 21 missions that responded to its survey. USAID guidance states that its data should clearly and adequately represent the intended result. Without complete and consistent data, USAID cannot ensure that it is reporting accurate information to Congress on its MSME assistance.
Why GAO Did This Study
Millions of poor families throughout the developing world derive income from MSME activities. For decades, USAID has sought to use MSME assistance as a tool to achieve economic growth and poverty reduction in low-income countries. To improve programs and activities relating to women's entrepreneurship and economic empowerment, Congress passed the Women's Entrepreneurship and Economic Empowerment (WEEE) Act of 2018. Congress included a provision in this statute for GAO to assess USAID's MSME assistance. This report examines (1) USAID's planned MSME assistance for fiscal years 2015–2020; (2) the extent to which USAID targeted its MSME assistance to women and the very poor and developed a targeting process that it uses to comply with statutory requirements; and (3) the extent to which USAID has an appropriate process for monitoring its MSME assistance. GAO analyzed USAID documents and planned spending levels and interviewed USAID officials in Washington, D.C., and at 10 missions in regions in which USAID operates.
Recommendations
GAO is making six recommendations, including that USAID identify the total funding subject to WEEE Act requirements; establish a definition of enterprises owned, managed, and controlled by women; disaggregate its data by enterprise size; and ensure the reliability of its MSME obligations data, among others. USAID accepted all six recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| U.S. Agency for International Development | The USAID Administrator should direct the Private Sector Engagement Hub or other appropriate entity to establish a method to identify the total funding subject to the WEEE Act's requirements in order to develop a process that provides reasonable assurance of compliance with the Act's requirements for targeting assistance to the very poor and women. (Recommendation 1) |
In USAID's letter responding to our report, USAID concurred with this recommendation. In its Micro, Small, and Medium-Sized Enterprise (MSME) Results Report completed after our recommendation, USAID clarified that the total funding subject to the WEEE Act's requirements is the appropriated amount of the congressional spending directive for MSME. USAID set targets for MSME resources to the very poor and small and medium-sized enterprises owned, managed, and controlled by women based on this amount. However, the Fiscal Year 2020 MSME Results Report, issued in 2021, notes that this methodology will be fully completed in the report on Fiscal Year 2022 MSME results. The Fiscal Year 2022 MSME Results Report stated that the data in the report were collected prior to full incorporation of our recommendations. As of August 2024, the Fiscal Year 2023 MSME Results Report has not been completed. We will continue to monitor USAID's implementation of this recommendation.
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| U.S. Agency for International Development | The USAID Administrator should direct the Private Sector Engagement Hub or other appropriate entity to provide information and guidance to bureaus and missions on their roles in meeting the agency's targeting requirement regarding the very poor. (Recommendation 2) |
In USAID's letter responding to our report, USAID concurred with this recommendation and identified plans to address it. USAID developed a "Microenterprise and Livelihoods" key issue in its Operational Plans to enable missions and bureaus to better track spending on the very poor, as well as created a new indicator to enable missions and bureaus to better count very poor beneficiaries. However, in its Fiscal Year 2021 MSME Results Report, USAID noted that work remains to be done to further educate USAID operating units and implementing partners on changed definitions and practices in regards to reporting, including on the very poor. In its Fiscal Year 2022 MSME Results Report--the most current report as of August 2024--USAID stated that it will be updating standards, tools, and monitoring to identify and report activities that benefit the very poor. We will continue to monitor USAID's implementation of this recommendation.
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| U.S. Agency for International Development | The USAID Administrator should direct the Private Sector Engagement Hub or other appropriate entity to establish a definition for enterprises owned, managed, and controlled by women in order to develop a process that provides reasonable assurance of compliance with the WEEE Act's requirements for targeting assistance to small and medium-sized enterprises owned, managed, and controlled by women. (Recommendation 3) |
In USAID's letter responding to our report, USAID concurred with this recommendation and identified plans to address it. USAID created a preliminary definition for enterprises owned, managed, and controlled by women. However, as of August 2024, USAID has not yet finalized this definition. We will continue to monitor USAID's implementation of this recommendation.
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| U.S. Agency for International Development | The USAID Administrator should direct the Private Sector Engagement Hub or other appropriate entity to disaggregate MSME data to distinguish among micro, small, and medium-sized enterprises in order to develop a process that provides reasonable assurance of compliance with the WEEE Act's requirements for targeting assistance to small and medium-sized enterprises owned, managed, and controlled by women. (Recommendation 4) |
In USAID's letter responding to our report, USAID concurred with this recommendation. In December 2022, USAID noted that it had updated its definitions for microenterprise and small and medium-sized enterprises in order to better track and identify spending on microenterprise assistance to the very poor, and small and medium-sized enterprises owned, managed, and controlled by women. However, as of August 2024, USAID is in the process of clarifying the definitions of such enterprises and then would develop a process to collect the data accordingly. We will continue to monitor USAID's implementation of this recommendation.
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| U.S. Agency for International Development | The USAID Administrator should direct the Private Sector Engagement Hub or other appropriate entity to develop a methodology to ensure that it collects data from all relevant missions and bureaus with micro, small, and medium-sized enterprise assistance. (Recommendation 5) |
In USAID's letter responding to our report, USAID concurred with this recommendation. The Fiscal Year 2020 MSME Results Report, completed after our report issued in 2021, noted that USAID planned to change its methodology for data collection of MSME results. Specifically, for the Fiscal Year 2020 and 2021 MSME Results Reports, it used missions' and bureaus' Operational Plans to identify planned spending on MSME assistance, including for the very poor and women. USAID used relevant performance indicators in the Performance Plan and Reports (PPRs) to collect data from missions and bureaus who had reported on MSME-related indicators. However, the data collection for the Fiscal Year 2020 and 2021 MSME Results Reports declined, which suggests that this new process is not yet capturing all relevant assistance. The Fiscal Year 2022 MSME Results Report--the most recent report as of August 2024--noted that limitations and challenges in data collection for this report remain. We will continue to monitor USAID's implementation of this recommendation.
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| U.S. Agency for International Development | The USAID Administrator should direct the Private Sector Engagement Hub or other appropriate entity to take steps to ensure the reliability of the micro, small, and medium-sized enterprise assistance data reported to Congress. (Recommendation 6) |
In USAID's letter responding to our report, USAID concurred with this recommendation and identified plans to address it. USAID's letter stated that the full incorporation of data collection procedures in the PPR and use of standard foreign assistance indicators would provide reasonable assurance that the data in MSME Results Reports is reliable, noting that all PPR data is required to have a data quality assessment in order to meet USAID's data quality standards. However, as of August 2024, USAID still needs to finalize new definitions and conduct data quality assessments on the revised indicators. We will continue to monitor USAID's implementation of this recommendation.
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