NON-FARM HOUSEHOLD
ENTERPRISES IN CAMBODIA-
MOVING OUT OF THE POLICY
SHADOW
Abstract
Non-farm Household enterprises (HHEs) are vulnerable. Their profits were hit the hardest during
the COVID-19 globally as well as in Cambodia. HHEs are a large source of employment for the
Cambodian workforce and will continue to be so in the foreseeable future, particularly among
women. Based on a novel survey of HHEs, this study finds that HHEs are not a monolith – their
preferences, endowments, and constraints are varied. Some HHEs arise out of necessity, but
others choose to be a HHE owner and demand a high compensating differential to switch to a
wage job in manufacturing. Not all HHEs want to grow – mostly due to their own assessment of
their abilities or the limited market size that they cater to. Many, even though who want to grow,
are constrained by skills, networks with suppliers and clients, financing, and technology (digital
skills). The heterogeneity in HHEs necessitates a varied policy response with objectives to nourish
the vast majority so that these household enterprises become good jobs, protect the vulnerable
from idiosyncratic shocks as well as market-level shocks like COVID-19, and grow the high-
potential ones so that they can become good sources of jobs for others.
Wendy Cunningham and Maheshwor Shrestha
I. Introduction and Motivation
One in five Cambodians work in a non-farm household enterprise (HHE).1 They are the one-man
grocery vendors, the tailor shops, women selling grilled meats at the street markets, and
motorcycle repair shops by the roads. They are not employees since they work for themselves or
family members and they are not growth-oriented firms that are the hoped-for engine of
Cambodian growth.
Non-farm enterprises are a crucial part of the Cambodian economy and labor market. The 1.4
million non-farm micro family businesses provide a range of goods and services that keep the
domestic economy moving. They are also the main source of income for 17 percent of the work
force in an economy that is slowly transitioning to modernity. However, they largely labor in the
policy shadows.
The COVID crisis has highlighted precarious situation of household enterprise owners and their
exclusion from the larger policy framework.2 In May of 2020, 82 percent of non-farm household
enterprise owners reported a reduction in income over the previous month, as compared to 62
percent of family farmers and 63 percent of employees. Income losses were particularly strong
among urban HHE owners (89%), but rural HHE also disproportionately showed income losses
(79%). The finding is consistent across gender of the respondent, education level of the
household head, and socio-economic status of the household head. The income loss was
attributed to lost customers (70%) and business closure (14%) and was more pronounced for
service and industry sectors.
Figure 1: Non-farm family business were seriously affected by the COVID-19 outbreak
1Unless otherwise, specified household enterprises refers to non-farm household enterprises.
2The Cambodia High-Frequency Phone Survey (HFPS) collects basic information about household experiences during the COVID-
19 pandemic. The first (of five) wave of the survey data was collected 11-26 May 2020. There were 700 respondents. The sample
was slightly more rural (85%) than the general population (74% estimated from the CSES) but nationally representative for gender
and poverty level (indicated by IDPoor status)
Source: Author’s calculations from HFPS 2020.
The government response to the COVID-19 crisis has largely overlooked non-farm household
enterprises and their owners. The first round of early response focused on workers working in
garments and the tourism sectors whereas the second round of support focuses on the ID Poor
households who are identified as poor households based on asset tests. Most HHE owners are
not likely to classified as such as the HHE owners are generally in a better socio-economic status
than the target group (ID Poor households) for government support. It is the fall in income due
to COVID-19 that hits these owners disproportionately harder and are left without much public
(or private) sources of support.
Figure 2: Self-assessment of socio-economic status prior to COVID-19 crisis
Source: Author’s calculations from HHES 2019 and Cambodia HFPS.
Government policy can help household enterprises to better serve a poverty alleviation role,
in both good times and bad. This will require a different set of policies than are provided to firms
or to employees or the safety nets often provided to the poorest members of the community. To
understand the policy directions, though, it is useful to understand who the non-farm household
enterprise owners are, why do they exist, what are their aspirations, and how to help them
achieve them.
Box 1: Non-farm Household Enterprise Survey (HHES) 2019
Unless otherwise noted, this analysis draws primarily from the data collected in the Household
Enterprise Survey of Cambodia in 2019 (HHES 2019). HHEs collected data from 2,000
households operating non-farm HHEs from 200 primary sampling units (PSUs) from five
provinces: Phnom Penh, Kandal, Siem Reap, Svay Rieng and Kampong Speu.
Villages served as a primary sampling unit for the survey. PSUs in these five provinces were
first divided into four strata: Phnom Penh, non-Phnom Penh urban, rural (rich), and rural
(poor). Rural/Urban classification is based on administrative division at the time of the survey.
Rural villages were divided into ‘rich’ and ‘poor’ based on an index of various village level access
measures as captured in the commune census of 2016. 30 PSUs from Phnom-Penh, 60 PSUs
from other urban, 55 PSUs from rural (rich) and 55 PSUs from rural (poor) strata were drawn
at random from the list of PSUs in each stratum. These 200 PSUs serve as the sampled PSUs
for the survey.
In each of the 200 PSUs, a listing exercise was done to enumerate all households that operated
a non-farm HHE. A total of 10,815 HHEs were enumerated from the sampled PSUs. In each of
the PSUs, about 10 HHEs were selected at random for the full interview. The number of
households operating a retail HHE was limited to 50 percent in each PSU. Interviews conducted
during September and October of 2019 where the selected households were administered a
detailed multi-module questionnaire.
The survey data was then reweighted to match the proportion of households with a HHE across
the four strata and type of HHE (retail and non-retail) in the Cambodia Socio-economic Survey
(CSES) of 2014.
II. What do Household Enterprises Look Like?
Non-farm Household enterprises are any entrepreneurial activity done by the household at a
small scale. HHEs are microenterprises typically smaller than a small and medium enterprise
(SME). The government of Cambodia defines a microenterprise as having less than 10 employees
and/or total asset value of less than $50,000. Typical HHEs, as we will see throughout this paper,
are much smaller in size and scope of activities. Median HHEs in the HHES 2019 was worth US$
1,000 and about a half of them only employ a single household member. Due to their size and
scope, they remain informal.
Non-farm household enterprises are found across the country. According to the CSES 2014,
more than half of urban households own a non-farm household enterprise, as do 23 percent of
rural households. Given the high concentration of the population in rural areas, 60 percent of
non-household enterprises are located in rural areas. They are more concentrated in economic
corridors and in wealthier communities, where petty trade and services is the most vibrant.
Non-farm household enterprises are small, young, and concentrated in the retail sector. About
half of HHEs only employ the owner; another 44 percent employ only family members. Only 6
percent employ a non-family worker. Nearly half (47 percent) are in retail trade, with women
owning two-thirds of these small businesses. 3 Another 14 percent are in the transport sector (20
percent in urban zones), which is dominated by men. And 14 percent are in manufacturing, with
a slightly higher share in rural zones and among men. Most (96 percent) HHE were started by
their current owner, and are quite young, with a mean age of 6.9 years and a median age of 4
years (30 percent are one year or younger). Though those in the manufacturing sector are over
a decade old.
Less than 4 percent of non-farm household enterprises are registered with relevant
government authorities. Over 75 percent report that they are not required to register since their
firms are so small. One-third do not register since there is no enforcement that requires them to
do so. Less than 1 percent say that the direct (expensive) or indirect (process difficult, tax
problems) costs of registration are a deterrent to registration. The incidence of registration is
slightly higher for wholesale traders (12 percent) and enterprises in urban areas outside Phnom
3 Enterprises that involve physically demanding activities such as transportation,
construction, rice milling, repair work are mostly
owned or managed by male. Only 38.3% of transportation related enterprises, 28.9% of enterprises engaged in repair and
mechanic work, 41.9% construction related enterprises and 48.8% of rice mills are owned by females (source: Mahesh paper).
Penh (7 percent). Female-owned HHE are half as likely as male-owned (3 percent versus 7
percent) to be registered.
Figure 3: Reasons of not registering household enterprises
Source: Author’s calculations from HHES 2019.
III. What do HHE owners look like?
A few characteristics separate HHE owners from the workforce. Analysis of the CSES 2014 data
finds that compared to the workforce, HHE owners are more likely to be female, are slightly older,
slightly more educated (particularly in rural areas and among females), more likely to be married,
more likely to have a small child in the household (particularly among females and in rural areas),
and hail from wealthier communities with better access to financing (World Bank, 2018). A
majority (54 percent) of HHE owners are females whereas about half the workforce is female.
The share is much higher, at 75 percent, in the HHES 2019 potentially because women are more
likely to be observed working in the HHE. Ownership of HHEs increases with age until the early
40s, as which point it stabilizes. HHE owners have an average of 5.9 years of completed
education, which is slightly higher than the 5.7 years for the workforce. In rural areas, HHE
owners have higher average years of education than other workers; the opposite is observed in
urban areas. Education plays a stronger role in HHE ownerships of females; completed education
does not matter for HHE ownership among females. For females, having a small child in the
household is a strong determinant of HHE ownership. Women with a child under 5 in the
household is 10 percent more likely to own a HHE which suggests a lack of economic opportunity
outside for women with small children.
The HHE is the sole job for most HHE owners, but their family members often work in other
types of jobs. Data from the HHES 2019 shows that owners of HHE spend 95 percent of their
working hours (53 hours per week) on their enterprises with little time for other activities. Family
members, on the other hand, also spend significant time in wage-work, particularly in urban
areas where such opportunities are aplenty. Farming also absorbs some of the labor supply in
less affluent rural areas.
Household enterprise work provides the flexibility to multi-task in household and care work.
Owners of household enterprise spend 15 hours per week taking care of children and other family
members and another 18 hours in household chores. Female owners spend more than twice the
amount of time in care-work and chores than their male counterparts.
Figure 4: Hours worked by HHE owners and family members
70
60
Hours worked in a week
50
40
30 55 12 7 8
53 53 51 52 18 18
20 20
20 22
10 18 18
8
0
All Phnom Urban - Rural Rural All Phnom Urban - Rural Rural
Penh non PP (Poor) (Rich) Penh non PP (Poor) (Rich)
Owner Other adult family members
Farm HH business Wage Other
Source: Author’s calculations from HHES 2019.
HHE are an important source of household income, both nationally and within households that
own a family enterprise. About 28 percent of these households are fully dependent on income
from their HHEs, with the shares slightly higher for the capital and other urban areas (around 34
percent) compared to rural areas (24 percent). This reflects the higher dependency of urban
entrepreneurs who may not have better alternative income-earning options outside their HHE.
On average, income from these HHE comprises 64 percent of their total household income, with
the shares being slightly lower for female owned HHEs (69 percent vs 63 percent). On average,
these owners consider themselves to be in the middle of the welfare distribution in their
community with only about 13 percent considering themselves to be in the bottom quintile. That
is, they are not typically considered poor and in need of social assistance support under normal
circumstances. However, they are in a vulnerable position due to high dependency in the income
generated by the HHE that an adverse income shock (like COVID-19) can destroy their livelihoods
and push them into poverty.
IV. Why do they exist?
Overwhelming share of HHE owners (75 percent male, 69 percent female) want to own their
own business. A large share (46 percent of men and 51 percent of women) also stated that they
needed money which, indeed, is a reason to work. However, this seems to be a standard
motivation for working in any job; a smaller share (23 percent of men and 33 percent of women)
stated that they did not have a job, possibly interpreted as not being able to find a job elsewhere.
The fact that women with small children are more likely to gravitate toward HHE ownerships is
consistent with the statistic, since employers often do not provide work conditions or facilities
for young mothers to balance work and childcare responsibilities. Indeed, as we saw earlier, HHE
owners are spending significant time multitasking in care work and chores.
Figure 5: Reasons for working in a HHE
Source: Author’s calculations from HHES 2019.
Most of the HHE owners prefer to own a business. When asked to choose between running a
business, working in a manufacturing job, working in a non-manufacturing job, and migrating
abroad, over 90 percent chose running a business as their preferred option. Working on a non-
manufacturing job was their second preferred option, followed by working in a manufacturing
job and migrating. Such strong preference for running the business is seen in both urban and
rural areas as well as among male and female owners. Likewise, when asked for a compensating
monthly salary to move to a wage job in manufacturing, the average HHE owner would need
$351 (median $300) – almost twice the minimum wage of USD 182 in the garment sector during
the survey year. Minimum compensating salary was higher in Phnom Penh (mean $446, median
$400) compared to less affluent rural areas (mean $299, median $250), and slightly higher for
men (mean $445, median $300) than women (mean $319, median $300). Only 28 percent of
HHE owners would be willing to move to a wage job that paid less than or equal to their profits
from the HHEs. Almost half (43 percent) would require more than double their monthly profit to
move to a wage job. These statistics are robust across education level, location, and gender
though those in the urban areas and more educated are more likely to switch with a lower
premium.
This supports the idea that there is utility in owning a HHE outside of profits. Studies in Vietnam
and Mexico find that HHE owners value independence/ being their own manager, and the
flexibility of work shifts. In Cambodia data too, the extent to which these workers multi-task with
their care responsibilities and chores and the high compensating differential they seek to switch
to a wage job, supports this interpretation though it does not necessarily bear out in the stated
reasons.
Figure 6: Compensation (premium over monthly profits) required to move to a wage job
College 38% 24% 21% 17%
Education
HS 35% 29% 18% 18%
LS 23% 31% 21% 26%
Primary 29% 28% 17% 26%
Rural (Rich) 27% 31% 17% 25%
Location
Rural (Poor) 28% 24% 19% 29%
Urban - non PP 32% 33% 20% 15%
Phnom Penh 34% 29% 24% 14%
Gender
Female owner 27% 28% 20% 25%
Male owner 33% 31% 16% 21%
Total 28% 29% 19% 24%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Less than or equal to monthly profits 1-2 times 2-4 times 4 + times
Source: Author’s calculations from HHES 2019.
The average monthly profit of HHE is 1.4 times the minimum wage. Enterprises report monthly
average profits of USD 260. Female-owned businesses earn about 30 percent lower profits
compared to males; those with high-school degree or higher earn 27 percent more than workers
with only lower secondary schooling. Profits vary by location as well, with those in urban areas
earning more than those in rural areas and with more affluent areas earning more than less
affluent areas. Compared to a HHE in less affluent rural areas, a HHE in Phnom Penh earns 77
percent higher.
If we account for the family labor in HHE, the average profit per worker drops to USD 155, about
15 percent lower than the monthly minimum wage. However, family members may only be
working limited number of hours in the family business. Factoring in the number of hours put
into the HHE, the monthly profit per full-time equivalent worker is USD 180, about the same as
the minimum wage.
Average monthly profits of HHE are on par with mean wages, though earnings from HHE have
a higher variance. Analysis of the CSES 2014 finds that the owners of HHE take home average
profits that are 11 percent higher than average wages. This result holds when controlling for
locality and demographics. However, average hourly profits are 11 percent below hourly wages.
The gap is due to longer average hours worked by HHE owners – more than 50 hours weekly
compared to 40-ish hours for employees. However, compared to wage earnings, profits from
HHEs are more likely to be in the extremes. For instance, even among wage-earning family
members of HHE owners, only 5 percent earn above USD 500 and 27 percent earn below the
minimum wage. On the other hand, around 12 percent of the HHE make a profit above USD 500,
but 53 percent earn below the minimum wage in the HSES 2019 data.
V. Aspirations & Constraints
Half of the surveyed HHE owners aspire to grow their businesses over the next year, but owners
do not know how to realize this vision. Nearly all those who wish to expand expressed a desire
to increase their volume of production and sales. Less than 1 percent hoped to hire external
workers or improve on the quality of their products. Another 23 percent would like to expand
their HHEs in the next five years. Male- and female-owners had similar aspirations. More
educated HHE owners and those in the urban areas have slightly higher aspiration to grow in the
next year. Similarly, HHEs with higher profits are more likely to expand with a one percent
increase in profits associated with a 4 percentage points increase in probability of business
expansion in the next year. Among the 28 percent who do not want to expand, the majority cite
their lack of ability as the main constraint followed by lack of market size.
Figure 7: Reasons for not wanting to expand the HHE
Source: Author’s calculations from Household Enterprise Survey 2018.
Skills Constraints
Owner’s opinion that they do not have the ability to expand their HHE reflects their knowledge
and skill limitations. While owners have equal (women) or greater (men) average education
than the labor force, owners with a higher level of education earn higher profits and have a
greater desire to expand their HHEs. Male-owned HHEs particularly benefit from more years of
education of their owner. Each additional year of education increases HHE profitability, in
contrast to returns to education for the entire labor force, where secondary school does not
contribute to higher wages (World Bank, 2018). A similar pattern is observed in the relationship
between years of education of the owner and plans to expand the HHE: as education level
increases, so do expansion aspirations. The correlation is equally strong for female owners and
male owners. More education is also correlated with the greater use of good business practices,
with a gradual increase in the correlation until 14 years of education, at which point the
correlation rapidly increases for men and women. These correlations remain strong even after
accounting for other characteristics of the HHE owner and the firm itself.
Figure 8: Education and business profits and aspirations to expand
Source: Author’s calculations from HHES 2019.
Cambodian HHE owners have more cognitive skills than predicted given their level of
education, which may help to boost the success of their HHE. The cognitive skill measure4 of
Cambodian HHE owners is 4.4 (4.68 for men and 4.29 for women). This is quite similar to the
average score of 4.5 for a sample of HHE owners in countries like Bangladesh, Ghana, Kenya,
Mexico, Nigeria, and Sri Lanka. However, the average years of education of the respondents in
these countries was 9.7 years, as compared to 6 years in Cambodia (McKenzie and Woodruff,
2017). That said, HHE profits, the desire to expand the business, and use of business processes
are higher among Cambodian HHE owners with higher cognitive skill measures.
Greater use of non-cognitive skills could boost firm profits, greater use of good business
practices, and a desire to expand the firm. Owners with a high frequency of using non-cognitive
4A digit span recall test was administered. This test facilitators presents a series of numbers to the respondent, who must
repeat back those number. The number chain increases in each subsequent question. The test facilitator continues until the
respondent does not correctly recall the correct number chain.
behaviors – such as thinking creatively, showing awareness, adjusting to changing circumstances,
being persuasive, being able to reconcile differences, developing constructive working
relationships, and providing guidance – have average profits of 288 USD monthly, compared to
average profits of 242 USD among those with a low use of these behaviors. While 58 percent of
owners with high non-cognitive skills plan to expand their businesses in the next year, only 42
percent of owners with low cognitive skills has similar aspirations. Owners with a high degree of
non-cognitive behaviors use an average of 1.9 good business practices as compared to owners
with low non-cognitive behaviors who use an average of 1.3 practices. Except for difference in
profits, which are driven by levels of education and owner characteristics, differences in
aspirations and business aspirations persist after accounting for levels of education and other
owner- and firm-specific characteristics.
Figure 9: Non-cognitive scores and business profits, aspirations to expand, and business
practices
Source: Author’s calculations from Household Enterprise Survey 2018.
However, only a minority of HHE business owners display these non-cognitive skills in their
work practices, with women particularly lagging.5 The incidence differs by skill-type. Creative
thinking is the most commonly used behavior, by both male- (40 percent) and female- (33
percent) owners. About 20 percent of female owners develop constructive and cooperative
working relationships, adjust action in response to someone else’s actions, show awareness of
other’s actions, or provide guidance. Men have higher incidence, ranging from 23 percent to 29
percent). Persuasion and reconciliation are particularly low, perhaps surprising since most HHE
are engaged in direct sales to customers.
Figure 10: Non-cognitive traits by gender
Source: Author’s calculations from Household Enterprise Survey 2018.
Owners that have business skills also have higher profits and plans for firm expansion. These
skills can be proxied by the owners’ use of 12 business practices.6 Owners who use four or more
5 To measure non-cognitive ability, the survey asks HHE owners to report how often they engage in seven behaviors that are
commonly used to assess socio-behavioral skills: thinking creatively, showing awareness, adjusting to changing circumstances,
being persuasive, being able to reconcile differences, developing constructive working relationships, and providing guidance.
6 The survey asked HHE owners if they used any of the following business practice, grouped into four categories: Financial
planning ( Maintain separate bank account, Keep business finances separate from household finances , Can easily tell how
business practices have twice the profits the rest. Good record keeping (keeping written business
records, recording every purchase and sales, and using a computer to keep business records) and
financial planning (maintaining a separate bank account, keeping business and household
finances separate and maintaining a written budget for business) are particularly important for
increasing profits and revenues.
However, HHE owners utilize very few good business practices. Of 12 business practices, HHE
owners adopt an average of only 1.6 practices. Adoption of good practices increases with
education; college educated owners adopt 1 additional practice on average relative to those with
only primary or level of schooling. About 28 percent do not adopt any good business practices
and only 26 percent adopt 1 of the 12 practices. Stock-keeping – managing inventory and storage
– was the most common business practice, with 51 percent of male owners and 62 percent of
female owners reporting regular reviews of stock and inventory. Though less than 10 percent
prepared inventory budgets. Fifteen percent of HHE owners engage in some kind of record
keeping. About 22 percent of male owners and 12 percent of female owners keep written
business records, and a slightly smaller share record every purchase and sale. However, less than
2 percent use a computer, tablet, or phone to keep track of their money flows. Similarly, 15
percent of respondents said that they made special offers to clients while less than 10 percent
actively advertised their services. A smaller share of owners engaged in financial planning. For
example, only 5 percent of male owners and 3 percent of female owners report keeping business
finances separate from household finances. About 12 percent of male and 7 percent of female
owners mention that they have a written budget for their business. That said, more than half of
the owners mention that they can easily tell how much cash their business has at any time. The
least common business practice was record keeping.
Figure 11: Business practices and HHE profits
much cash the business has at any time, Have a written budget for business), stock-keeping (Ever prepare an inventory budget,
Ever review stock and inventory levels, Ever review shelf space allocation); marketing (Use special offers to attract customers,
Do advertising for the enterprise), and record-keeping (Keep written business record; Record every purchase and sale; use a
computer, tablet or a mobile to keep records of the business accounting)
Source: Author’s calculations from Household Enterprise Survey 2018.
While there is no statistically significant difference in the number of good business practices
between male owners and female owners, there are important gender differences among sub-
categories. Male owners are more likely to do marketing, adopt business record keeping
practices (keep a written business record, record every purchase and sale, and keep digital
business records using a computer, tablet, or a phone). Female owners are more likely to review
stock and inventory and shelf space allocation. This difference emerges even after accounting for
the gender differences in education, location, and the economic sector of the HHE.
Figure 12: Business practices and HHE profits
Source: Author’s calculations from Household Enterprise Survey 2018.
While the acquisition of skills may help firm owners overcome their “low abilities�? constraint
to firm expansion, few seek out training opportunities. About 23 percent of HHE owners have
received training; 11 percent through formal programs and 14 percent through informal training.
Female owners are half as likely as male owners to have received training (18 percent as
compared to 35 percent). The incidence of training strongly increases with education level,
cognitive skills, and non-cognitive skills but falls with age. Formal training opportunities are least
available in Phnom Penh whereas informal training opportunities are least prevalent in less
affluent rural areas. The majority of trainees (72 percent) received business-related training.
Training in soft skills (10.2%), IT training (6.6%), and financial management (5.3%) is much lower
and so is language (1.4%).
The stated desire to obtaining further training is low. Only a third of the HHE want further
training. Those who have had previous training are 20 percentage points more likely to want
future training compared to those without prior training. The idea that training begets training
among HHE owners is supported by evidence from other countries, as well. De Mel, McKenzie,
& Woodruff (2014) find that 86% of the current and potential business owners in Sri Lanka who
attended a business training find the training course more helpful then they had expected and
78% said that they would strongly recommend the course to others. The demand for training is
higher for the college educated, and those with higher cognitive and non-cognitive skills.
Similarly, the demand for training is lower among HHE owners in Phnom Penh and less affluent
rural areas. Among those who want training, business management (46 percent), technical skills
(30 percent), and marketing (15 percent) are the most popular choices.
However, almost all HHE mentioned that they would be interested in a mobile based intervention
which can help improve their productivity. This shows that even though the desire for a
structured training may be low in this population, the desire to participate in a flexible ‘training’
arrangement, that does not require them to leave their current work for extended period of time,
is quite high.
Figure 13: Current status of training and training demand of household enterprise owners
Source: Author’s calculations from Household Enterprise Survey 2018.
Networking constraints
Slim business networks may constrain HHE owners’ ability to expand. About 85 percent of HHE
owners report that their suppliers are either individuals or other household enterprises, with only
a minority of them sourcing their supplies from formal business entities (SMEs) and large firms.
These arrangements may limit the range of inputs and the cost-savings that could come through
finding suppliers who may offer more competitive prices. The limited linkages with large
businesses may also prevent them from the moving up the value chains. The linkages with the
SMEs and large firms increases with education (college or higher) as well as with better business
practices, cognitive skills, and non-cognitive skills. Similarly, more productive and profitable HHEs
are more likely to source their supplies from SMEs and large firms. Accounting for these
differences, male owners are slightly more likely to be connected with SMEs and large firms than
female owners.
Most of the suppliers are local (over 60 percent from same district and 90 percent from the same
province) which also points at the geographic barrier in connecting to SMEs and large firms. Over
half were individuals that the HHE owner knew personally before they opened the business,
another 10 percent were family members or acquaintances of family members. The possibility of
expanding the pool of suppliers seem limited even as the business ages. However, a sizable share
(over 25 percent) mention that their suppliers themselves found them.
Figure 14: Composition of suppliers and clients
A. Suppliers
College 17% 58% 12% 11%
Education
HS 22% 64% 7% 7%
LS 21% 64% 9% 5%
Primary 25% 64% 7% 4%
Rural (Rich) 19% 68% 8% 5%
Location
Rural (Poor) 34% 54% 7% 5%
Urban - non PP 16% 66% 11% 6%
Phnom Penh 18% 60% 9% 10%
Gender
Female owner 22% 64% 8% 5%
Male owner 22% 63% 9% 5%
Total 22% 63% 8% 5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Individuals Other HHEs SME (formal) Large firms Other
B. Clients
Education College 90% 9%
HS 85% 13%
LS 88% 9%
Primary 87% 11%
Rural (Rich) 88% 11%
Location
Rural (Poor) 86% 11%
Urban - non PP 89% 10%
Phnom Penh 90% 9%
Gender
Female owner 89% 9%
Male owner 84% 14%
Total 88% 11%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Individuals Other HHEs SME (formal) Large firms Other
Source: Author’s calculations from Household Enterprise Survey 2018.
Similarly, the client pool is quite limited for the HHEs. Nine out of ten clients of the HHEs are
individuals and the rest are almost exclusively other household enterprises. Most of the clients
are from the same neighborhood and simply ‘walk-in’ to buy the products or services. This
explains why more lucrative HHE operate in more affluent neighborhoods. For a HHE to grow, it
will need to reach beyond its geographic borders and develop relationships with a wider client-
base, including with other small and non-small firms.
Great access to information technology (IT) could also streamline processes and facilitate
business expansion. There are about 7.2 million active internet users, 4.9 million active social
media users, and 4.4 million active social media users on mobile platforms in Cambodia.7
However, the growth in the general use of information technology and digital platforms among
the general population does not seem to be incorporated into business use among household
enterprise owners in Cambodia.
HHE in Cambodia report very low levels of technology use. Only slightly more than half of the
enterprise owners report using a mobile phone, or a tablet for any business purpose and less
72017 Cambodia Digital Statistics. Endorphine Concept Digital Solutions for Geeks in Cambodia.
http://geeksincambodia.com/cambodias-2017-social-media-digital-statistics/
than 2 percent of enterprises use a computer. Most use of technology is to make phone calls; 7
percent of HHE owners report using a mobile phone app to send messages, 6 percent use these
devices to post information about their business online, 6 percent use a digital device to find
information on internet, 4.6 percent to buy and sell products online and 2.9 percent mention
using mobile phones and tablets to advertise their business. Less than 1 percent of the
enterprises report using a use a computer, tablet or a mobile to keep records of the business
accounting.
Certain groups are more comfortable using technology than others. Male HHE owners are more
likely to use a mobile phone or a tablet than female-owned businesses (63 percent versus 50
percent). The gender discrepancy persists across various uses, including connecting to clients
through calls (46 percent vs 60 percent), information search (6 percent vs 12 percent), messaging
(5 percent vs 11 percent), and selling products online (3 percent vs 9 percent). Educational
attainment, cognitive ability, non-cognitive ability, as well as better business practices are
associated with higher technology usage. In general, older owners (and older businesses) are
more likely to use technology to connect to suppliers, clients, or customer, whereas younger
owners and college educated owners are keener on using technology for searches, marketing,
and sales.
Figure 15: Use of digital technology for business purpose
Source: Author’s calculations from HHES 2019.
Use of digital technology is positively associated with higher HHE profits. Use of a mobile phone,
a tablet or a computer for any business purpose is positively associated with enterprise profits.
Compared to entrepreneurs who do not use digital technology for business, moderate users
(those who use digital technology for 1 or 2 of the purposes mentioned in Figure 15) make 50
percent higher profits. Those who use it more extensively make double the profits. The
association between profits and digital skills usage is robust to controlling of demographics,
education, as well as cognitive and non-cognitive abilities.
Profitability also depends upon how digital technology is used for business. In particular, use of
a mobile device for connecting with suppliers, clients, or customers through calls or messaging
apps are associated with 40 percent higher business profits. However, use of technology for
vaguer uses (eg. searching information online) or simply owning a computer does not necessarily
lead to higher business profits and sometimes can lower profits through distraction.
Financing constraints
Owners that say that they do not have the ability to expand may be reflecting their limited
access to financing. More than 30 percent cite the “cost of financing�? as a constraint to
expansion while more than 25 percent identify “access to financing�? as a limiting factor. Men
and women have similar perceptions about finance being a problem.
Only a third of HHE owners report having borrowed funds for the business. Borrowing for the
business is lowest in Phnom Penh (22 percent) and highest in less affluent rural areas (39
percent). Female-owned businesses are significantly less likely to borrow for their household
enterprise. Only 31 percent of female owners report that they have taken out a loan for their
HHE compared to 38 percent of male owners.
Most borrowing is through financial institutions. About 42 percent of those who have borrowed
funds for their business report borrowing from a microfinance institution, with the rates slightly
higher for females than males. About 42 percent of male- and 33 percent of female-owned HHEs
report borrowing from a commercial bank. Only 16 percent of enterprise owners report
borrowing from family members and relatives and a minority - 1.6% of male and 3.9% of female
owners - report borrowing from money lenders. Male enterprise owners are more likely to
borrow from banks and less likely to borrow from money lenders as compared to female owners.
Female owners are also more likely to borrow from alternative sources (eg. village saving groups,
suppliers) as compared to male owners.
Figure 16: Sources of borrowing
Source: Author’s calculations from HHES 2019.
Instead, HHE owners use their own resources on their enterprises. More than three-fourths of
the household enterprises use personal savings or income from asset sales to generate funds for
starting their businesses. Only 16 percent of the enterprises (20 percent of male-owned and 13
percent of female-owned) relied on formal loans to start their businesses and the remaining 10
percent used informal loans from money lenders or loans/grants from relatives and money
lenders. Limited formal credit access an issue as many are not able to borrow (or do not want to
borrow at the prevailing rates) to start an enterprise. More female owners started their business
using their own savings or assets that did male owners (77 percent vs 67 percent).
Figure 17: Sources of fund to start the business
Source: Author’s calculations from HHES 2019.
VI. Policy implications
HHEs and household entrepreneurs are often left in policy shadows without much support .
While much of policy attention has focused on extending credit to microentrepreneurs (including
HHEs), access to credit is only one of the many constraints that HHEs face. Moreover, this study
shows that growing the HHEs is not necessarily the only objective of the household
entrepreneurs. Many operate a HHEs for the flexibility it offers – flexibility to be in control of
what they do, flexibility of the hours they work, and the flexibility to multitask with other
activities such as household chores and care for children and family members. Yet, HHEs
constitute a large share of employment in Cambodia and will continue to do so for the
foreseeable future. Almost all of them operate in the informal segment of the market and
operate on their own without much support from the government or the broader public sector.
While HHEs aren’t the poorest members in their communities – they had some capital in the first
place to start the HHE – their household incomes are heavily depended on incomes from the
HHEs, leaving them vulnerable to shocks. When crisis such as COVID-19 hits which lowers overall
demand in the economy and presumably the demand for the products and services that HHEs
offer, their incomes sources are hit hard. Consequently, incomes from the COVID-19 crisis
declined the most for households that operated a HHE.
Table 1: Summary of policy recommendations
Policy pillar and objectives Policies and interventions
I. Nourish • Training on higher-order socio-emotional skills,
Improve productivity of all entrepreneurial mindset and better business
HHEs practices.
• Train on using mobile and digital technologies for
productive use and incentivize the adoption of digital
technologies for HHEs.
• Expand their network by connecting them to new
markets and higher value chains.
II. Protect • Extend social insurance coverage to the informal
Protect HHEs from sector including the HHEs
idiosyncratic and correlated • Incentivize participation of HHEs on social insurance
shocks schemes
• Expand social registry to include information on the
HHEs
• Provide adaptive and shock responsive social
assistance to HHEs at the time of crises
III. Grow • Establish an eco-system for HHEs to network, share
Identify and grow high ideas, mentoring, and seek financing
potential HHEs • Launch business plan competitive to identify high-
potential HHEs
• Provide grants for identified and selected high-
potential HHEs along with business development
training and business consulting services
Source: World Bank staff
Because of the heterogeneity of the household entrepreneurs, the vulnerability they face, and
the potential some have to grow, policy must aim at addressing all of these aspects of HHEs. In
particular, we propose three pillars of policy designed to nourish, protect, and grow the
household entrepreneurs (Table 1).
Nourish household enterprises. The objective of this pillar is to improve productivity of the vast
majority of household enterprises. The intention of these polices should not be to necessarily
grow these HHEs to become a SME or incentivize them to create additional jobs for other
workers, but to improve the productivity of the existing HHEs so that they become a better job
for the household entrepreneurs themselves.
Not all HHEs aspire to or have the ability to become a source of jobs for others. However,
interventions can be targeted to increasing their productivity. The analysis shows potential
success of interventions that teaches higher-order socio-emotional skills, entrepreneurial
mindset, better business practices, mobile and digital technologies for productive use, and of
interventions that connect to markets and higher value chains.
Care needs to be taken to deliver the interventions in a manner and form suitable to the
entrepreneurs. For instance, regular classroom-based training for several weeks may not be
feasible as it leads to loss of income as well as time away from care and household activities that
the business owners often multi-task from. Additional incentives may also be required to make
training attractive to them.
Particular attention needs to be paid to gender constraints as the productivity and access
differences persist even after controlling for observables. That means that interventions must be
tailored to the particular needs and constraints of women.
Protect household enterprises. The objective of this pillar is to provide adequate protection to
the household entrepreneurs and shield them from adverse events that affects them individually
or that affect the local (or national) economy. Most HHEs do not have social insurance to protect
them during difficult times and they typically would not qualify for social assistance as they are
doing well under the normal circumstances. The COVID-19 crisis illustrated how vulnerable HHEs
are to shocks.8 Policy options should include protection against idiosyncratic shocks through
extending social insurance coverage to the informal sector and incentivizing HHEs to participate
in such a social insurance scheme. Policies also need to provide protection against aggregate
correlated shocks through expanding the social registry (IDPoor registry in Cambodia) to cover a
greater share of people with detailed information on income and employment sources including
household businesses and the introduction of adaptive social protection programs to allow for
systematic support in times of crisis rather than one-off ad-hoc support precipitated by a shock.
8The government’s June 2020 response to the pandemic through social assistance (CTP-COVID) only included the identified
poor (IDPoor) families which most HHEs would not qualify for, the recently announced social assistance support to lockdown
affected areas are more likely to include HHEs. Vendors, i.e. retail HHEs, and drivers one of the key target groups for this
assistance.
Grow household enterprises. The objective of this pillar is to identify high growth potential HHEs
and to provide them the financing and necessary support needed to grow. Evaluations of micro-
credit and related support programs have found that financial and non-financial support can
drive these ‘gung-ho’ entrepreneurs in a virtuous cycle of growth. However, as discussed above,
not all household entrepreneurs are ‘gung-ho’ and the literature has showed that such household
entrepreneurs are hard to identify ex-ante. Alternatively, fostering an eco-system of household
entrepreneurs where they can network, share and improve upon their ideas, and seek potential
business partners and investors could help the gung-ho entrepreneurs to self-select into the eco-
system. Similarly, or additionally, business plan competitions can further help identify the high-
potential HHEs. Once identified, they can be supported with cash grants in combination with
training on business development and business consulting services to expand and scale up their
business.
In conclusion, Cambodia’s HHE sector provides a significant share of good jobs, and will continue
to do so for many years, but it can do even better with some public sector support. HHEs are
largely satisfied with their businesses and prefer this type of work over alternatives in the wage
sector. However, they would like to earn more, mainly through expanding their businesses to
increase profits. For some, this will mean improving the owner skills levels, use of technology and
business practices, and access to markets. For others, this will mean integrating into the larger
eco-system to graduate into small-enterprise status. For both types of HHEs, though, there is a
role for pubic policy to nourish, protect, and grow HHEs to the benefit of the owners and their
families.