Scaling-Up SME Access to Financial Services in the Developing World

Scaling-Up SME Access to Financial Services in the Developing World. Small and Medium Enterprises (SMEs) play a major role in economic development, particularly in emerging countries. Studies indicate that formal SMEs contribute up to 45 percent of employment and up to 33 percent of GDP in developing economies; these numbers are significantly higher when taking into account the estimated contributions of SMEs operating in the informal sector. The informal sector presents one of the greatest challenges in the SME space, with issues that go well beyond finance. In the context of the international development agenda, and given the critical importance of job creation in the recovery cycle following the recent financial crisis, promoting SME development appears to be an important priority.

Access to finance remains a key constraint to SME development in emerging economies. Comprehensive data on the SME finance gap is still to be more consistently collected and monitored over time; however various data sources and studies indicate that small firms rely on internal financing much more than large firms do, and that the likelihood of a small firm having access to a bank loan in low-income countries is about a third of what it is for a medium-sized firm, and less than half of what it is for a larger firm. Other sources of SME finance, such as leasing and factoring, are also less developed in emerging countries.