It’s perhaps not so controversial to say that small businesses in developing countries need more support, as CAFOD is doing in its current campaign.
The problem as always is when you get down to those devilish details.
Most of us, use the handy acronym “SME” when talking about this disparate group of businesses which are not multinationals. It’s an easy catch-all, but it means projects helping firms with two hundred employees can be counted as helping SMEs.
This is a problem, if you are trying to help the poorest and hardest to reach. A recent evaluation by the World Bank’s watchdog of the International Finance Corporation (the private sector lending arm of the Bank) found that it could not be sure that it fulfilled its mandate of reaching the poor and tackling poverty.
This is not a surprise, when the IFC’s own numbers show that seventy per cent of its loans to SMEs (by value) go to the “M”s – which it defines as those needing a loan of $2 million or less! The poor microentrepreneur is still out in the cold.
Small businesses in poor countries suffer from another definition deficit – they don’t count towards growth figures. Most are informal micro-enterprises and small-scale subsistence farmers who activities do not contribute to GDP and who are therefore not fully considered when governments and donors devise growth and private sector development strategies. The World Bank recognises as much when it admits that its “doing business” consultations that help guide governments on regulatory reforms and private sector development spending, rely on the opinions of formalised, medium sized and urban firms.
Yet small firms, genuinely small ones, have a critical role in developing country economies. They are the means by which poor people can contribute to and benefit from growth, they reduce vulnerability to increasing external shocks, they can diversify an economy and create jobs, and they can provide a source of dignity, well being and social cohesion.
This is not an anti big or foreign business agenda. Helping small businesses helps them too – by providing a network of suppliers and customers and improves their impact on poverty by ensuring benefits of their presence are felt more widely in local communities.
But big business are well organised, well connected and well consulted. Small businesses are, by definition, being left out in the cold.
By Christina Weller
Lead Analyst, Economics