NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

In this site we have regularly emphasized the relevance of Small and Medium Enterprises (SMEs) to generate economic and social wealth in low-income markets. It is estimated that 95% of the registered firms worldwide are SMEs (OECD, 2006). SMEs serve as a middle ground for the economy and are active at nearly every point in the value chain as producers, suppliers, distributors, retailers, and service providers, often allied with larger businesses. However, as explained in a previous post, SMEs also face severe constraints in their growth due to the reduced access to markets, skills and capital (Beck, 2007). As a result, it is estimated that only 20% of small companies in low-income countries have access to credit.

Often SMEs are often too small to attract commercial bank or investor interest, but too large to benefit from microfinance products. Arguably, the most updated and authoritative source of information about SME Finance is the SME Banking Knowledge Guide. Nonetheless, to this date few scalable solutions to support this “missing middle” tier of businesses have been found.

The G20 SME Finance Challenge tries to address this very gap by bringing together Ashoka’s Changemakers community, the G-20 and the Rockefeller Foundation. The Challenge will identify path-breaking local innovations that make public programs more effective in leveraging private finance. Its ultimate aim is to find the best models worldwide for public-private partnerships that catalyze finance for SMEs and subsequently give creators of those models a chance to solicit funding.

This process will be supported by Ashoka’s Changemakers online community, which has connected social entrepreneurs and sourced some of the best innovations for addressing social and environmental challenges in over 44 successful global competitions. Financial support has been pledged by the Rockefeller Foundation and the G20 after securing commitments from IFC and the World Bank, the Asian Development Bank, the Inter-American Development Bank Group, the African Development Bank and the European Bank for Reconstruction and Development.

All types of institutions, such as private financial institutions, investors, companies, foundations and civil society organizations are invited to submit proposals. Successful entries are expected to demonstrate a potential for innovation, leverage, scalability, social and economic impact and sustainability. The best 12-15 proposals will be selected as winners, including one from each of the world’s six regions (Africa, East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, and South Asia) and will be invited to the November 2010 G-20 Summit in Korea to be recognized for their innovative ideas. Winners will then be connected with donors and investors at an SME conference in Germany following the Korea Summit.

Entries will be accepted until August 25, 2010 at changemakers.com/SME-Finance. Further details on guidelines and criteria for the proposals can be found on their website.