Announcing the Rising Ventures Series
Readers of nextbillion may have noticed recently that the company profiles I’ve been blogging on every week have taken on a new theme. This is because the New Ventures program (also part of the World Resources Institute and a partner of nextbillion) decided to make these featured articles on up and coming businesses into a series. Given the recent development, this is a good time to reiterate why we work with these emerging economy SMEs and what we mean when we call them “Rising Ventures.”
The importance of SMEs (that is, small and medium size enterprises) in developing countries is hard to overstate yet they are incredibly understudied. Many operate in the informal economy and thus go unnoticed, but it is a mistake to overlook these crucial actors in development discussions because of their huge economic, environmental and social contribution. They account for over half of global employment and make up an estimated 90% of all businesses. In an era of impending climate change and rapid resource consumption, we can ill-afford to ignore the environmental impact of SMEs, as the European Commission estimates that they are responsible for 50% of pollution.
Despite a general understanding of the important role SMEs play in sustainable economic growth, report after report laments how little we actually know about SMEs and how much more research is needed. In addition to having gone largely unacknowledged by the development community until recently, SMEs are woefully underfinanced, creating a huge barrier to prosperity for the many local small business owners and the low-income staff that they tend to hire. An ASEAN report confirms that in participating countries, only 3%-18% of SMEs have access to formal sector financing because of the unrealistic expectations and high interest rates they are forced to accept.
So why blog about SMEs and why Rising Ventures? The small business owners and their employees working in the cities and country-sides of Bolivia, Indonesia, China and other emerging economies are the keys to lasting growth. According to one article published by UNIDO, they provide the necessary linkages between MNCs and the local market and form integral parts of international supply chains. They are closer to and thus intimately involved in the well-being of their communities. They may reduce inequality. Finally, being small and relatively flexible, they are important sources of innovation. The Rising part of Rising Ventures refers to all of these traits. While understudied, SMEs are now gaining attention with organizations like the IFC and OECD including them in their current research. If you doubt their creative abilities, read about DryWash, Eletra, or any number of the companies in our portfolio. These are the entrepreneurs who will help develop the latest technology, build their neighborhoods and be a part of giving industrializing economies the “big push” Jeffrey Sachs is always advocating for. Look for another edition of Rising Ventures later this week.