Making Sense of SME Investments: Are SMEs a New Asset Class?
By Rob Katz and Mareike Hussels
At World Resources Institute, our New Ventures team tends to think about the “next big thing” as far as small and medium sized enterprises (SMEs) are concerned. This morning, I had a great discussion with my colleague Mareike Hussels about the emergence of SMEs as an investment-worthy asset class.Mareike – who manages New Ventures’ Latin America portfolio and has a background in sustainable finance with UNEP-FI – has been wondering about the emergence of a “SME asset class” for some time. History may give us some guidance as to whether this will happen soon, if at all.
It took years – and a concerted effort across NGOs, investors, philanthropists, and governments – for the microfinance community to be capable of absorbing large amounts of capital. The question Mareike and I struggle with is, what market mechanisms and institutions need to be in place for the same kind of emergence for SMEs?
Neither of us is sure – it’s an open question, and we welcome your comments. That said, some members of the SME investment and microfinance community are already thinking on the same sorts of questions.
One leading thinker in this space is Naoko Felder-Kuzu. Felder-Kuzu is an author and independent consultant whose book, Making Sense: Microfinance and Microfinance Investments, effectively educated the investment community about the emerging microfinance world back when it was published in 2004. Now, Felder-Kuzu maintains an excellent web site and blog, Microfinance Journal.
Building on her experiences as an asset manager for a major investment bank as well as a microfinance specialist, Felder-Kuzu is uniquely positioned to lead the conversation about SMEs as an emerging asset class. Mareike and I have added her site to our RSS feeds, and we recommend you do the same.
In the mean time, are SMEs already an asset class, as far as investment is concerned? If so, where do you see evidence of this? If not, what do you think are the necessary preconditions for SMEs to take the “microfinance leap” into the mainstream investment community? Comments are open…