Derek Newberry

New Paths to Development Forming in the Cradle of Microfinance

A Special on small and medium sized enterprises (SMEs) by the South Asia based Financial Express explores various angles of the evolving SME development movement from the very heart of the original microfinance revolution: Bangladesh. Once you start really paying attention to development trends, it’s amazing to see how one new focus can receive little to no attention and then within a span of years, emerge out of the dust as the next ?big thing?- all of a sudden 2005 is the year of microfinance. In researching an upcoming overview on SMEs and their role in sustainable development for the Earthtrends project, I have observed something similar happening with the small business sector (not to be confused with microenterprise).

If you begin to research reports and policy papers on these businesses, which are generally defined as having between 5 and 100 employees, you see a burst of new information from the very late 1990s onward. It appears from this Financial Express spread that the government of Bangladesh is moving from policy proposals to real action- just on the heels of the Grameen Bank and other initiatives in earlier years.One piece on the ?pertinent issues? of SME finance notes the widely accepted benefits SMEs provide the economy as well as the obstacles they face. There is a general consensus among development professionals that SMEs are good for economy although more research is needed on this front; they are labor intensive and thus employ more low-skilled workers, they provide linkages for small producers to the international market as well as linkages for large corporations to the local economy. Yet knowing exactly how to provide support for SMEs can be difficult given a paucity of available data; as the article points out, we have difficulties even ironing out an exact definition of what an SME is!

An opinion piece in the special begins to detail some of the solutions the government has unveiled ?setting up a public/private sector cell to implement SME strategies, a foundation that will ensure credit to these entrepreneurs and provide management training, and so on. There is a strong emphasis on the need for partnerships and projects that bridge gaps between the public, private and non-profit sector. As a third article notes, government alone does not have the capacity to take care of the finance and business development gap facing SMEs, neither do non-profit enterprise support organizations- complementary relationships supported by projects like Katalyst are crucial to convene and organize these groups.

Finally, the special tackles women?s? issues, as they comprise 70% of the world’s poor and are consistently denied access to sources of income. Just as microfinance became a tool to empower women by giving them control over their own income and their own destinies, so could SME development serve as a bridge between aspiring women entrepreneurs and the international economy.

What will be interesting to see is where we go from here- will the SME movement grow to critical mass? Will it achieve international attention and then suffer relentless ideological attacks as the microfinance movement has endured? Projects like New Ventures here at WRI push daily for partnership models that support SMEs to scale, expand and get picked up by new governments. We’ve made a definitive choice to support a sector that we see as absolutely critical to the growth of newly emerging markets; it remains to be seen where governments and the rest of the development industry will stand.