Smessmall & Medium Enterprises
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SMEs TELLING OUR STORY Small & Medium Enterprises 2011 Vol. 5 / Issue 1 Raising incomes in Creating factory jobs MOZAMBIQUE in ALBANIA TELLING OUR STORY 2011 Vol. 5 / Issue 1 Opening new sources Supporting new opportunities of credit in MOROCCO for women in CAMBODIA INTRODUCTION Small and medium enterprises (SMEs) are an essential focus of IFC’s SMEs: A KEY work, engines of job creation and growth in emerging markets that are central to the larger equation of development. Supporting FORCE FOR them is one of the most important ways we achieve our over-arching goal: Creating Opportunity Where It’s Needed Most. GROWTH These dynamic, fast-moving firms make Message From a special contribution to local economies. It can be measured in many ways—levels of the Executive Vice new business formation; job creation and President and CEO retention; increased productivity, innova- tion, and value-added; or links with global value chains, to name but a few. Stories in this collection show that the entrepreneurs behind these growing enterprises—often women entrepreneurs—are a powerful, if 2009 IFC has been pleased to work closely often overlooked, force in the larger playing with the G20 in scaling up successful field of poverty reduction. models of SME finance, part of a larger But major obstacles stand in the way. agenda of improving access to financial They must be cleared to help these entre- services for the poor. preneurs do what they do best: building But IFC itself can never be the solution. businesses and creating jobs. Our role is to provide the right inputs to As a member of the World Bank Group, spark lasting change, helping governments, we bring decades of global experience in financial institutions, service providers, this critical field. IFC’s broad package of larger firms, and others play a bigger role Investment and Advisory Services helps in building small and mid-size businesses. emerging market countries at all income I am optimistic. Governments are levels build their SME sectors, and is rein- making SMEs a priority, and technology forced through strong partnerships with is providing effective new tools that are many other players. We focus our support bringing down the costs of reaching on working with governments to improve small customers. the investment climate, providing resources Together with our clients and partners, for management training, and promoting we can help lay a foundation for a future access to finance and markets. where SMEs live up to their full potential This integrated approach helps us for creating jobs, reducing poverty, and COVER In Mozambique provide innovative solutions to some improving living standards. (pictured) and countless other emerging markets, of the SME world’s difficult problems, SMEs are a driving force fitting within our larger efforts to promote of development. IFC’s sustainable and inclusive private sector broad-based package of LARS H. THUNELL support helps them grow. development in the poorest countries. Since Executive Vice President and CEO 2 SMEs: A DEFINITION • Are commonly defined as registered businesses with less than 250 employees. • Contribute heavily to employment and GDP, and grow in ways linked to the formalization of an economy • Often have great difficulty accessing financial services in many emerging markets 3 GLOBAL THE G20 TURNS TO IFC A Global Challenge H.R.H. PRINCESS MÁXIMA The UN’s voice of financial inclusion. “Who puts all these pieces of the puzzle In giving us this special position, the together?” G20—widely considered the world’s It is an essential question, one asked foremost international economic policy by H.R.H. Princess Máxima of the coordination body—cited IFC’s work Netherlands, UN Secretary General Ban within the World Bank Group as an Ki-moon’s Special Advocate for Inclusive international agenda-setter on SME Finance for Development. finance development. This gives us a Passionate about poverty reduction and vast body of practical knowledge we deeply experienced in both investment bank- can share, drawn from our extensive ing and financial inclusion for development— investment, advisory, and policy and and wife of the heir to the Dutch throne, research work in every region, and H.R.H. Prince Willem-Alexander—the princess long-standing client relationships and is a major international voice on questions of partnerships with financial institutions, SME development. She travels and speaks donor agencies, and others. widely, reaching out to a broad spectrum In Pittsburgh, the G20 leaders launched of public, private, and nonprofit players to a new Financial Inclusion initiative, vowing raise awareness and promote action. to expand the world’s best work on SME In May 2010 she addressed a meeting finance as part of a broader mandate. in The Hague of the SME Finance sub- To do so, they sought IFC’s support, in group, a new body the G20 had created the close collaboration with World Bank year before in close coordination with IFC. expertise, on three central tasks: “A puzzle-maker is needed to ensure • Scaling Up SME Access to Financial that all the different efforts talk to each • Advising the Financial Inclusion Services in the Developing World, other, and to help us identify remaining Experts Group subgroup on SME a comprehensive report summarizing the information gaps,” she stressed. Finance, a new high-level body that SME finance gap and its challenges, with The G20 leaders have asked IFC to was tasked with sharing knowledge of summaries of 164 effective responses take on this role, making their request successful models of financial services from governments, development finance first at their November 2009 Pittsburgh delivery for the poor and scaling up institutions, and the private sector. summit, then again in Seoul in November access to finance for SMEs. This work 2010, and again for this year’s gathering, supported the creation of a new Global November 3–4, 2011 in Cannes. Partnership on Financial Inclusion. 4 • The SME Finance Challenge, a global Finance Innovation Fund to implement SEOUL, NOVEMBER 2010 U.S. President Barack competition to produce innovative private winning proposals from the SME Finance Obama, South Korean sector–led proposals to strengthen SMEs, Challenge (see pp. 40–41) by November’s President Lee Myung- achieving large-scale results by making the G20 meeting in Cannes. At the same time, bak, and Canadian Prime Minister Stephen Harper most of limited amounts of public funding. we have been asked by the G20 to support congratulate winners the launch of the Global SME Finance of the SME Finance Challenge, including To help bring the benefits of financial Forum—a new knowledge-sharing initiative Sylvia Wisniwski of inclusion to millions, not just an elite few, to strengthen SMEs’ role in growth, the European Fund for IFC is working with Canada and other employment, and poverty reduction. Southeast Europe. partners to facilitate creation of an SME 5 INTRODUCTION SMEs AND JOB CREATION The Bigger Picture Smaller businesses are one of the to 240,000. The city of Hyderabad (now unique platform that enabled local firms developing world’s most powerful often called “Cyberabad”) anchors a to identify problems and propose solutions. economic forces, comprising the lion’s booming high-tech industry whose many It helped the garment sector become the share of employment and GDP. But SMEs and other players have changed country’s top industry, increasing employ- they should not be seen in isolation. the face of India’s fifth-largest state, ment from 80,000 to 350,000 since 1998. Under the right conditions, they can be benefiting from business-friendly policies In Kenya we are helping government and key parts of thriving, globally competitive and improved schools, financing, infra- private sector leaders build industries like industries, creating the large numbers structure, and links with larger firms. business process outsourcing, targeting of jobs needed to reduce poverty. In 2001 Ethiopia began supporting a job growth from 6,000 to 25,000 in the In the right business environment, SMEs nascent flower export industry with strong next four years. can grow into large firms, changing the collaboration between market players. This approach is part of the way IFC game locally, carving their niche globally. More than 25,000 permanent jobs emerged helps countries meet one of today’s greatest But even if remaining small or mid-size, they in the first six years, as roses and other needs: inclusive growth and development. can create significant income opportunities cut flowers became one of the country’s for their workers and generate new tax top foreign exchange earners. Morocco revenues for government services. They doubled its auto parts exports between do so by boosting their productivity and 2001 and 2006, building a work force of sales and supplying increasingly valuable 28,000 in firms benefiting from Special goods and services. The best ones cannot Economic Zones, free trade agreements, stay competitive if they stand alone. They and other incentives. are part of dynamic and growing value IFC helps countries set the conditions chains whose job opportunities raise SMEs need to become part of growing, incomes, increase living standards, competitive industries like these. Our and improve lives. advisory services help governments make The process starts with supportive the right reforms, and can be accompanied governments that create the right policy by World Bank lending to strengthen the environment, and then grows from there. foundations