The funding gap for SMEs in developing countries reaches $ 2 000 billion according to IFC

"The funding gap for small and medium enterprises (SMEs) in developing countries reached 2,000 billion dollars," according to the report of the International Finance Corporation (IFC).

SMEs are facing many challenges in developing countries, however, access to finance remains by far the main obstacle to their growth to date. On average, about two thirds of full-time jobs in developing economies are provided by these small companies. As Peer Stein, IFC Directro for access finance advisory services, underlines "urgent action is needed to meet their needs for funding".

Studies have underscored the importance of SMEs in contributing to growth and job creation, putting SME sector development among the key topics on the global development agenda. However, the ability of SMEs to spur growth and foster job creation is limited by their ability to find adequate finance. Recent data from the IFC indicates that the size of the financing shortfall is in excess of $2 trillion, and suggests that an estimated one-half to two-thirds of formal MSMEs lack proper access to finance. This financing constraint appears to be more pronounced for women-owned enterprises. This section expands on these findings, and concludes with a review of some of the policy options available to improve access to finance for SMEs. SMEs are closely linked with economic growth. For example, studies reveal that the relative size of the SME sector in a country and economic growth are positively related (Beck et al., 2005), and formal SMEs contribute to 50 percent of GDP on average in high income countries (Ayyagari et al., 2007). In addition, there is evidence that SMEs are the major sources of employment in many economies (Beck et al., 2008).

A recent World Bank research report found that SMEs are the biggest contributors to employment in low-income countries (Ayyagari et al., 2011) and an IFC study revealed that small firms have the highest employment growth rates, followed by medium firms (Saliola and Bernt, 2012a and 2012b). 

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IPDEV a successful ten-year old social venture capital company that has invested €11 million in small and middle size businesses in Sub-Saharan Africa, is raising more than EUR 30 million to launch its new impact investment strategy for African entrepreneurship.

IPDEV’s new “intermediation strategy” leverages a solid financial and social track record. It aims to establish a network of 10 in-country venture capital vehicles that will target “the missing middle,” i.e., the high-potential and yet grossly underserved segment of Small Growing Businesses (SGBs) with needs between EUR 30,000 and 300,000. Read more