Micro, Small and Medium Sized Enterprises (MSMEs) are key drivers of job creation, economic diversification and innovation, especially in developing countries whose economies are frequently based on natural resources.  Despite their critical role, MSMEs face a broad range of constraints that smother their potential.    These include poor hard and soft infrastructure, unhelpful environments, as well as a lack of skills, experienced mentors and easily accessible markets. Of primary importance, however, is that access to finance for MSMEs is severely restricted in many developing countries.  The total unmet need for credit by all formal and informal MSMEs in emerging markets today is significant – in the range of $2.1 trillion to $2.5 trillion, according to the IFC and McKinsey.

One area for focus is building the capacity of local financial institutions to provide finance for SMEs.  CDC, the UK’s development finance institution (DFI), whose mission is building businesses in Africa and Asia and creating jobs, works with over 200 financial institutions in 30+ countries to make SME finance more easily available.  In Uganda, CDC is this year celebrating the 50th anniversary of DFCU, which it co-founded with the Government of Uganda in 1964. DFCU has grown to become one of the country’s largest banks and a leading provider of finance to small businesses.

To coincide with this anniversary, Business Fights Poverty in partnership with CDC is leading a discussion on how best to help small businesses to grow.

Key questions for the discussion include:

  • What are the biggest constraints currently facing small businesses, particularly in relation to accessing finance, and where are the most significant gaps in terms of the provision of enterprise support? 
  • Where are the innovations happening in relation to SME support, especially around financing,  what are we learning about what works, and how can we move towards solutions at scale?
  • In which areas can public-private collaboration provide the greatest value for small businesses, and where should investments focus?
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and to get back to our moderator's question about public-private cooperation, to me the most important thing the public sector can do is to make the markets stay competitive, and better informed - the first through policies that encourage new institutions to be able to enter and shake things up, the latter through building better financial markets infrastructure:  credit information systems, movable asset registries and electronic payments systems that work for the smaller ticket transactions.  and then the financial sector needs to be helped (though not much, I'll bet) to adapt to the new opportunities created...

On the supply chain finance side, large international comapnies operate their own supply chain programs. However, they only capture big suppliers in their programs. A partnership with development agencies and multinational corporates may motivate these companies to go deeper in their progrms.

Nigeria is a big country.  the public sector institutions (development finance institutions) may not have always had the epected outreach and successfully. But private financial institutions that are active in Abudja and Lagos are increasingly also covering other states. Credit culture, lack of clear SME identity (and location) and contract enforcement do provide constraints though for financial institutions.  

Remittances is a great opportunity. Also, training on how to better use that source of finance is important.

our IFC-McKinsey data suggests that, for credit, Africa and the Middle East have the biggest (proportional) gap between supply and demand, but the biggest absolute gap is in Asia due to larger populations of MSMEs.

I feel this is just the start of a fascinating and important debate.

I never answered my question to myself about why African firms are small. I will find out and write a blog on this shortly, I promise. 

Thanks for all the useful examples and analysis, everyone!

That brings us to the end of the live segment of this discussion.  Please do feel free to continue to post your comments.

A big thank you to all our panellists, and all those who joined us today.

If you would like to read more about the topic, be sure to check out the articles in this week's blog series on Supporting SMEs with CDC:

let's not completely despair on this...starting to see some interesting stuff from the likes of AccessBank, Diamond Bank, Ecobank, and others...and starting to see some very interesting value chain finance for women from Coca Cola and others...lots of innovation going on in Nigeria...long way to go, but I'm hopeful

big institutions like OLAM and Unilever are increasingly involved in value chain financing mechanisms for SMEs. some specialised banks like Rabobank are also doing the same. This method of finance is also developing..

great exchanging with all of you.  thanks for a very interesting hour on-line...in addition to my blog, people should visit the SME Finance Forum at www.smefinanceforum.org for much more on all of these topics, and you can join our "evergreen" conversations on such matters on our LinkedIn discussion group SME Finance Forum, now close to 3000 strong from around the world.  and all is free and all the materials are downloadable.

I'm writing from Nigeria. Yes the solar ATMs can be a big market especially as regards to low cost of running from solar. The safety of the ATM is undeniably a challenge but is also an opportunity.

Thanks to you for moderating, Zahid!

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