Why do SMEs matter?

Synthesis paper Firms

The impact of small and medium-sized enterprises (SMEs) in developing countries and implications for development finance institutions (DFIs) and impact investors.

In developing countries, small and medium-sized enterprises (SMEs) provide over 70% of jobs and contribute to nearly 35% of GDP.

  • Nevertheless, in some instances, SMEs have been critiqued for their low levels of productivity, their limited provision of high-quality jobs, and the challenges they face in scaling production. Recent empirical evidence has uncovered mixed results in terms of the impact of SMEs, particularly when compared to large firms, and many unresolved evidence gaps persist.
  • This report examines key assumptions held by development practitioners – in terms of the productivity, employment-generation capacity, and inclusivity of SMEs – and assesses the extent to which they are supported by robust empirical evidence.
  • The scope of this report extends beyond evaluating the available evidence. It presents a novel framework for enhancing the classification of SMEs; it identifies key barriers to SMEs success and potential mitigation strategies; and offers a set of strategic recommendations tailored specifically to DFIs and impact investors.