Description
Moreover, the contribution of SMEs to GDP actually increases as economies develop – with SMEs in the developed world contributing well over 50 percent of GDP. SMEs generate most of the new jobs that are created; they help diversify a country’s economic base; they promote innovation; they help deliver goods and services to the bottom of the social pyramid, and they can be a powerful force for integrating women and youth into the economic mainstream.
And appropriate financial allocation decisions – that allow productive SMEs to expand and become large firms, distressed but productive SMEs to restructure, and unproductive SMEs to exit so that their resources are reallocated to growing firms – are critical to generating economy-wide benefits.
Yet despite these economic, social, and political benefits, these enterprises remain significantly underserved by financial institutions. In investment-climate surveys around the globe, the difficulty of obtaining financing is usually one of the top three constraints on doing business that is identified by SMEs – and, in several regions, access to finance is the single most important constraint.
This finding is supported by research that has calculated that the credit gap that formal SMEs confront is about $1 trillion. When informal SMEs are taken into account, that gap widens even further, to around $2.6 trillion.
