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Overcoming the SME fetish?

Ryan Hahn's picture

Responding to a post last week on possible metrics for defining SMEs, blog reader Nadezhda expressed some concerns in the comments section. Nadezhda argues that trying to come up with a universal definition for SMEs gets the whole thing backwards. Instead:

We need instead to start with "why do we think SMEs are important but need attention" and work from there. As your survey of endless studies suggests, the answer will be different depending on factors like how developed an economy is, how formal or informal the "SME sector" is, are we dealing with agriculture, manufactures, services, tradeables, etc. The answer will also be different depending on the specific policy context -- the things that make SMEs "special" are different depending on whether we're trying to address financial services or labor conditions or environmental standards or consumer safety, etc etc.

So IFC should go back to what (some of it) was trying to do internally about a decade ago before the SME fetish took hold (because it was easier to market to donors and scale up high-profile, big money "SME" programs than to fold a lot of differentiated services and solutions under an "access to financial services" umbrella)...

Read the rest of the comment here.


nadezhda writes: “the SME size debates simply divert attention from the actual problems that we want to address… work on addressing the biggest impediments” I fully agree! There is no risk of excessive investments in what is perceived as risky, like the SMEs, that risk is taken care of by the sole perception of risk. There is always a risk of excessive investments in what is perceived as not risky, that is a risk that the perception of no risk creates. Therefore capital requirements for banks based on risk, is just a stupid argument ably exploited by those who just want to lower the capital requirements on the lending to them. The market already discriminates against perceived risk by charging higher risk premiums. Therefore, for regulators to put on an additional layer of discrimination against perceived risk by requiring the banks to hold more capital for what is perceived as risky is as wrong as it can be. To eliminate the capital requirements based on risks will not signify a subsidy of any sort to the SMEs, what it signifies is the elimination of an onerous discrimination against the SMEs. Friends, what have those being perceived as more risky, like the SMEs, ever done to you so as to merit the current discrimination by the financial regulators? Absolutely nothing! So what are we waiting for?

Submitted by Dr Rob Smorfitt on
My understanding was that SMEs were soliciting interest for their ability to create jobs and stimulate economic growth. However, research (UK and USA 2009) shows that only a very small percentage of high growth enterprises generate jobs and economic growth. The numbers are very few, but their impact is high. Does this hold true in developing countries, or those midway between developing and developed, eg. BRIC countries and South Africa? Therefore it would be interesting to understand the ongoing "SME fetish", as you called it, across a variety of contexts. Perhaps the answer is that it is more of a poverty alleviation tool than a job creation and economic growth tool in developing countries? Perhaps politics is the driver as opposed to economics? Too many questions and not enough answers?

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