SMEs’ role in job creation

SMEs face a shortfall of over $2 trillion in financing gap, derailing their prospects to move past stagnation and into the growth phase. This shortfall impacts one-half to two-thirds of the SMEs globally, and legislative efforts worldwide often overlook the contribution of SMEs towards GDP and job growth to the economy. Despite the financing troubles, SMEs’ contribution to employment has increased in the last few years, employing roughly 50% of the working population in high-income countries and significantly higher in mid-to-low-income countries. SMEs globally face a lackluster investment climate, poor infrastructure, and a lack of access to financial alternatives to grow.

The current investment climate towards SMEs neglect several studies that show the positive growth trajectory SMEs offer to the economy. A study by the Internation Finance Corporation (IFC) shows a positive correlation between SMEs’ development and job growth rate in the economy. To break the correlation, financing SMEs leads to an improved incentive to boost entrepreneurship, allow businesses to commit significant investments, provide liquidity and develop new supply and distribution chains, all of which directly and indirectly contribute to economic employment growth.

https://www.researchgate.net/profile/Hussein-Elasrag/publication/42740825/figure/fig2/AS:669378970394635@1536603791462/SME-contribution-to-employment-and-GDP-median-values.png
Image from Hussein Elasrag

The same study by the IFC also indicates that closing the existing financing gap is one of the critical pillars for sustainable economic growth. It is also highly essential that investments in SMEs should consider an equal and equitable approach in which such as women, youth, and economically underserved groups are targetted. A targeted investment mandate incentivizes problem-solving and commercialization of financially feasible solutions that contribute to employment in the long term.

At SMEXCHANGE.COM, we understand that SMEs face an uphill business battle due to the lack of information, knowledge, technology use, funding & support of a real eco-system. We are here to help and be a leader in bridging these gaps.

This excerpt is adapted from a study by The World Bank: https://documents1.worldbank.org/curated/en/804871468140039172/pdf/949110WP0Box380p0Report0FinalLatest.pdf