Understanding the SME Credit Gap

Over the past few years, job creation and economic growth through incentivizing private sector development have become primary objectives for legislators worldwide. This concise global effort to generate employment and job opportunities is not a recent trend. Since the 2008 financial crisis, policymakers have placed work and job creation as critical platforms in their political endeavors, especially in many developing and developed nations. However, many legislative efforts have not considered SMEs’ employment generation potential. This devastating global trend has seen little to no step in making operations easier for this vital economic sector.

To put it into a quantitative perspective, World Bank Report estimates that about 200 to 245 million formal and informal enterprises globally don’t even have an overdraft facility, let alone the ability and the infrastructure to raise capital from institutional investors and seasoned venture funding sources. In monetary terms, this financing gap is roughly between $2.1 to $2.6 trillion for a sector that employs two-thirds of the world’s population. The impact loss from the financing gap for SMEs only gets more extensive for developing and under-developed economies, creating a loop of low financing and more SME failures in these regions.

https://www.cgap.org/sites/default/files/blogs/images/ifc_2.jpg
Image from The World Bank

From an outsider’s view, the financing gap affects SMEs’ ability to grow into large enterprises. However, a detailed study by the World Bank indicates that most SMEs are struggling to simply move past stagnation due to the lack of capital for SMEs globally.

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