Alan Patricof, a recent participant in the UN Commission on Private Sector in Development, and co-founder of Apax Partners, and Julie Sunderland, a consultant to governments and international organizations on small business policy, write in an op-ed in Mondays edition of The Financial Times that microfinance has been a valuable tool of poverty alleviation and deserves continued support for helping the poor build income-generating micro-enterprises.
But microfinance can only accomplish limited objectives since these businesses can rarely graduate beyond subsistence level to become competitive, employment-generating enterprises, he writes according to the World Bank press review.
On the other hand, small and medium-sized enterprises (SMEs) in developing countries – the agribusiness processors, the components manufacturers for multinationals, the software outsourcers – are the real potential engines of growth and employment and have a much greater possibility of becoming competitive businesses.
Developing countries need much more help from wealthy nations and international organizations to address this large capital and resource gap at the SME level.
Unlike microfinance, which can be deployed through stand-alone institutions independent of the local business environment, support for the SME sector requires resources devoted to three broad initiatives.
First, governments of developing countries must reform their business environments, concentrating on ineffective legal and regulatory regimes for small businesses and on the corruption that plagues them.
Second, SMEs access to capital must be expanded through accelerated development of financial markets, with government or donor-supported capital augmenting investment by private investors.
Third, entrepreneurs and managers of small businesses need access to skills and knowledge gleaned from practical experience and international best practice, the authors argue.
Kilde: www.worldbank.org
