SME/Investment at the Nexus of Investment and Development

SME/Investment at the Nexus of Investment and Development
Small and medium enterprises (SMEs) are engines that drive economic growth in emerging and frontier markets. SMEs make significant contributions to decreased poverty, increased employment, the diversification of products and services, and the creation of market linkages for smallscale producers and other suppliers. At the national level, and as part of the formal economy, SMEs also add to the country’s GDP and tax base, allowing benefits to be shared beyond their immediate circle of employees, consumers and suppliers.

Investment capital is the necessary fuel that enables SMEs to flourish. However, SMEs are challenged in accessing sufficient growth capital. Development finance institutions (DFIs) have played a key role
in financing many SMEs, but in order for adequate flows of capital to reach the growing number of SMEs in frontier and emerging markets, private equity is also needed. Local private equity markets are weak and investor confidence is not strong, so international private equity investment in local funds both supports SMEs and encourages growth in the local equity market. Moreover, many SMEs are either not investment ready or are struggling to grow and therefore require technical support including capacity in environmental, social and governance (ESG) areas.