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Two trillion and counting 2010

Two trillion and counting

Assessing the credit gap for micro, small, and medium-size enterprises in the developing world

Micro, small, and medium-size enterprises (MSMEs—enterprises that typically have fewer than 250 employees) contribute significantly to economic development. This is particularly evident in developing countries, where formal MSMEs represent approximately 45 percent of employment and approximately 33 percent of GDP.2 This contribution to economic development is even greater when informal MSMEs—that is, enterprises that are not formally registered—are included.

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The importance of MSMEs to economic development and job creation is increasingly recognized, as suggested by the scale and scope of government interventions designed to encourage them. For instance, in 1976, South Korea developed the Korea Guarantee Scheme (KODIT) to extend credit guarantees to support lending to SMEs that would otherwise go unserved.

It has scaled up the effort significantly in the last 35 years, to the point that, during the recent financial crisis, outstanding guarantees reached approximately 4 percent of South Korea’s GDP. The list of countries that scaled up or introduced new guarantee schemes during the last financial crisis includes Canada, Chile, Germany, the Netherlands and Malaysia. Guarantee schemes are, however, just one of a number of common policy interventions.

Other interventions include regulatory and legal steps such as increasing SMEs’ access to collateral by reducing barriers to property registry or reducing enforcement costs for lenders and other steps related to improving the amount and quality of financial information about SMEs—for example, by developing credit bureaus. These types of interventions have been common in developed countries for several decades. Governments in developing countries are increasingly implementing them, too.

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English

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16

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