Around a third of the GDP of emerging economies comes from MSMEs, and efforts to include informal businesses in these measurements can raise that total to above half of GDP.47 Jobs provided by MSMEs, however, usually have lower salaries, grant fewer workers rights, and may be more insecure than those of larger enterprises. Because of informality, it is also difficult to ensure jobs provided by informal MSMEs are fully covered by a social protection network. The formalization and development of entrepreneurship as envisaged in this goal will require tackling various challenges MSMEs face, including creating more enabling policy and regulatory frameworks, increasing access to finance and market information, building up MSMEs capabilities and improving MSME-relevant infrastructure.
Further, strengthening the ability of MSMEs to access markets and expand their businesses through value chains, is also key. Access to credit continues to be a constraint on the growth of both formal and informal MSMEs. With limited assets to use as collateral, MSMEs are often perceived by commercial financing institutions as high-risk borrowers, which means they pay higher interest rates and fees. Increasing access to credit for MSMEs can occur through new and innovative methods (see box 3).
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Box 3. The ICICI Bank MSME Programme The ICICI Bank, in India, has positioned itself to partner with MSMEs and provide non-traditional financial services that enable them to access finance on terms more suited to their special circumstances. The bank’s approach counts on relationship managers, market segmentation, site visits, and credit scorecards based on particular industries to determine MSME creditworthiness. With this approach, the bank has built its client base up to almost 1 million MSMEs. While this has dramatically increased the business’s MSME loan portfolio and its revenues, the accompanying challenge is that since MSMEs borrow less money, a much higher number of loans need to be issued to make this strategy profitable. Source: The Climate and Development Knowledge Network (CDKN) (2015). Increasing MSME Access to Climate Finance. |
Policy measures to support Goal 8:
- Given the role MSMEs play in providing employment, they will substantially contribute to goal 8, however, to ensure the growth they generate is inclusive, sustainable and provides decent work, measures to formalize MSMEs such as enabling regulation and providing training for MSMEs should be enacted.
- Grant facilities, preferential rates and loan guarantee programmes can be put in place to bridge the finance gap for MSMEs gap. Well-managed schemes need to provide support and capacity building to ensure small business owners only take on acceptable amounts of risk and avoid bad debts.
- MSMEs should not have excessive exemptions from the labour market regulations applying to larger firms, and they must be encouraged to resist unfair hiring practices, to promote decent work standards, and to play their part in ensuring access to social security provisions for all.
47 OECD (2017). Enhancing the Contributions of SMEs in a Global and Digitalised Economy.
