Small and medium enterprises (SMEs)1 are widely seen as engines of economic growth. In developing countries, SMEs provide over 70% of formal jobs on average2. SMEs are also thought to promote poverty alleviation and long-term economic growth through improved productivity, innovation, and social mobility. However, SMEs face constraints to growth that are particularly binding in developing countries.
In an effort to unlock the SME sector’s potential, governments and other institutions spend billions of dollars every year on programs aimed at reducing the barriers to growth for SMEs. However, high-quality research on which programs successfully address the constraints to SME growth is limited, leaving decision makers without clear guidance on which programs and policies to support. There is an urgent need for evaluation of SME promotion programs in order to help steer investments to the most effective practices. To achieve this, closer collaboration between the worlds of research and policy is necessary.
The Small & Medium Enterprise Program at Innovations for Poverty Action is a coordinated research effort that brings together policymakers and researchers to test innovative solutions to the most binding constraints to SME growth. By working with governments, non-profits, donors, multilateral organizations, and the private sector, the SME Program promotes the use of evidence in the design of SME development programs and policies.
1The definition of small and medium enterprises varies by country and institution. For example, in defining SMEs the European Union and World Bank Group focus on quantitative factors such as firm assets and employment levels. However, defining firms based on size is too limiting for our purposes. The SME Program focuses on examining transformational SMEs rather than subsistence SMEs – that is, those businesses with the capacity to innovate, compete, and grow. Some of these transformational businesses may be micro by a headcount definition; as such, our research agenda does not follow strict criteria for firm size.
2 Ayyagari, Meghana, Asli Demirgüç-Kunt, and Vojislav Maksimovic. "Small vs. young firms across the world: contribution to employment, job creation, and growth." World Bank Policy Research Working Paper 5631 (2011).