Financial Services and Small and Medium-sized Enterprise Growth and Development: Rapid Evidence Assessment

Abstract

This rapid evidence assessment examines the existing evidence on the effectiveness of programme interventions designed to ignite the growth of small firms and their transition into medium‐sized enterprises. It considers the evidence on the question: What financing support interventions have been effective and ineffective in supporting the sustainable transition from small firms to medium‐sized firms in Low and Medium Income Countries (LMICs), how and why? Overall, the results of this review suggest there is no strong evidence presented in publications between 2007 and 2017 on the sustained effect of financial services on small enterprise growth and transition. Despite this, the literature reviewed provides leads on what could work, for whom and in what circumstances. For example, improving access to finance generally enhances Small and Medium-sized Enterprise (SME) growth and transition. However, while it is commonly argued that the high cost of finance and the eligibility requirements of commercial finance providers are major obstacles, the evidence from this review reveals a more complex picture. The high cost of finance and the limited access SMEs have to it is only one constraint to enterprise growth. Other factors, such as poor business environments, inadequate infrastructure, corruption, and inexperienced business owners with poor management skills, also inhibit growth. While there is evidence to show how stronger linkages between the enterprises and financial institutions can improve access to financial services and induce growth, it is important not to isolate access to finance as a single constraint to growth, but to consider it as part of a more holistic approach