Small enterprises play an important role in the economic and social development of a country. They create jobs and make a significant contribution to a country's value added. For many people, setting up a small enterprise is their only chance for a secure livelihood. An important criterion in this respect is a financial sector that also takes account of the needs of small enterprises.
The SDC’s focus
The SDC supports institutions, initiatives and programmes that aim to offer a wide range of financial services for small enterprises (anywhere between 5 and 19 positions, depending on the country) on a cost-effective and economically sustainable basis. To this end, the SDC's approaches include 'downscaling' and 'upgrading'.
- Downscaling: Existing banks or other financial service providers, such as leasing companies, establish new business fields, product lines or sales channels that specialise in financial services for small enterprises.
- Upgrading: Enabling existing microfinance institutions to address the requirements of small enterprises.
In addition, the SDC prioritises training for staff working in financial institutions and the provision of market information.
- Training staff in financial institutions: The SDC promotes the enhancement of skills in financial institutions and the establishment of specialised training and consulting facilities. Financial institutions must be enabled to offer financial services for small enterprises on a customer-oriented, profitable and competitive basis.
- Market information: The SDC supports the development of methods and institutions that provide the financial market with information or services that improve decision-making and transparency, including credit and rating agencies, for example.
Strong small enterprises are an important factor, not only for balanced economic growth, but also for social and political stability. Yet small enterprises in developing and transition countries find it difficult to convince banks to take them seriously as clients. Most financial institutions are mainly interested in dealing with large companies.
The reason for this is, firstly, the relatively high costs entailed in granting loans, and, secondly, the risks to which lenders are exposed. Financial institutions are often insufficiently informed with regard to the specific conditions prevailing in any given sector. At the same time, many small enterprises fail to practise transparent accounting, have insufficient reserves and lack suitable collateral. As a result, a comparatively detailed review is required before a loan can be granted.
Due to inadequate credit methodologies and in many cases a lack of interest by established financial institutes, small enterprises in many countries have only limited access to credit and other financial services. To improve this situation, the requirements of small enterprises must be better addressed. The range of products and services must be refined and made more flexible, appropriate credit methodologies must be developed and specific skills must be built up in financial institutions. In addition to loans, small enterprises must be given access to other products and services, such as leasing, venture capital and payment methods. Here, the key challenge to be tackled is the diversity of the small enterprise sector, both in terms of the size and type of businesses. Finally, small enterprises must also use their own initiative to enhance their creditworthiness through transparent accounting, business plans and other measures.