In developed countries, small and medium-sized enterprises (SME) account for 57 percent of total employment and just over half of gross domestic product. Among low-income countries, SMEs contribute just 18 percent of employment and 16 percent of GDP. If barriers to their growth were removed, SMEs would impact economic development by providing jobs and income, expanding the middle class, broadening the tax base and ultimately decreasing poverty levels.
To identify the obstacles and devise potential solutions, a diverse group of fund managers, investors, entrepreneurs, researchers and representatives from development finance institutions met for a Financial Innovations Lab in February 2009 in New York City.
The biggest barrier they found to attracting foreign capital for SMEs is that exiting investments in developing nations is difficult and discourages investors. Among the potential solutions to this illiquidity:
The group also found that investment returns are not fully risk-adjusted, and sources of capital have little access to credit information about these enterprises. Solutions to these obstacles included creating regional investment funds and grant-based pools for technical assistance and matching investors to entrepreneurs through Internet platforms.