You go to your financial institution in Uganda to take out a loan to develop your SME – in this case, a hotel. You receive a business loan for construction work. The interest rate is workable. Then, without warning, your contractor informs you he has to push back the completion date. You inform your bank about the delay. Then your bank informs you about the new interest rate. You reach out to a specialist lender who agrees to work with you. Today, thanks to the GroFin lender, the Grand Global Hotel is thriving and Mr. Emmanuel Tugume has this to say about Uganda Banks – “They do not adjust to people like us.”
Are SMEs in developing countries doomed to fail? Entrepreneurs are talented, dedicated people who want to succeed. It’s not just financial backing, although that’s a major need. SMEs also lack financial tools such as software and business credit cards, to name a few. At the same time: “[entrepreneurs] need to adapt to the changing markets, consumer trends, sociopolitical influences, and outright disruption.” What about the governing of each developing country – are they willing to change enough to help informal SMEs which outnumber the formal? At this point: in the eyes of many, informal SMEs fail as contributors to economic growth.
Do SMEs have a clear definition that encompasses all SMEs? Dr. Samuel Muriithi, Senior Lecturer, School of Business and Economics at Daystar University in Kenya states that “[in] 75 countries [he] found more than 75 definitions for SMEs.” The enterprise size varies in definition, regardless of type, assets, and products. It varies from country to country. To define a small enterprise in one country is 100 employees. In another, it’s 4 employees. To define a mid-size enterprise in one country is 500 employees while another has the count at 100. These differences in definitions can hurt SMEs in developing countries.
It’s time for developing countries to work together to support SMEs. Lamia Kamal-Chaoui, Director of Center for Entrepreneurship, SMEs and Local Development shows that “given these numbers, the Sustainable Development Goals (SDGs) launched by the United Nations in 2015 can only be achieved if countries manage to build up strong SMEs.” The small and midsize enterprises account for a large piece of the world economy, both in developed and developing countries. However, interventions can fuel success. Governments need to find alternative ways to finance SMEs such as alternative debt finance or asset-based finance.
Kamal-Chaoui knows “alternative sources of finance can reduce debt exposure in SMEs and prove particularly useful to those new and fast-growing firms that are at the core of productivity growth and job creation.” Let’s hope interventions are happening and SMEs in developing countries prove they contribute to the global economy.
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