The Big Business of Small Enterprises

A central challenge is to level the economic playing field by ensuring dynamic markets; strengthening market-support institutions; and removing constraints to participation. IEG found that financial sector development can have both a pro-growth and pro-poor impact by alleviating SMEs' financing constraints, enabling new entry of firms and entrepreneurs and better resource allocation. Layered on top of this are targeted forms of assistance; these interventions may build on a foundation of more systemic reforms, may come in tandem with them, or may in fact be a means to build systemic reforms from the bottom up.

Any credible justification of targeted support to SMEs must be focused on establishing well-functioning markets and institutions, not simply providing a temporary supply of benefits to a small group of firms during a project's lifespan. Thus, targeted interventions need to leverage resources to produce broader benefits for institutions and markets.

To make targeted support for SMEs more effective, the World Bank Group needs to do several things:

Clarify its approach to targeted support to SMEs.
Enhance the support's relevance and additionality.
Institute a tailored research agenda.
Strengthen guidance and quality control for such support.
Reform MIGA's Small Investment Program.