Desktop Study: SMEs and Poverty Reduction

This paper discusses key questions, issues and challenges affecting the ability of the small and medium enterprises (SME) sector to reduce poverty in both developing and mature economies.

The paper is structured in two parts - a United States review and an international desktop review. Both reviews demonstrate that:

• SMEs are essential to economic growth, wealth creation and employment in economies both large and small;
• The more vibrant the SME sector, the healthier the economy;
• The impacts of the SME sector go beyond wage creation - they generate employment for poor, low-skilled workers, increase skill development and have broader social impacts, such as access to health care and improved housing;
• It is not possible to say whether SME vitality is a 'cause' or an 'effect' of healthy economic growth.

The paper finds that the latest strategies in the SME sector are:

• In the U.S:
  • The use of regulation to promote private investment in low-income areas;
  • The role of non-governmental organizations (NGOs) in designing products and services targeted for SMEs that are owned by or that employ low-income people;
  • Strategies that effectively link the provision of capital to other products and services, such as workforce and market development, job training, mentoring, etc.
• International strategies:
  • A large injection of resources and the potential for a coherent platform for action on issues related to the access to capital, policy development and delivery of business development services.

The paper concludes by stressing the need for research on the connection between SMEs and poverty reduction.