Financing Small Enterprises: What Role for Microfinance Institutions?

CGAP's Focus Note No. 81 examines the experience and role of MFIs in serving small enterprises. It provides an overview of small enterprises and their financial needs, suggesting that they require more than just loans. It analyzes the current and potential role of MFIs in serving this market. The note also presents a synthesis of literature review on the contribution of small businesses to job creation and economic growth. The note examines findings from a survey of more than 300 MFIs and networks that was conducted in December 2011. The survey examined their small business products, risk assessment methodologies, and internal capacity. It also examined their motivations, obstacles, and success factors for serving small enterprises. Findings indicate that MFIs:

• Are increasingly serving small businesses;
• Face challenges in serving small business such as lack of appropriate risk assessment methodologies, inadequate products, and lack of a specialized department and staff;
• Should understand the market, engage in an institution-building process, and develop tailored risk assessment methods if they want to serve small businesses;
• Require commitment from top management to create a client-centric approach, hire dedicated and knowledgeable staff, and invest in appropriate technologies.