Small and medium enterprises are critical engines of economic growth, employment and poverty reduction.
They create a large share of new jobs in an economy, and are important drivers of innovation and productivity growth. In high income countries, they are responsible for more than 50 percent of gross domestic product and 60 percent of employment.
In low income countries, small and medium enterprises represent only 17 percent of Gross Domestic Product and 30 percent of employment. The absence of small and medium firms in developing countries – known as the missing middle – represents an acute barrier to inclusive economic growth and private sector development.
The lack of finance to the missing middle is a global market failure. By preventing large numbers of people living in poverty from growing their businesses and participating in the labour market, the missing middle is a sizeable blockage on economic growth and poverty reduction.
The aid budget can play a pivotal role in reducing these barriers and turning today’s aid recipients into tomorrow’s trading partners.
From a factory in her parents’ backyard, Janaki and her staff make brushes from coconut husks. She started with one supplier, but he could only give her a limited amount to work with each week.
In June 2016, Janaki received an ARISE loan of Rs$600,000 (A$5,400). She used it to buy a cutting machine and a brush polishing machine. The rest she used as operating capital, buying a large stock of husk from local producers and employing 10 more people.
Now, Janaki’s brushes are exported internationally.