In emerging and frontier markets, entrepreneurs and business owners looking to start or grow SME business face significant challenges, particularly in terms of access to appropriate finance, experienced business support and the market linkages and networks needed to succeed. Many such entrepreneurs and business owners find themselves in the ‘missing middle’.
These are small and growing businesses that are considered too large for micro-finance, too small for traditional private equity and too risky for traditional security-based lenders as they are often informally structured – or lack security or a track record. These businesses are also too specialised in their need for viable development and growth finance for traditional banking solutions to apply.
Apart from posing a significant challenge to SMEs, the lack of access to credit for SMEs also points to a sizeable commercial opportunity, particularly for specialist SME financiers. Indeed, management consulting firm McKinsey & Company estimates the revenue potential of SME finance in emerging markets, including those in Sub- Saharan Africa, to be about US$ 360 billion in 2015.
For Sub-Saharan Africa alone, the value of the credit gap for formal SMEs is estimated by the IFC at US$ 70 to 90 billion. To close this credit gap, Sub-Saharan Africa would need to increase the provision of credit to the unserved
formal SME market by 270-320%.