From investors providing needed funding to high-potential entrepreneurs to capacity development providers helping SGBs get the skills they need to compete, different organizations have critical roles to play.
Corporations must both grow their businesses in a global environment of high competition and dwindling natural resources, and support the environment and the communities where they operate. Supporting SGBs can help. Through their core business or their sustainability practices, corporations that work with SGBs see concrete returns. Corporations can:
Brands like Nestlé and Walmart rely on the collective input of hundreds, even thousands, of suppliers. By supporting SGBs in the supply chain, these businesses are ensuring sustainable access to the resources they need now and in the future.
Corporations demonstrate concrete and long term commitment to equitable growth when they support SGBs in the communities where they operate. A robust network of local business partners enhances operations and builds positive associations for the brand.
SGBs that focus on new products or markets allow corporations to incubate ideas or experiment with new lines of business. Support for SGBs in markets or segments where the corporation is not yet active paves the way for future growth. Corporations that support these new ventures with financial resources or mentorship can ultimately expand into exciting new areas.
Countries with robust communities of SGBs have better development prospects than those without. When the SGBs succeed, they create jobs and provide solutions to social and environmental challenges. Yet it is rare for a poor country to have a strong SGB community. Weak systems— from education, to transportation, to financial policy—all make it more difficult to start, run, and grow a business. Development institutions are uniquely positioned to build the entrepreneurial ecosystems that SGBs need to thrive. DFIs and donor agencies can help:
A healthy SGB sector leads to more jobs, more employee buying power, and stronger professional skills. As companies grow, so do job opportunities.
Many poor countries have difficulty providing access to high-quality education, healthcare, and utilities, among other basic services. This challenge presents a market opportunity for SGBs operating in these sectors.
As businesses grow, they become buyers of the supplies and services they need to operate. In this way, one SGB supports others in the community. This multiplier effect encourages entrepreneurship and creates an environment of innovation.
Foundations want their investments to make a measurable difference in reducing poverty. Investing in small and growing businesses promises outsized returns. SGBs not only supply low-income communities with needed services, such as electricity, safe food, and health care. They also act as employment engines, bringing jobs and incomes to people who critically need them. Foundations can:
SGBs on a growth path have the potential to create hundreds—even thousands—of jobs in their communities, and deliver services to many times more. Achieving these results at scale depends on the kind of patient support that foundations are in a unique position to provide, and which enables SGBs to develop the skills, resources, and technology they need.
SGBs working alone in nascent sectors find it difficult to scale, no matter how good their product. Foundations play a role in building critical sectors by selecting and supporting a portfolio of SGBs delivering complementary and competing solutions. Such support not only helps increase the number of SGBs in the sector, it also provides a ready audience to benefit from infrastructure developed by the foundation.
SGBs are an underserved group, and the environment for SGB prosperity is still immature. There remain vast opportunities for foundations to establish themselves as pivotal contributors to creating an SGB-friendly environment.
Small businesses need capital to grow, and financial institutions (FIs) need new customers to expand their lines of business. These needs complement each other. By embracing small businesses as borrowers, FIs are both growing their customer base and—through the growth of the SGB—contributing to job growth and economic well-being in the communities they serve. By lending to SGBs, financial institutions:
85% of SMEs either do not use or do not fully take advantage of external financing from financial institutions. Such low penetration makes SGB lending a ripe and undertapped opportunity.
New tools are allowing lenders to assess the creditworthiness of an entrepreneur in the absence of credit data. These advances are making SGB lending easier, faster, and lower risk and lenders around the world are embracing them.
Lenders who embrace SGBs can see their loans leveraged into higher local employment levels and buying power, which translates over time into a larger pool of prosperous, upwardly mobile retail customers with a positive view of the bank and its brand.