Why small businesses matter

A vibrant small and medium-sized enterprise sector is a vital ingredient for a healthy market economy. Small and medium-sized enterprises (SMEs) make up over 99% of the total number of businesses across the countries where we work. They are responsible for large contributions to value added and employment.

However, due to internal inefficiencies and constraints in the business environment, their contribution can be well below its potential.

SMEs also play an important role in the political economy, helping to promote and strengthen reforms. Economically, they have an inherent interest in promoting policies that favour a level playing field, while politically, a thriving SME sector empowers and grows a strong middle class, which can then serve as a constituency seeking democratic reform and sound economic governance.

While smaller businesses tend to be more flexible and quick to change than larger corporates, they are much more vulnerable to deterioration in the business environment. They are also more sensitive to harassment from government institutions and have fewer resources to draw on when times are hard.

One great challenge for small businesses is accessing the finance they need to develop and grow. Issues of collateral and alignment with international accounting standards affect SMEs disproportionately, while financial institutions have less experience lending to the small business segment and often perceive them as riskier than the evidence shows them to be.

At the European Bank for Reconstruction and Development (EBRD) we believe that creating the conditions for small businesses to thrive is fundamental for economic growth.

Alongside the restructuring of state-owned firms and by promoting greater competition, SMEs are essential for maintaining an economic balance in transition countries.

We are convinced that across the countries where we work a prospering SME sector lies at the heart of sustainable, inclusive economic growth.