The crucial role of Micro, Small and Medium Scale Enterprises (MSME’s) in Emerging Markets


In the dynamic landscape of global economics, emerging markets have emerged as pivotal players, shaping the future of the business world. In emerging markets, the private sector consists for more than 95% out of Small but Growing Businesses (SGB’s), also referred to as Micro, Small and Medium Scale Enterprises (MSME’s). These enterprises play a crucial role in fostering innovation, generating employment opportunities and driving economic development. In this blog, we will delve into the operations of MSME’s, explore the factors that have influenced their growth and underscore the importance of understanding private sector development in emerging economies.

Understanding MSME’s
Micro, Small and Medium Enterprises are businesses that operate on a relatively smaller scale compared to large corporations. These enterprises encompass a wide array of sectors, from manufacturing and agriculture to technology and services. Their distinguishing features include limited manpower, lower capital investment, and localised operations. MSME’s often function as the catalysts for economic inclusivity, as they provide jobs to a significant portion of the population. MSME’s constitute 95-98% of all businesses, generate 50% of GDP and create between 60-70% of all jobs.

Factors driving growth

Several factors have contributed to the rapid growth of MSME’s in emerging markets:

  • Innovation
    MSMEs are known for their agility and ability to adapt to market demands quickly. This flexibility enables them to innovate and introduce new products or services, catering to local needs and preferences.
  • Employment Generation
    MSMEs are substantial sources of employment in emerging markets, helping to reduce unemployment rates. They often require less formal education and training, making them accessible to a broader range of individuals.
  • Local Impact
    These enterprises often have deep roots in local communities, contributing to regional development and growth. They promote grassroots-level economic prosperity, creating a multiplier effect on the overall economy.
  • Market Diversification
    MSMEs can fill niche markets that larger corporations might overlook. This diversification leads to more competition, which can ultimately benefit consumers.
  • Inclusive Growth
    MSMEs empower marginalized groups, such as women, youth, and disadvantaged communities, by offering opportunities for economic participation and entrepreneurship.

Challenges Faced by MSMEs
While the growth potential of MSMEs is immense, several obstacles hinder their progress:

  • Access to Finance: One of the most significant hurdles is accessing capital. MSMEs often struggle to secure funding due to limited collateral and high-risk profiles.
  • Infrastructural Constraints: Insufficient infrastructure, such as inadequate transportation and unreliable utilities, can hamper the growth of MSMEs.
  • Regulatory Burdens: Complex and costly regulations can discourage entrepreneurs from establishing or expanding their MSMEs.
  • Limited Technical Knowledge: Lack of access to information and technology can hinder MSMEs from implementing modern business practices.
  • Market Challenges: MSMEs may face difficulties in accessing larger markets due to limited resources and marketing capabilities.

Private Sector Development in Emerging Economies
Understanding the nuances of private sector development in emerging economies is pivotal for sustainable growth. Governments, international organisations, and the private sector itself need to collaborate to create an enabling environment for MSMEs to thrive. This involves:

  • Access to Finance: Developing mechanisms for easier access to credit and venture capital can bolster the growth of MSMEs.
  • Capacity Building: Providing training and technical support to entrepreneurs can enhance their skills and capabilities, enabling them to compete effectively.
  • Policy Reforms: Simplifying regulations and reducing bureaucratic hurdles can create a friendlier business environment for MSMEs.
  • Infrastructure Investment: Governments and private entities must invest in improving infrastructure to alleviate constraints on MSME growth.
  • Market Access: Facilitating MSMEs' access to domestic and international markets can expand their reach and potential.

Micro, Small, and Medium Enterprises are instrumental in shaping the economic landscape of emerging markets. Their ability to innovate, generate employment, and contribute to regional development makes them indispensable. Despite challenges, the growth potential of MSMEs is undeniable. By fostering an environment conducive to their development and understanding the intricacies of private sector growth, emerging economies can harness the full potential of MSMEs to achieve sustainable and inclusive economic growth.

MSM Short Executive Programme on Small Business Development in Emerging Economies
Given the importance of private sector development in emerging economies to achieve sustainable and inclusive economic growth, Dr. André Dellevoet, Senior Project Consultant at MSM has developed the 5-day Short Executive Programme on Small Business Development.  Through this programme, participants will get a better understanding of how the private sector in emerging economies can be developed. It will offer some space to reflect upon and discuss past and present development both from an aid perspective as well as through local avenues of private sector development such as micro-finance, impact investments and business development services.

Watch the video below to learn more about how you can benefit from the programme.