Small Businesses Around the World: Shared Challenges, Shared Solutions

[This Changemakers article is Part Two of a three-part series focused on SME investment opportunities in Sub-Saharan Africa, also featured on Social Edge and Africa.com.]

For all the envy that the world’s wealthy economies may inspire, the businesses that are key drivers of those economies have a lot more in common with their intrepid developing world counterparts than one might guess on first glance.

“I think a lot of people would be fascinated to know that many of the challenges that business owners face in the United States are very similar to what is happening in the developing world,” says Rohit Arora, a US-based entrepreneur who has been working to try to solve the problems of small and medium sized enterprises (SMEs).

And it may not be a coincidence that a recent push by the G20 countries to advance support for developing world SMEs comes at a time when these large economies are looking at the own small business owners to revive their ailing economies in the wake of the global financial crisis.

“The globe as a whole is still emerging from a recession and we’re looking at SMEs as one of the policy interventions to take us out of this recession,” says Omega Shelembe, South Africa’s Director of Financial Sector Development. He’s part of the G20 group that is spearheading a new push to improve the financing opportunities for the millions of SMEs that need funds to grow and thrive.

“In most instances the G20 has relied on desktop and other surveys to determine what kind of policy direction to take in wide areas of involvement,” he explains. “But with this initiative, we are calling on the private sector to give us ideas, which are bubbling from the bottom up.”

The ideas the G20 is gathering, in a global online competition, are aimed at unlocking financing for SMEs that need funding to grow and thrive. The best of these solutions will receive significant funding and could transform the opportunities for economic growth globally.

SMEs account for more job growth and wealth creation around the world than large corporations or microbusinesses. But they fail at an alarming rate. No matter where they are in the world, more than half of newer, smaller businesses don’t make it past their first critical period of growth, largely because they can’t get funding.

“There is a need for access to credit and a need for information for businesses, and also hunger to execute on that information,” says Arora. “And we found out that this is a global need.”

His is one of the nearly 350 innovative solutions from around the world being considered for implementation by the G20. Called Biz2Credit, it is a sophisticated but easy-to-use online set of tools that help small SMEs figure out what the right financing product is right for them, where they can get it, and how to best position their company to succeed in applying for financing.

Arora’s original target audience was women and minority-run businesses in New York City – a group of entrepreneurs that has typically been shut out of financing opportunities for a variety of reasons. Arora quickly discovered that what his clients needed was exactly what entrepreneurs everywhere needed, perhaps especially in developing countries.

“I think the most critical challenge in emerging markets is how you help them to build the capacity, how you help them to become more credit worthy in order to go in and get the money,” he explains.

Innovative ways like this, of addressing the needs of small business owners, gets at one aspect of the SME financing challenge. Another aspect is pushing reluctant investors and lenders to do business with SMEs. Again, that’s a challenge found in both wealthy countries and in developing economies. In the United States for example, just last month a new law went into effect offering banks increased incentives to loan to the small businesses they have been reluctant to do business with.

“SMEs are generally perceived as risky propositions to formal financial institutions like commercial banks,” says Shelembe. “But to me, that is just a lack of creativity among the financial institutions themselves. There is so much scope for participation in financing SMEs in a profitable way.”

The solutions to unlocking SME financing will have to come from a variety of approaches and sectors and from many countries. Luckily, many of these solutions already exist and are having small-scale success in pockets around the world.

Now they are reaching a global audience and the potential for significant support to have a widespread impact, thanks to the G20’s partnership with Ashoka Changemakers, which pioneered the use of the internet as a way for innovators to share and amplify their initiatives and make social change happen faster and more profoundly.

Changemakers has been the platform for over 40 open-source competitions including the G20 SME Challenge, and its website showcases thousands of initiatives from all corners of the globe. Policy makers, issue experts and entrepreneurs alike collaborate on the site to help advance the best solutions to many of the world’s biggest challenges, including, now, the needs of SMEs.

Our globalizing economy is revealing the shared struggles of these economic powerhouses around the world, and is demonstrating that a global effort to help SMEs to succeed will result in shared economic stability.

“The impact at the end of the day will be on the well-being of real people,” says Shelembe. “The solution to the problem is long-term but the sooner we start to harness and harvest these innovative ideas, the better.”

About the Author:

Ashoka Changemakers has attracted nearly 350 innovations from all corners of the globe in the G20 SME Challenge. A panel of expert judges from the finance sector will choose 12-15 winners. And anyone interested in supporting innovations in SME finance can vote online for a favorite. The top vote getter will win a people’s choice award and accompany the other winners to Seoul for the November 11-12 Summit where Korean President Lee Myung-bak will present them to the G20 leaders and the world. 

Alison Craiglow Hockenberry is an Emmy and Peabody Award winning journalist who is a consultant for Ashoka Changemakers.

Photo courtesy of Focx Photography Flickr