by Mapsa

on 10-08-2017 11:09:42

under Greening Sectors

Bold new approaches are needed to meet the global challenge of overcoming rural poverty and achieving sustainable development. A significant body of research and practical experience demonstrates the transformative potential of MSMEs to accelerate the transition to inclusive and resilient rural green economies.

As enablers of local capacities and jobs, MSMEs are effective for promoting equitable economic growth. Being decentralised in nature, they allow for the development of resilient economic systems. They prevent locking of large capital in few projects that reduces the risk of an economic crisis due to dependence on few large projects and can potentially result in improved efficiencies.The Asian Development Bank finds that in Asia, MSMEs account for more than 60% of all enterprises and up to 50% of paid employment. Being closer to the natural environment and with limited access to resources compared to larger corporations, these enterprises tend to focus more on environmental protection in their approach to sustainability.¹

MSMEs account for more than 90% of all firms outside the agricultural sector, constitute a major source of livelihoods and employment, and generate significant domestic and export earnings in developing countries. Their development is crucial as inequitable and jobless growth continue to challenge these economies. A World Bank study estimates there are over 410 million (informal and formal) MSMEs in emerging markets.² The formal MSMEs contribute to 45% of total employment and up to 33% of national income (GDP) in emerging economies. With the capacity to create jobs in the agriculture and large industry on the decline with rapid mechanisation, MSMEs present an opportunity for job creation in the face of increasing unemployment trends. There is evidence that most formal jobs in emerging economies are located within MSMEs, which also create 4 out of 5 new positions. 

In India, there are 46 million MSMEs, out of which 94% units are informal or unorganised in nature owing to inadequate support systems.³ These enterprises contribute to 45% of India’s manufacturing output and employ close to 40% of India’s workforce and yet contribute to only 8% share in total GDP.⁴ Despite their crucial role in promoting sustainable development, the growth of MSMEs is limited owing to a host of factors that include lack of access to appropriate business services and an enabling policy environment. It is expected that if provided with appropriate support, MSMEs will generate employment levels to the extent of 50% of the overall employment, more than doubling the current MSME workforce of 106 million. According to KPMG (2015), MSMEs are growing at 11% per annum which is higher than average GDP growth rate and has the potential to increase the share of contribution to 15% of GDP by the year 2020.

Unlocking the transformative potential of MSMEs requires a comprehensive and multi-stakeholder response – going beyond the conventional project-by-project approach to adopt a more integrated programmatic strategy at national and sub-national levels – to foster the enabling conditions necessary for MSME to scale. This means effectively channeling resources and developing capacity at the local level, combined with supportive policy and institutional reforms at higher levels.  Elements of such a programmatic approach could include:

• Forging an enabling policy environment that supports local enterprise development and promotes scaling—such as tenure or regulatory reform—through a charted staged strategy.
• Ensuring equitable access to finance through a platform that enhances local access to the various sources and forms of domestic and international finance.
• Building local capacity and providing technical support services that are accessible and coordinated.
• Facilitating learning and knowledge sharing through targeted research, monitoring and analysis to better quantify and understand the determinants sustainable local enterprise developed.

The views expressed by the author are their own and not necessarily those of Development Alternatives.