Understanding Nano and Micro Enterprises

Research Rationale

 

Micro, small and medium enterprises (MSMEs) are a substantial contributor to economic growth and account for as much 50-70% of employment globally. While much work has been done to develop policy environments which enable access to finance to MSMEs and support the growth of the sector, most of this work focuses on enterprises within the formal economy and falls short of addressing the various needs of the multitude of enterprises operating within the informal sector. In Asia-Pacific alone the informal economy is estimated to account for as much as 60% of the workforce and represents an average of 30-35% of GDP. Policies and programs are needed which support their unique needs and provide pathways towards providing greater opportunity, which will unlock greater value for these enterprises and for the economies in which they operate.

 

There is a wide range of definitions used by different stakeholders that characterise the nature, size and attributes of nano and micro enterprises. These nuances are important and powerful particularly as we recognise cultural and other differences across economies. However, it also creates additional complexities and introduces various challenges in terms of defining the number of such enterprises according to some basic standards in the definition, and quantifying their powerful contributions to their societies and to the livelihoods of substantial numbers of people who rely upon such enterprises for their survival.

 

FDC’s Response

 

Through an extensive consultation process involving the national microfinance associations representing several Asian economies, FDC will facilitate feedback from these associations and their member microfinance institutions (MFIs) on the proposed definition of nano and micro enterprises to reach a general consensus. 

 

By capturing the perspectives of this segment FDC aims to implement a series of initiatives over time which will bring a greater understanding of their unique challenges and opportunities for growth. At the core of these activities will be the identification and promotion of digital opportunities for Nano-Micro-Small Enterprises (NMSEs) that will enable them to grow, accumulate both traditional and non-traditional productive assets and achieve greater long term security and sustainability.  

 

Important to the research undertaking is to initiate a baseline count of nano and micro enterprises operating within the target countries. By working with national microfinance associations, MFIs within each country will be asked to provide an estimate of how many of their clients fit the description of a nano or micro enterprise. This data will be used to create an overall estimate of the size of the NSME sector across Asia Pacific and help to distinguish some of the unique characteristics of informal enterprises.

Outcomes

 

By clearly defining the NMSE sector and measuring (even if just broadly) its overall size, this research will help to highlight the significant implications and potential for NMSE sector development to more effectively contribute to economic growth and poverty reduction.

 

Following the completion of the initial research it is expected that additional initiatives will be launched to formulate a range of specific strategies that will support the digital transformation of the NSME sector and create more inclusive economies. These strategies are expected to include, but not limited to, the following:

 

  • Providing support for NMSEs to gain greater access to finance and to establish pathways toward formalisation:

    • The role/expansion of appropriate digital financial services (DFS).

    • Establishing enabling environments for supply-chain finance.

    • The provision of capacity-building and technical assistance.

    • Improving trade facilitation and access to markets through greater regional integration.

    • Enhancing ease of doing business to increase investment opportunities.

Proposed Definition of Nano and Micro Enterprises

Proposed Characteristics of a Nano Enterprise:

Establishment of the enterprise was made possible by receiving a micro loan.

The enterprise has no employees other than immediate family members (i.e. spouse, children).

The enterprise does not produce sufficient income to meet the daily needs of the individual or family, and so it is necessary for the entrepreneur to take up more than one income generating activity to provide sufficient income.

 

Proposed Characteristics of a Micro Enterprise:

Establishment of the enterprise was made possible by receiving a micro loan.

The enterprise employs other people outside of immediate family members.

The enterprise is able to generate sufficient income to support the daily needs of the individual or family from a single enterprise activity (i.e. specialised). (Note: A Micro Enterprise entrepreneur may still engage in multiple income generating activities for extra income, but if necessary the entrepreneur is able to rely on just a single enterprise to support daily needs).

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©2019 by The Foundation for Development Cooperation