Investment in small and medium enterprises (SMEs) is growing and becoming increasingly high-profile in both the development and investment fields.  A report released earlier this year by the World Resources Institute reveals that of the 20 leading SME investment funds, more than half were established after 2004.  While the majority of these funds have little name recognition outside of the SME funding community, big names are entering the market.  Last year, Google.org teamed up with Soros Economic Development Fund and Omidyar Network to fund a $17 million company that will invest in small and medium-size businesses in India.  And just last week, Abraaj Capital, the largest private equity firm in the Middle East, acquired all of Riyada Ventures, a SME investment firm from Jordan, to lead its newly launched regional SME and entrepreneurship initiative.  

While new players are popping up in the SME funding arena, the importance of SMEs is nothing new.  SMEs are crucial to economic development as they employ local, low-skilled labor, help formalize local economies by paying taxes and serve as a key link in the supply chain between small-scale producers and urban, national or export markets(1).   The increased funding in this space is much needed as SMEs face a funding gap between loans offered by micro-finance institutions and loans available through large commercial banks and private equity funds. 

However, to sustain investment in SME investment funds, investors need to see positive economic and social returns.  While the financial returns from such investments can easily be communicated through revenue statements, calculating the social returns is more complicated.  Thought leaders in this space need to come together to develop standard social value indicators that connect increased employers, suppliers and customers to quality of life measures.  With robust social and financial value metrics in hand, SME investment funds will be able to raise more capital, close the funding gap and drive immense economic growth.    

1.  Barreiro, Virginia.  “On the Frontiers of Finance”.  World Resources Institute, 2009.