Support for Small and Medium- Sized Enterprises, 2005–2017: Business Environment, Access to Finance, Value Chains, and Women in Business

Small and medium-sized enterprises (SMEs) are the backbone of many developing economies in the world. Given their substantial share in national employment and gross domestic product, policy makers and development practitioners perceive them as major instruments for poverty reduction and inclusive economic growth. At the same time, while research is not conclusive on the matter, policy makers often note that multiple policy and market failures disproportionately hinder their productive participation in market activity. Against this backdrop, governments and development agencies are spending significant public resources to support SMEs in contributing more fully to economic wealth and development.

During 2005–2017, the Asian Development Bank (ADB) financed $5.3 billion for 182 SME operations in 25 of its member countries. ADB focused on enabling the business environment for SMEs, improving their access to finance, and increasing their integration to domestic and global value chains. Almost a quarter of the operations set out to address gender specific issues to women’s participation in business and women-led SMEs.

This thematic evaluation assessed the performance of the SME portfolio and its development results. It found that operations for improving the enabling business environment performed well and helped ease the cost of doing business. On the other hand, ADB’s much larger support for increasing SMEs’ access to finance did not perform or delivered the intended results that well. These operations focused on addressing supply-side issues of SME financing by providing credit lines to financial intermediaries. For the most part, intermediation loans did not serve the underserved SMEs and did not spur further SMEs financing in the countries of support. ADB’s support for SMEs’ access to value chains has been limited and mostly recent and much of the performance and results remain to be seen.

ADB’s support for women in business worked better and delivered good development results when efforts focused on or included policy change and capacity development for women-led SMEs, versus efforts focused on providing credit or attempted to introduce an inappropriate business model.

The evaluation challenges the rationale of ADB’s approach to supporting SMEs that is heavily focused on intermediary loans, for this approach is widely known as less than an optimal instrument to support SMEs if not directed towards impacting the financial system serving SMEs as a whole. Cognizant of ADB’s limited financing capacity against the huge SME financing gaps in the region, the evaluation urges that ADB take a more coherent approach to supporting SMEs by strengthening the catalytic impact of its financing, improving project implementation and monitoring, strengthening its knowledge base on SMEs to meet the increasing demand for innovation from client countries, and improving staff capacity and corporate coordination.