Wednesday Scribbles : Understanding Mekong’s Missing Middle

Notes from a changing world…
June 07th 

“Despite the positive trends, there is still a financing gap for early stage opportunities described as the ‘missing middle’ or ‘seed gap’. The 2015 GIIN annual survey found that of the $60 billion managed by impact investors, less than 10% is invested in early stage companies.”

– Will Poole, Co-founder Unitus Seed Fund & Capria Accelerator

In high-income countries, SMEs are responsible for over 50% of GDP and over 60% of employment, but in low-income countries they generate only 17% of the GDP and 30% of the employment.
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Although the contribution of SMEs to economic diversification and employment is widely recognized by developing countries, they face huge financial constraints and perform much worse than large firms across a host of financial indicators.
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SMEs need loans ranging from USD 10,000 to 1 million to grow, which is too much to qualify for micro-financing, but too little to qualify for traditional credit. They are trapped in a funding gap known as the missing middle.
Investment focus must expand from just “micro” to the SMEs through financing mechanisms that ensure social and environmental returns along with financial returns. Financing local entrepreneurs in high-growth emerging markets can help BOP communities.
The nascent and fragmented nature of the social enterprise sector in Southeast Asia is a huge constraint on the investment activity. On an average, roughly, only 2 out of 10 enterprises can absorb the minimum investment, thus creating a huge financing gap that needs to be filled.
The discourse on supporting MSMEs in the Mekong Region is centered not only around building systems to boost financial lending but also addressing non-financial needs of time, skills and resources.
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In Vietnam, the Ministry of Planning and Investment has coordinated with the Ministry of Finance to draft the Law on Supporting SMEs. This law is a step to improve access to bank loans and fund credits and reduce corporation tax rates.
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In Cambodia, the Federation of Small and Medium Enterprise of Cambodia (FASMEC) is opening its branches in 25 provinces to enable investors to match with provincial business partners to address credit fund problems faced by SMEs.
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The Myanmar government passed the SME Development Bill in January 2014, in which it defined and distinguished small and medium enterprises to enable them to seek incentives from the government for their relevant business categories.

Thailand’s Office of Small and Medium Enterprises Promotion (OSMEP) has launched the SME Provincial Champions project to help SMEs improve their business plans through the country’s leading consultants, and to develop prototypes and packaging.
The social investment market is failing to support early stage ventures and social businesses looking to grow by depriving them of access to the right sort of investment.
(Disclaimer: All information quoted here is linked to the respective source articles)
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