Small business should not be forgotten

Small and medium-sized businesses (SMEs) have received a lot of attention from successive administrations because of their crucial contribution to the economic growth of a nation. As a result, there have been many initiatives, programs and projects designed to improve this industry, which is a catalyst for economic growth, the creation of jobs, social harmony and development. 

However, there hasn’t been much attention paid to microbusinesses in this environment. Although the Department of Census and Statistics has a precise description of what a micro enterprise is, the category is frequently either completely ignored or included in the definition of “small” enterprises in policy discussions.

SMEs contribute significantly to the economies of OECD nations. An estimated 99% of all businesses are comprised of these types of companies, which also provide 70% of all jobs. According to the OECD, SMEs generate between 50 and 60% of the total value added in these economies. SME contributions to GDP and total employment in emerging nations have decreased to an estimated 45% and 33%, respectively.

Even while these numbers are not insignificant, they are still low when compared to those for OECD countries. Even if these numbers were to be noteworthy, it’s crucial to note that the OECD definition of SMEs includes medium-sized businesses. Additionally, businesses that can employ between 50 and 149 people have far larger scales, productivity, and added value than those that can only employ up to nine.

SMEs play a significant role in the economy in terms of job creation and employment. The effects of this go far beyond improving national statistics; they are essential to reducing poverty and promoting economic empowerment because they offer opportunities for gainful employment to sections of the population that might otherwise be excluded or who struggle to find work in more established, formal organisations. 

According to the OECD, SMEs’ contributions to value addition and job creation contribute to economic inclusion and the reduction of poverty on a global scale, with low-income and emerging nations seeing the biggest effects.

There are some similarities between the micro and small business environments in Sri Lanka, South Asia, and our comparator upper middle-income countries. While tiny and independent businesses make up more than 80% of all employment in South Asia, this is not the situation in Sri Lanka. Larger enterprises are undoubtedly the most major source of employment numbers, even though sole ownership accounts for a sizeable portion of employment.

Most of these micro and small entrepreneurs started their businesses because they felt the need to be in charge of their own careers and futures, provide for their families, believe that self-start up businesses offer better opportunities for income generation than paid employment, and were eager to test out new business ideas. Male micro-level entrepreneurs who saw themselves as aspirational business owners have a particularly high-level of this enthusiasm. 

However, they have refrained from applying for credit due to the high interest rates, extra unadvertised fees, and time-consuming documentation procedures. A similar challenge for these business owners is locating suitable location to operate the enterprise at an affordable rental price. These appear to be engaged in an ongoing conflict. Their deep-seated aversion to taking out collateral-based loans is one of the major obstacles.

Despite the need for extra money to support their growth and expansion, these businesses continue to face major difficulties due to a lack of suitable capital. A considerable 53% of business owners report having trouble getting the financing they require for their operations. Compared to small business owners, the micro entrepreneurs have a slightly higher percentage.