The Missing Middle: Developing countries have a large number of informal, low-growth microenterprises and some large firms, but relatively few SMEs. 

In developed economies, formal SMEs account for around 57% of total employment, but only account for 18% of employment in low income countries [1]. This gap is called the "missing middle."

Research shows that these firms have high returns to capital [2], yet the main providers of capital, commercial banks, microfinance institutions, and private investors, face a key barrier in taking advantage of this opportunity: how to identify high-potential, low-risk entrepreneurs in a low transaction cost way and with little available information. Training programs, business incubators, and other support services face similar challenges in targeting their services.

> Commercial Banks

> Venture Capital Investors

> Microfinance Institutions

> Entrepreneurship Training & Support Services

 

 

[1] Ayyagari Beck & Demirguc-Kunt 2003

[2] Banerjee & Duflo 2004, McKenzie & Woodruff 2008

 


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