Small and Medium Enterprises are critical to the developed world and even more so to emerging economies. Empirical evidence has shown that SMEs are the backbone of the developed economies in terms of number and outreach. This sounds naturally logical: Early man had to transmute from a hunter and fruits gatherer to subsistence farming. When he stumbled on fertile land, he found he could grow more than he required for food. This where the market, indisputable driver of growth and wealth, began. Today we talk of globalization, still powered by uncountable SMEs, defined as enterprises with fewer than 500 employees. However, firms range from one-person consulting shops to larger, publicly traded companies. Moreover, SMEs are present in almost every industrial sector. In Africa this includes the "mammy" who sells "accra" (bean cakes) by the roadside to the retail trader at the market square. Both are important to the extent that they serve society by creating wealth and providing jobs
In a way, Africa's current underdevelopment is most evident in the paucity of viable SME's. Economists and development experts agree that the absence of reliable credit markets in developing countries is a significant impediment to sustained economic growth. Productive activity is severely limited by the inability of entrepreneurs, small businesses and individuals to obtain loans. Even in the so-called resource rich countries, ordinary people find it very difficult to access loans from the Bank for many obvious reasons.
A good number of African countries have nonetheless realized the importance of credit and try to leverage resources to enable ordinary people initiate and grow businesses through community banks and micro-finance institutions.
The African Development Bank (AfDB) has also intensified support to SMEs by providing lines of credit to banks for on-lending to microfinance institutions and by funding the construction of infrastructure that opens up the hinterlands and make it possible for small farmers and artisans to convey their products to the market.
Recently the Bank Group and the United States Agency for International Development (USAID) signed a memorandum of understanding forging a joint guarantee partnership that will enable each institution to maximize its comparative advantage in creating donor efficiencies that will benefit African SMEs. The MOU underscored the fact that that by working together, the AfDB will grow its nascent guarantee portfolio while USAID will expand its reach by adding new private financial institutions as partners and by increasing the scale of its guarantees. This is the first time two big development institutions have teamed up to fully exploit what could become the ultimate road to real growth and development on the continent.
