Is Micro Too Small? Microcredit vs. SME Finance
This paper compares the employment and poverty outreach of small and medium enterprises (SMEs) to that of microenterprises. It draws on a series of surveys of both microcredit borrowers and SME employees, building from a 2008 survey of Bangladeshi SMEs that are customers of BRAC Bank.
The data sets show that the average employee of a small enterprise in Bangladesh is male, semi-skilled, with some formal education, while Bangladeshi microcredit borrowers are mostly women, who lack formal education and have few professional skills. Findings include:
- Microcredit borrowers are more likely to be female;
- SME employees work long weeks, which creates employment barriers for women with primary child-raising responsibilities;
- SMEs in Bangladesh do not typically create jobs that reach the kinds of workers supported by microcredit;
- SMEs do not employ many family members of microcredit customers.
The study demonstrates that the proposition, 'micro is too small' is only half right in Bangladesh. SME finance is more profitable and can create larger financial multipliers than investing in microcredit institutions, but patterns of job creation and distribution of social benefits are unlikely to be similar.