The Missing Middle

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In OECD countries, employment is primarily generated by small and medium sized enterprises (SMEs).  However, in the least developed countries, the SME sector is practically non-existent.  There are a lot of very small companies and a few very large companies, but nobody in the middle.  The “Missing Middle”, as this phenomenon is named, prevents many developing countries from having a true middle class, which largely drives an economy.  How do you grow the Missing Middle in emerging markets? How do you get these small and medium-sized companies to grow?

An extensive World Bank study called “Voices of the Poor” asked people living in poverty what they want and need most.  The answer: jobs.   Increased support for small and medium enterprises will yield more significant results with respect to long-term sustainable development.  In our efforts to help the poorest of the poor, we often overlook this crucial component of a successful economy.  Microfinance loans typically focus on an entrepreneur and helping them to grow their business.  Not everyone is an entrepreneur, but a business will need to employ more people as it grows. Currently, microfinance does not directly address the issue of unemployment, but its funds can be used to grow small businesses and in turn employ more people.  Growing the middle class and SMEs will prove more sustainable in the long run in helping people move out of extreme poverty.  If we’re not paying attention to employment, we’re not paying attention to the voices of the poor.

About Katherine Rodota

Katherine is a recent graduate from Cal Poly San Luis Obispo where she studied International Business and French. She is currently working at a private equity firm in the San Francisco Bay Area. Katherine loves to travel, and recently spent her summer volunteering in Mauritius.