Small and medium enterprises
Small and medium enterprises or small and medium businesses are businesses whose personnel and revenue numbers fall below certain limits. The abbreviation "SME" is used by many national agencies and international organizations such as the World Bank, the OECD, European Union, the United Nations, and the World Trade Organization.
In any given national economy, SMEs outnumber large companies by a wide margin and also employ many more people. On a global scale, SMEs make up 90% of all companies and more than 50% of all employment. For example, in the EU, 99% of all businesses are SMEs. Australian SMEs makeup 98% of all Australian businesses, produce one-third of the total GDP and employ 4.7 million people. In Chile, in the commercial year 2014, 98.5% of the firms were classified as SMEs. In Tunisia, the self-employed workers alone account for about 28% of the total non-farm employment, and firms with fewer than 100 employees account for about 62% of total employment. United States' SMEs generate half of all U.S. jobs, but only 40% of GDP.
Developing countries tend to have a larger share of small and medium-sized enterprises. SMEs are also responsible for driving innovation and competition in many economic sectors. Although they create more new jobs than large firms, SMEs also suffer the majority of job destruction/contraction.
According to the World Bank Group's 2021 FINDEX database, there is a $1.7 trillion funding gap for formal, women-owned micro, small, and medium enterprises. Additionally, over 68% of small women-owned firms lack access to finance.''''''
Overview
SMEs are important for economic and social reasons, given the sector's role in employment. Due to their size, SMEs are heavily influenced by their chief executive officers or managing directors. The CEOs of SMEs are often the founders, owners, and managers of the SMEs. The duties of the CEO in an SME mirror those of the CEO of a large company: the CEO needs to strategically allocate their time, energy, and assets to direct the SMEs. Typically, the CEO is the strategist, champion and leader for developing the SME or the prime reason for the business failing.The European Union sees SMEs as playing a crucial role in powering economic growth, innovation and transition to more knowledge-based economic structures. At the employee level, Petrakis and Kostis explore the role of interpersonal trust and knowledge in the number of small and medium enterprises. They conclude that knowledge positively affects the number of SMEs, which in turn positively affects interpersonal trust. The empirical results indicate that interpersonal trust does not affect the number of SMEs. Therefore, although knowledge development can reinforce SMEs, trust becomes widespread in a society when the number of SMEs is greater.
Medium- or mid-sized enterprises which have grown beyond the scale of a "small business" may have different support needs from those of small businesses, and their contribution to the local and national economy where they operate may also be quite distinct from the contribution of a smaller business.
By country
Multilateral organizations have been criticized for using one measure for all. The legal boundary of SMEs around the world vary, and below is a list of the upper limits of SMEs in some countries.Africa
n small businesses frequently struggle to get the cash they require to thrive. According to the SME Finance Forum, the formal financing gap for African SMEs averaged 17% of GDP across the 43 countries assessed in 2017.According to the World Bank, women own 58% of all MSMEs in Africa.
The European Investment Bank's Banking in Africa survey, 2021 suggests that most of the responding banks had a non-performing loan ratio of at least 5%. NPLs account for at least 10% of the SME portfolio in approximately one-third of African banks. Furthermore, 50% of the banks had at least 5% of their SME portfolio under the moratorium, and 40% had at least 5% of SME loans under some type of restructuring.
Egypt
Most of Egypt's businesses are small-sized, with 97% employing fewer than 10 workers, according to census data released by state-run statistics body CAPMAS.Medium-sized enterprises with 10 to 50 employees account for around 2.7% of total businesses. However, big businesses with over 50 employees account for 0.4% of all enterprises nationwide.
The data is part of Egypt's 2012/13 economic census on establishments ranging from small stalls to big enterprises. Economic activity outside the establishments – like street vendors and farmers, for example – were excluded from the census.
File:Expected_change_in_credit_demand_from_small_and_medium-sized_enterprises_over_next_year__respondents_in_East_Africa.png|thumb|325x325px|Results from the European Investment Bank's Banking in Africa survey, 2021, for the expected change in credit demand from SMEs in East Africa
The results show that Egypt is greatly lacking in medium-sized businesses.
70% of the country's 24 million businesses have only one or two employees. But less than 0.1% – only 784 businesses – employ between 45 and 49 people.
If we look specifically at the formally registered enterprises, the SMEs constitute over 90% of all firms in Egypt's private sector and contribute to approximately 43% of the country’s gross domestic product. Owing to their smaller scale, limited financial resources, and more restricted access to development support programmes, these enterprises are considered to be more vulnerable to external economic shocks than both larger firms and the informal sector. The same pattern is true not only for Egypt but for most African economies.
Kenya
In Kenya, the term changed to MSME, which stands for "micro, small, and medium-sized enterprises".For micro-enterprises, the minimum number of employees is up to 10 employees. For small enterprises, it is from 10 to 50. For medium enterprises, it is from 50 to 100.
Nigeria
The Central Bank of Nigeria defines small and medium enterprises in Nigeria according to asset base and a number of staff employed. The criteria are an asset base that is between ₦5 million to ₦500 million, and a staff strength that is between 11 and 100 employees.Somalia
In Somalia, the term is SME ; elsewhere in Africa, MSME stands for "micro, small, and medium enterprises". An SME is defined as a small business that has more than 30 employees but less than 250 employees.South Africa
In the National Small Business Amendment Act 2004, micro-businesses in the different sectors, varying from the manufacturing to the retail sectors, are defined as businesses with five or fewer employees and a turnover of up to R100,000 ZAR. Very small businesses employ between 6 and 20 employees, while small businesses employ between 21 and 50 employees. The upper limit for turnover in a small business varies from R1 million in the agricultural sector to R13 million in the catering, accommodations and other trade sectors as well as in the manufacturing sector, with a maximum of R32 million in the wholesale trade sector.Medium-sized businesses usually employ up to 200 people, and the maximum turnover varies from R5 million in the agricultural sector to R51 million in the manufacturing sector and R64 million in the wholesale trade, commercial agents and allied services sector.
A comprehensive definition of an SME in South Africa is, therefore, an enterprise with one or more of the following characteristics:
- Fewer than 200 employees,
- Annual turnover of less than R64 million,
- Capital assets of less than R10 million,
- Direct managerial involvement by owners
Tunisia
Asia
SMEs account for nearly 90% of all company entities in developing Asian countries and are the principal private sector employers, supplying 50-80% of all jobs.SMEs cover 97-99% of all firms in South-east Asia, contributing considerably to each country's GDP—for example, 46% in Singapore, 57% in Indonesia, and over 40% in other nations.
Bangladesh
In Bangladesh, Bangladesh Bank defines small and medium enterprises based on fixed assets, employed manpower and yearly turn over, and they are definitely not Public Limited Co. and requires these characteristics:Key: SE = Small enterprises; ME = Medium enterprises; N/A = Not Applicable; Tk lakhs= × 100,000 Bangladeshi takas
Hong Kong
defines Small and Medium Enterprises as any manufacturing business that employs less than 100 people or any non-manufacturing business that employs less than 50 people.98% of business establishments in Hong Kong are defined as SMEs and employed 45% of the work force.
India
defines Micro, Small and Medium Enterprises based on dual criteria of investment and turnover.This definition is provided in Section 7 of Micro, Small & Medium Enterprises Development Act, 2006 and was notified in September 2006. The Act provides for the classification of enterprises based on their investment size and the nature of the activity undertaken by that enterprise. As per MSMED Act, enterprises are classified into two categories - manufacturing enterprises and service enterprises. For each of these categories, a definition is given to explain what constitutes a micro-enterprise or a small enterprise or a medium enterprise. If an enterprise does not fall under the above categories, it would be considered a large-scale enterprise.
April 1, 2025, India updated the definition as follows:
| Sr No | Classification | Criteria ''' |
| 1 | Micro Enterprises | Investment <= 2.5 CR and Turnover <= 10 CR |
| 2 | Small Enterprises | Investment <= 25 CR and Turnover <= 100 CR |
| 3 | Medium Enterprises | Investment <= 125 CR and Turnover <= 500 CR |
Businesses that are declared as MSMEs and within specific sectors and criteria can then apply for "priority sector" lending for help with business expenses; banks have annual targets set by the Prime Minister's Task Force on MSMEs for year-on-year increases of lending to various categories of MSMEs. MSME is considered a key contributor to India's growth and contributes 48% to India's total export.
In India, businesses need to apply for Udyam Registration with the government to avail the benefits of MSME.