Small and medium enterprises (SMEs) or small and medium businesses (SMBs) 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, the European Union, the United Nations, and the World Trade Organization (WTO).
In any given national economy, SMEs outnumber large companies by a wide margin and also employ many more people.Compare: On a global scale, SMEs make up 90% of all companies and account for 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 gross domestic product (GDP), and employ 4.7 million people. In Chile, in the 2014 commercial year, 98.5% of firms were classified as SMEs. In Tunisia, self-employed workers alone account for about 28% of total non-farm employment, and firms with fewer than 100 employees account for about 62% of total employment.Rijkers et al (2014): "Which firms create the most jobs in developing countries?", Labour Economics, Volume 31, December 2014, pp.84–102 U.S. SMEs generate half of all U.S. jobs, but only 40% of the GDP.
Developing countries tend to have a higher proportion of small and medium-sized enterprises.Compare: SMEs are also responsible for driving innovation and competition in many economic sectors. Although they create more new jobs than large firms, SMEs also account for the majority of job destruction and contraction.Aga et al. (2015): SMEs, Age, and Jobs: A Review of the Literature, Metrics, and Evidence, World Bank Group, November 2015.
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 (MSMEs). 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, these smaller firms are heavily influenced by their chief executive officers (CEOs) or managing directors. The CEOs of SMEs are often the founders, owners, and managers of the business. The duties of a CEO in both SMEs and large companies are similar: the CEO needs to strategically allocate their time, energy, and assets to direct the organization. Typically, the CEO is the strategist, champion, and leader for developing the business, or the prime reason for the business failing.
The European Union sees SMEs as playing a crucial role in powering economic growth, innovation, and the transition to more knowledge-based economic structures. At the employee level, Petrakis and Kostis (2012) 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 these companies, trust becomes widespread in a society when the number of SMEs is greater.P.E. Petrakis, P.C. Kostis (2012), "The Role of Knowledge and Trust in SMEs", Journal of the Knowledge Economy, DOI: 10.1007/s13132-012-0115-6.
Medium- or mid-sized enterprises that have grown beyond the scale of a small business may have different support needs. Their contribution to the local and national economies where they operate may also be quite distinct from the contribution of a smaller business.Department for Business, Innovation and Skills (UK), Mid-Sized Business (MSB) Growth - Evidence from Case Studies, published on 29 November 2011, accessed on 25 November 2024
By country Multilateral organizations have been criticized for using a single measure for all contexts.Kushnir (2010) A Universal Definition of Small Enterprise: A Procrustean bed for SMEs?, World BankGibson, T.; van der Vaart, H.J. (2008): Defining SMEs: A Less Imperfect Way of Defining Small and Medium Enterprises in Developing Countries", Brookings Institution website, September 2008 The legal definitions of SMEs vary by country.
Africa African small businesses frequently struggle to secure the capital 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 2021 Banking in Africa survey suggests that most responding banks had a non-performing loan (NPL) ratio of 5% or higher. NPLs account for at least 10% of the SME portfolio in approximately one-third of African banks. Furthermore, half of the banks had more than 5% of their SME portfolio under a moratorium, and 40% had a similar proportion 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 the state-run Central Agency for Public Mobilization and Statistics (CAPMAS). Medium-sized enterprises with 10 to 50 employees account for around 2.7% of total businesses. Large 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 large enterprises. Economic activity outside these establishments—like street vendors and farmers—was excluded from the census. The results show that Egypt is lacking in medium-sized businesses. Seventy percent of the country's 2.4 million businesses have only one or two employees, while less than 0.1%—only 784 businesses—employ between 45 and 49 people. If we look specifically at formally registered enterprises, SMEs constitute over 90% of all firms in Egypt's private sector and contribute approximately 43% of the country's GDP. Owing to their smaller scale, limited financial resources, and more restricted access to development support programmes, these enterprises are more vulnerable to external economic shocks compared to both larger firms and the informal sector. The same pattern is true not only for Egypt but for most African economies.
Kenya In Kenya, businesses are classified as micro, small, and medium-sized enterprises (MSMEs) under the Micro and Small Enterprises Act of 2012. By definition, micro-enterprises can have up to 9 employees, small enterprises 10 to 49, and medium enterprises 50 to 99.
Nigeria The Central Bank of Nigeria defines SMEs as entities having an asset base between ₦5 million ($15,400) and ₦500 million ($1,538,000), with an employee count ranging from 11 to 100.
Somalia In Somalia, 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 ($6,900). 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 ($69,200) in the agricultural sector to R13 million ($899,800) in the catering, accommodations and other trade sectors as well as in the manufacturing sector, with a maximum of R32 million ($2,214,800) in the wholesale trade sector.
Medium-sized businesses usually employ up to 200 people (100 in the agricultural sector), and the maximum turnover varies from R5 million ($346,100) in the agricultural sector to R51 ($3,529,800) million in the manufacturing sector and R64 ($4,429,600) 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 ownersDu Toit, Erasmus and Strydom "Definition of small business" Introduction to business management, 7th Edition Oxford University Press, 2009, p. 49
Tunisia In Tunisia, 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.
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 account for 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 Serial NoSectorFixed assets other thanland and buildings (Tk lakhs) Employed manpowerYearly Turnover(Tk lakhs)SEMESEMESEME01Services10 – 200200 – 300016–50 51–120N/A02Business10 – 200 16–50 100–120003Industrial75 – 15001500 – 500031–120121–300N/A
Hong Kong Hong Kong defines Small and Medium Enterprises (SMEs) 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 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 (MSMED Act) 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 NoClassificationCriteria (in ₹)1Micro EnterprisesInvestment <= 2.5 CR and Turnover <= 10 CR2Small EnterprisesInvestment <= 25 CR and Turnover <= 100 CR3Medium EnterprisesInvestment <= 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.
Indonesia
In Indonesia, the government defines micro, small, and medium enterprises (Indonesian: usaha mikro kecil menengah, UMKM) based on their assets and revenues according to Law No. 20/2008: Type Maximum assetsRp millions Gross RevenueRp millionsNumber of EmployeesStatistics Indonesia Micro <50 <300 1-4 Small 50-500 300-2,500 5-9 Medium 500-10,000 2,500-50,000 20-99 Large >10,000 >50,000 >99
An annual revenue of Rp 50 billion is approximately equal to US$3.1 million as of April 2024.