02 June 2010

The “missing middle”

The failure of microfinance to have a large impact on firm creation and firm growth (Banerjee et al. 2009; Karlan and Zinman 2009; a summary by FT) may be due to its targeting of poor people and small-scale firms. It is medium to large scaled firms that are missing in less developed countries (LDCs) if the firm size distribution is compared to the one from developed countries (Hsieh and Klenow 2009), and that type of firms is probably the driver of economic growth. Governments in LDCs and development assistance agencies, however, have ignored these medium and large scaled firms.

That is Abhijit Banerjee talking at the Annual Bank Conference on Development Economics.

I suppose medium scaled firms just aren’t as sexy as a single female entrepreneur. Perhaps we need a catchy name for support to mid-sized firms. “Middle-finance”? “Medium-finance?” “Meso-finance?” Melody Atil is trying to plug this gap in Southern Sudan by recruiting investors for slightly larger firms.

Then again financing might not even be the main constraint to firm growth…

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