BRINGING

SMART
POLICIES
TO LIFE

DEFINING MICRO, SMALL AND MEDIUM

ENTERPRISES (MSMEs) IN THE AFI NETWORK
Survey Report
March 2017

AFI SMEF WORKING GROUP PUBLICATION

CONTENTS
Background 3
Introduction 4
Objective of this Survey Report 4
Scope of the Survey 4
The Survey – First Phase
Design 5
Implementation 5
Findings 5
The Deep Dive: Focusing on Country Experiences 6

ACKNOWLEDGEMENTS
This survey report was written by Maria Christina Simbulan (Bangko Sentral
ng Pilipinas), based on a survey designed and analyzed by Lenny Palit
(Central Bank of Seychelles) and Jose Kattoor (Reserve Bank of India). Maria
Moreno Sanchez and Wong Wei Ping (Alliance for Financial Inclusion) also
made significant contributions.

Special thanks to all member institutions that provided responses to the

surveys used to inform this survey report: Wendy Doñan Villalta (Banco
Central de Reserva de El Salvador), Maria Freitas da Silva and Nur-Aini
Djafar Alkatiri (Banco Central de Timor-Leste), Maria Christina Simbulan
(Bangko Sentral ng Pilipinas), Syed Islam (Bangladesh Bank), Lisa Khulasoh
and Yunita Sari (Bank Indonesia), Norsuraya Kasim (Bank Negara Malaysia),
Charles Kimaro (Bank of Tanzania), Yao Beugre (Banque Centrale des Etats
de l’Afrique de l’Ouest (BCEAO), Marie Thérèse Muhorakeye (Banque de
la République du Burundi), Lenny Palit (Central Bank of Seychelles), Olga
Sorokina (Central Bank of the Russian Federation), Valerie de la Fuente
Rodríguez (Comisión Nacional Bancaria y de Valores de México), Ariun
Narmandakh (Financial Regulatory Commission of Mongolia), Mohammad
Mannan (Microcredit Regulatory Authority of Bangladesh), Olga Nyampundu
(Ministère des Finances, du Budget et de la Privatisation du Burundi), David
Myeni (Ministry of Finance of Swaziland), Kamnan Em (National Bank of
Cambodia), Olga Ilyukevich (National Bank of the Republic of Belarus),
Ana Kavaliku (National Reserve Bank of Tonga), Joseph (Esala) Masitabua
(Reserve Bank of Fiji), Jose Kattoor (Reserve Bank of India), Gopi Nepal
(Royal Monetary Authority of Bhutan), and Jason Barrantes (Superintendencia
©2017 (March), Alliance for Financial Inclusion. All rights reserved. General de Entidades Financieras de Costa Rica).
3
SME WORKING GROUP SURVEY REPORT:
DEFINING MICRO, SMALL AND MEDIUM ENTERPRISES
(MSMEs) IN THE AFI NETWORK

BACKGROUND

In 2014, at its very first set of meetings, AFI’s SME Finance

Working Group (SMEF WG) decided to publish a guideline note of
basic terminology that would help to create a clear and common
understanding of SME financing tools. When the final product
was presented two years later, it became clear to the sub-group
in charge that the proposed terminology included terms already
defined by international organizations, and national differences
in the AFI network would make it difficult to settle on universal
definitions if the most important term was not defined: micro,
small and medium enterprises (MSMEs).

Is it possible to create a standardized universal definition for

MSMEs? At the 6th Working Group Meeting in Mongolia, the SMEF
WG decided to first agree on the best way to respond to this
question. A group breakout discussion shed light on the difficulties
of reaching consensus on one definition, and the group realized
it would be easier to define MSMEs by defining the criteria that
defines MSMEs.

The Reserve Bank of India, Bangladesh Bank, Bangko Sentral ng

Pilipinas and the Central Bank of Seychelles proposed exploring how
these criteria were commonly understood. An on-the-spot survey
defined the criteria as number of employees, assets, sales revenue
and turnover, and existence of a legal definition. Twenty-one
countries provided responses and it was clear that most SMEF WG
countries define MSMEs based on number of employees, assets and
turnover. The Working Group agreed to supplement these initial
findings with additional surveys and prepare a report. The survey
results were presented at the 7th SMEF WG meeting in Fiji and,
with the support of AFI, the group decided to report on its findings
and pose further research questions to the group.
4
SME WORKING GROUP SURVEY REPORT:
DEFINING MICRO, SMALL AND MEDIUM ENTERPRISES
(MSMEs) IN THE AFI NETWORK

OBJECTIVE OF THIS SURVEY

INTRODUCTION REPORT
Micro, small and medium enterprises (MSMEs) make a The objective of the SMEF WG survey was to take stock of
vital contribution to economic growth and development. MSME definitions across AFI’s global network, identify what
They represent a seedbed of entrepreneurial skills and criteria was being used to define MSMEs and whether a
innovation, contribute to job creation, and are considered specific policy informs these classifications.
the backbone of the global economy. The World Bank
has reported that formal MSMEs contribute up to 45% The survey has two phases. First, the survey was
of total employment and up to 33% of national income completed by individuals from AFI member institutions,
(GDP) in emerging economies.1 These numbers would be who answered questions about how MSMEs are defined in
significantly higher if MSMEs in the informal sector were their countries and whether the definition is official (i.e.
also included. defined by law or in a government policy). The second part
of the study will take a closer look at country experiences
Despite the important role of this sector in achieving more to understand how comprehensive MSME definitions are
inclusive economic growth, access to finance for MSMEs and how they have been implemented. This will reveal the
remains a challenge. MSMEs typically do not have collateral advantages and challenges of current definitions, how well
to back their loans, lack credit history and, because most they reflect the state of MSMEs in AFI member countries
MSMEs have a low equity ratio, they are more vulnerable and whether the definitions need to be refined.
to external influences (e.g. price risks, interest rate risk)
than large enterprises.

Government regulators and policymakers have introduced

a variety of measures to support the MSME sector, ranging
from legislation to supportive regulations, infrastructure,
SCOPE OF THE SURVEY
and capacity building and education, among others. A
detailed report of these initiatives can be found in the The objective of the SMEF WG survey was to take stock of
AFI SME Finance Working Group Guideline Note No. 23, MSME definitions across AFI’s global network, identify what
“The Role of Financial Regulators in Promoting Access criteria was being used to define MSMEs and whether a
to Financing for MSMEs: Lessons from the AFI Network”, specific policy informs these classifications.
in which 25 member institutions describe policies
implemented in their countries to harness access to The survey has two phases. First, the survey was
financing for MSMEs. completed by individuals from AFI member institutions,
who answered questions about how MSMEs are defined in
To cater to the financial needs of the MSME sector, their countries and whether the definition is official (i.e.
financial policymakers and regulators need to understand defined by law or in a government policy). The second part
them better. One way to do this is to look at how MSMEs of the study will take a closer look at country experiences
are defined — what constitutes an MSME and how should to understand how comprehensive MSME definitions are
they be categorized? Defining MSMEs is important and and how they have been implemented. This will reveal the
useful for policymakers and other stakeholders working to advantages and challenges of current definitions, how well
develop and strengthen this sector. Having a definition that they reflect the state of MSMEs in AFI member countries
is universally used and recognized would also be helpful and whether the definitions need to be refined.
for generating statistics and monitoring the health of the
sector over time. It would enable policymakers to identify
and focus on special interventions, such as credit lines,
loan guarantees, business development services, eligibility
for technical assistance from international and local donor
agencies, or other fiscal incentives like tax holidays.
Finally, defining MSMEs would help with benchmarking
against other economies and between regions, preventing
arbitrary thresholds for tax or other regulations and
determining eligibility for public support.2

Globally, MSMEs are defined differently by international

institutions, national law and industry. Indeed, one of the
main challenges of analyzing SME data across countries has
been the lack of consensus on what constitutes an SME.3

1 http://www.worldbank.org/en/topic/financialsector/brief/smes-finance
2 OECD-UNIDO, 2004, “Effective policies for small business”
3 The World Bank, 2011, “Small and Medium Enterprises: A Cross-Country
Analysis with a New Data Set”
5
SME WORKING GROUP SURVEY REPORT:
DEFINING MICRO, SMALL AND MEDIUM ENTERPRISES
(MSMEs) IN THE AFI NETWORK

THE SURVEY – FIRST PHASE

A. DESIGN FINDINGS
The survey was conducted within the AFI network among 1 The top criteria used to define MSMEs in AFI member
member countries of the SMEF WG. Data was collected countries were
using a structured questionnaire distributed to members of (1) number of employees,
the SMEF WG through email. (2) sales turnover and
(3) asset size.
The survey questions were as follows: There were no distinct regional patterns in criteria use.
i Name of country 2 Survey responses were analyzed using income data
ii Region to which the country belongs (GDP per capita) and population. There does not appear
iii Criteria used to define MSMEs in their country to be a strong relationship between income level and
> Assets the number of definitions a country has. The same was
observed when trying to identify patterns between
> Number of employees
population and number of definitions.
> Sales turnover
3 Definitions varied by region. This is expected and
> Sector
understandable due to country-specific issues and
> Others regional considerations. However, we should be mindful
iv Whether the definition is official (legally defined) of drawing conclusions based on limited data.
4 Latin America seems to have the most diverse
definitions, with assets and employee numbers being
IMPLEMENTATION the most common criteria. The SMEF WG will need to
The questionnaires were submitted to 40 member conduct further research to determine whether this is
countries of the SMEF WG. Only 28 member countries unique to this region.
successfully completed the questionnaire — a 70% 5 Having a definition backed by policy or law is seen to
response rate. These countries represent seven regions strengthen the legal and contractual status of MSMEs.
of the AFI network. Sixty percent of the countries surveyed have legally
defined their MSMEs. Latin America has a relatively
larger share of countries that have legally defined their
MSMEs. (There was only one respondent for Middle East
and North America, however.)

FIGURE 1: TOTAL RESPONSES BY REGION FIGURE 2: TOP CRITERIA USED TO DEFINE MSMEs BY REGION

Legally defined Not legally defined

Number of
15 11
Employees

5 Sales
16 6
Turnover
4
3 3 3 Assets 14 5

1 Sectorial 7 10
East Asia Eastern Latin Middle East South Asia Sub- The
& South East Europe & America & North Saharan Pacific
Asia Central Asia & the Africa Africa
Caribbean

Source: AFI Source: AFI

6
SME WORKING GROUP SURVEY REPORT:
DEFINING MICRO, SMALL AND MEDIUM ENTERPRISES
(MSMEs) IN THE AFI NETWORK

THE DEEP DIVE: FOCUSING ON COUNTRY

EXPERIENCES
At the 2016 Global Policy Forum in Fiji, the SMEF WG met
to discuss how to move forward with the second phase
of the study: a deep dive into country experiences. The
idea is to present actual cases of what has worked, is still
working and definitions that need to be refined. This will
be particularly helpful for countries that have not yet
officially defined their MSMEs and those that need to revisit
their definitions.

Phase two will highlight both the challenges and

advantages of having official definitions. Aside from
identifying the criteria being used to define MSMEs in
the AFI network, the second phase seeks to answer the
following questions:
> What is/are the rationale for defining MSMEs in these
ways?
> Which agency(ies) developed the definitions of MSMEs?
> Is there a law/act backing up the definition of MSMEs?
> Who championed/lobbied for the passing of the act/
law on the MSME definition?
> Which definition do financial regulators subscribe to?
> If more than one agency in your country has defined
MSMEs, do you have challenges harmonizing the
definitions?
> If your country has an official definition of MSMEs, was
there a significant observed change in terms of access
to finance?

During the meeting, the following countries were selected

to participate in the second phase of the study:
1 Pakistan
2 Malaysia
3 Indonesia
4 El Salvador
5 Belarus
6 Bhutan
7 Tonga
8 Madagascar
9 Swaziland
10 Democratic Republic of Congo (DRC)
7
SME WORKING GROUP SURVEY REPORT:
DEFINING MICRO, SMALL AND MEDIUM ENTERPRISES
(MSMEs) IN THE AFI NETWORK
Alliance for Financial Inclusion
AFI, Sasana Kijang, 2, Jalan Dato’ Onn, 50480 Kuala Lumpur, Malaysia
t +60 3 2776 9000 e [email protected] www.afi-global.org
www.facebook.com/AFI.History @NewsAFI