SMEs have a various capability for creating economic development and in countries. These enterprises not only raise and develop employment and produce the needed goods, but also can enter to the global market, increase exports and provide foreign currency.
Due to their size, SMEs can attract the private sector for further investments. Moreover, as most smes may act in similar fields, the competitiveness created in the market may decrease the monopoly of large enterprises. Global statistics also indicate that improving the SMEs is an outstanding model for development of economic activities, decreasing poverty, resolving unemployment problem as well as modification of economic structure.
According to the European Union SMEs are the engine of the European economy. Statistics also prove that in 2013, over 21 million SMEs created around 88 million jobs throughout Europe. Nine out of every 10 enterprises in Europe is categorized as SMEs and they generate two out every three jobs.
Thanks to the role of SMEs in economy, many countries have supported SMEs in different ways, making efforts to raise the efficacy and growth of these enterprises. Supporting smes can be either regardless of their activity, or focused on the special filed they work in. Moreover, these supports could be performed as in form of passing regulations and rules or establishing institutions and organizations.
To encourage and support SMEs is also usually through affaires like education and training, consultancy, financial affairs such as loans and financing, tax exemption, from which finance is more effective.
Supporting SMEs, in reference to international organizations and regional associations
In line with their objectives, international organizations provide aids for SMEs which mostly include operational programs or training and consultation courses. For instance, the World Bank has allocated loans and finances to SMEs and has performed supporting plans in Lebanon, Jordan, Ethiopia, Nigeria, and Bangladesh.
The European Union, as a constant supporter of entrepreneurship and employment, has presented protective plans for SMEs and superintends the way they are performed. ” European Investment Bank” and “European Investment Fund” are two European institutions which are in charge of performing the financial plans concerning SMEs. Furthermore, the European Commission has also enacted more supporting programs through granting accessibility to the local financing institutions for SMEs. Such financing includes facilities as well as loan, guarantees, and microfinance (specifically for low-income applicants). These types of financing also bear advantages like extra loan amounts and lower commitments for borrowers.
Another assisting plan is “Innovfin”, standing for ” finance for innovators”, the joint project of European Investment Bank and European Commission which has been presented in accordance with “Research and Innovation program Horizon 2020”.” aiming to render consultation and financial services to research and development plans for SMEs. In addition, European Union has concentrated on vast comprehensive credits for SMEs damaged by Corona-virus pandemic.
National supports for SMEs
Countries have also assisted SMEs in local level, with respect to their economic goals. For example, the US has taken some initiatives in its banking system for supporting SMEs in addition to enacting laws and regulations. Rules such as “small business act”, “small enterprise investment act”, “small enterprises employment act”, “small enterprises investment corporations act”, are some acts approved for supporting SMEs in the United States. Moreover, the ” Small business administration” acts as a policy making supportive authority for SMEs in the United States.
The SBA’s plans are generally referred to as “access to investment plan” and its key part is to guarantee the facilities and loan payment to the turn over capitals up to five million dollars allocated to small enterprises.
Germany is also an outstanding example of supportive countries for SMEs. Over 99 percent of enterprises in Germany are SMEs supplying 60 % of employment and 47% of added value of the country. These enterprises hire educated workforce and provide them with technical and vocational training. According to statistics, SMEs provide about 89% of–technical and vocational training courses throughout Germany. In general, three federal administrations support SMEs: “Federal ministry for economic affairs and energy’, “KFW” and “Federal employment Agency”. The three organizations however, provide training, consultation and financing services. Further to the three authorities mentioned in Federal level, at the state level there are supportive organizations allocated to SMEs providing innovative supports, research and development, consultation services concerning business models, technology transfer, technical and vocational courses , and also guaranteeing loans and credits from private sector firms, granting loans for establishing such businesses.
Supporting SMEs in Iran
According to the Ministry of Industry, Mines and trade, there are around 82000 SMEs holding the “industrial exploiting license” in Iran, which are 90% of the total businesses holding the license throughout the country. Nevertheless, they only cover 40% of employment and 24% of county’s investment suggesting SMEs haven’t had sufficient or significant share in employment and production in Iran. Governmental organizations and authorities concentrate on large industrial entities while attention to small enterprises plays a more vital role on national economy and employment rate. Studies show that creating jobs in large industries such as petrochemistry, steel and cement, cellulose etc. Involves spending 20 times more than the SMEs sector.
Existing data until 2013 also unveil that, although 67% of jobs in industrial section of Iranian economy are created in SMEs, their share is only 19% of the total income of industrial section. In contrast, large enterprises receive 53% of the income in industrial section, while they only create 12% of the employment. The question is that which factors have caused industrial SMEs in Iran to only cover a small share of income while they create a high percentage of employment? One reason is attributed to the shortage of suitable market for these SMEs. On the other hand, the high power of state-owned enterprises in Iran has reduced the power of SMEs in the market. Therefore, it is necessary to allocate credits / finance to SMEs and to present supportive plans to meet their needs. Financing is one of the key problems for SMEs in developing countries which require financial banking facilities and interaction between manufacturing and industrial sections and the banks. In general, there is no purposeful structure to support SMEs in Iran. Two key organizations providing supportive services to these enterprises under the supervision of “SAMT ministry” (Ministry of industry, mines and trade) are “Iran small industries and industrial parks organization” and “small enterprises investment fund”.
The Iranian parliament has not yet approved any Act or rule to particularly support SMEs, although, in recent years (since 2016), Iran central bank has issued the “Instruction to finance SMEs”
According to the central bank report, and information collected from manufacturing units registering system, over 37000 SMEs have received financial aids amounted to 544,703,000,000 Rials in 2019. According to the Instruction the banks are required to focus on SMEs more than before, with higher accountability and responsibility due to the current economic conditions, and shall prioritize their facilities to achieve the purposes defined for production increase.
To which extent has the instruction been affective and successful on SMEs growth needs deeper studies, assessments at higher levels and statistical evaluation, in turn.
Sources:
1.Mir Tohid Kamali, Rahim Taqizade, identification and prioritizing factors affecting smes’ success using Fuzzy Analytic Network Process Method, 2017 (in Persian)
Research center of Islamic legislative assembly, financing model for smes, 1. An analysis of importance of financing smes, 2016 (in Persian)
Rahim Taqizade, countries’ policy making in supporting smes, 1. Germany, 2016 (in Persian)
Pre-conditions to increase smes, available at: https://www.eghtesadonline.com, last visited: 24/02/2021, (in Persian)
Central bank of Iran, instruction of financing smes declared, available at: https://www.cbi.ir/showitem/20336.aspx, last visited: 24/02/2021 (in Persian)
Small and Medium Enterprises (SMEs) Finance, available at: https://www.worldbank.org/en/topic/smefinance, last visited: 24/02/2021
Financing program for smes, https://ec.europa.eu/info/business-economy-euro/growth-and-investment/financing-investment/financing-programmes-smes_en , last visited: 24/02/2021