With generous support from the Ford Foundation's Affinity Group on Development Finance, CFED launched a Small Grants Program in 2006 designed to explore the linkages between SME strategies and poverty reduction.  CFED solicited proposals to document innovative pro-poor SME programs and/or policies, and received over 40 applications.  From that group, four innovative strategies in four different countries were ultimately chosen to receive funding for the creation of case studies – guided by independent researchers and evaluators - that would document their theories of change, program components, and outcomes for poor individuals throughout the value chains of the SMEs they support. 

The grants were awarded to Pacific Community Ventures of San Francisco, California; Center for Human and Economic Development Studies at Peking University in Beijing, China; Aavishkaar India Micro Venture Capital Fund in Mumbai, India; and FUNDES Argentina in Buenos Aires, Argentina.

Considered together, these four case studies present compelling evidence that strong and vibrant SMEs can be a powerful and important conduit to economic gains for poor people.  However, they also suggest that while healthy growth of the SME (as an enterprise) is a necessary precondition for social impact, poverty reduction cannot simply be assumed to result from all programs or policies that support SMEs.   The following aspects of program design are important to consider when gauging a program’s potential for poverty reduction:

Which SMEs are served, how are they supported, and what poverty reducing actions are companies encouraged or required to take;

• Where along the SMEs’ value chain are poor individuals positioned to benefit (e.g. does the theory of change target employees, suppliers, or customers);

What are the mechanism(s) that translate SME growth or stability into benefits for poor individuals; and,

• Where is the program operating (e.g. are the SMEs located in broadly poor areas)?

Read more: click here to download CFED’s summary analysis of the four case studies.

Pacific Community Ventures, San Francisco, California, USA
Pacific Community Ventures (PCV) is a Community Development Venture Capital Fund that focuses on investing in small businesses that provide quality jobs in low and moderate income (LMI) communities throughout California.  It defines “quality” jobs as those that pay a living wage and provide health benefits and opportunities for skill and asset building.  In other words, these are jobs which allow relatively low skilled workers from LMI communities to build wealth and move out of poverty.  PCV’s target for poverty reduction is the employees of its portfolio companies. It believes that “having a constant store of quality employment opportunities is the only sustainable way to lift local communities out of poverty.” 

Click here to download Pacific Community Ventures’ case study.

Aavishkaar India Micro Venture Capital Fund, Mumbai, India
Aavishkaar is a socially motivated venture capital fund which provides investment capital and management advice to SMEs.  The fund has a wide service footprint in rural and semi-urban India, and its pro-poor business strategy is to invest in entrepreneurial start-ups and SMEs that create products and services that provide economic opportunities and benefits to the poor.  Its primary target for poverty reduction is the customers of its portfolio companies.  Aavishkaar portfolio companies provide the rural and semi-urban poor with products and services that improve economic productivity and profitability, lower the costs of both business and personal activities, and provide access to previously unavailable or unaffordable health, financial or energy services.  

Click here to download Aavishkaar’s case study.

FUNDES Argentina, Buenos Aires, Argentina
FUNDES works to develop and strengthen the competitiveness of SMEs throughout Latin America through branches in ten countries.  The intervention documented in FUNDES Argentina’s case study aims to increase the competitiveness and sustainability of SME subcontractors to large cement and ceramic producers in the municipality of Olavarría in Buenos Aires Province.  The program provides intensive management consulting as well as business networking support to the SMEs, and by doing so aims to improve business practices and competitiveness among SMEs in its program.  FUNDES’ support is also designed to strengthen the vertical relationships between the SMEs and large producers and the horizontal relationships among the SMEs themselves.

Click here to download FUNDES Argentina’s case study.

Center for Human and Economic Development Studies, Peking University, Beijing, China
Established in 2005, the Center for Human and Economic Development Studies (CHEDS) is a non-profit research institution based at the School of Economics, Peking University.  CHEDS researchers have been particularly interested in economic development and poverty reduction in rural areas, including the role SMEs play in increasing farmers’ income, reducing poverty, and mitigating income inequality in China.  In order to combine their research with the practical promotion of development programs, they work closely with local officials in Xiji County who have implemented multiple, interlocking programs and policy interventions – which constitute an agricultural industrialization strategy – in support of SMEs in the region’s potato processing sector.

Click here to download CHEDS’ case study.