5 Common Challenges Faced by MSMEs and How to Overcome Them

Micro, Small, and Medium Enterprises (MSMEs) are a major source of employment of labour in the world, accounting for over 50% of employment worldwide. They also represent an estimated 90% of businesses and contribute approximately 40% to the national income (GDP) in emerging economies. Notably, these figures only account for formal businesses—those with legal recognition. When informal businesses come into the shade, the numbers might be insignificantly higher.
According to World bank, 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world. In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs.
While the statistics above might make MSMEs look very easy to start and run, it can actually be daunting. A broader statistic indicates that over 95% of MSMEs fail within their first five years.
What then are the major cause of failure?
We will examine five major challenges faced by MSMEs and explore potential solutions.

1. Access to Finance: According to IFC, in emerging markets, 70% of MSMEs lack adequate financing while 1.7 billion adults lack access to basic transaction accounts. Those without access are largely concentrated in Asia and Sub-Saharan Africa and are disproportionately poor and female.
   Solution: Expanding financial inclusion through microfinancing and accessible credit can empower these businesses to grow and thrive.
2. Multiple Taxation: MSMEs face the burden of numerous taxes and levies imposed by various government levels, which can significantly increase operational costs. This complex taxation system often leads to unauthorized levies and discourages investment in the sector, ultimately hindering growth.
   Solution: Governments should streamline the tax system to simplify compliance for MSMEs. Implementing a single-window clearance system for tax collection can reduce the administrative burden on small businesses. Additionally, providing tax incentives or exemptions for MSMEs can encourage growth and investment in this vital sector.
3. Inadequate Infrastructure: Poor infrastructure, including unreliable power supply, inadequate transportation, and lack of access to essential services, poses significant challenges for MSMEs. These deficiencies can increase operational costs and limit market access, affecting overall productivity.
   Solution: investment in improving infrastructure, particularly in rural and underserved areas. Public-private partnerships can facilitate the development of necessary infrastructure projects.
4. Lack of Skilled Workforce: Many MSMEs struggle with a shortage of skilled labor, which affects their ability to operate efficiently and compete in the market. The workforce often lacks essential skills in management, technical areas, and digital literacy, which are crucial for modern business operations.
   Solution: Implementing training and capacity-building programs tailored for MSME employees can enhance their skills. Collaboration with educational institutions to create vocational training programs can also help bridge the skills gap.
5. Limited Access to Markets: MSMEs often face challenges in accessing domestic and international markets due to a lack of information, resources, and networks. They usually struggle to identify potential customers.
   Solution: Businesses can leverage on the use of social media to reach a large audience of potential customers. Organizing trade fairs and exhibitions can also help small businesses showcase their products and services to a wider audience.