Bridging the "Missing Middle" between Microfinance and Small and Medium-Sized Enterprise Finance in South Asia

With maturity in the microfinance market in South Asia, it is observed that some microfinance members’ needs grow beyond the boundaries of traditional microfinance group loans. In addition, there are other small enterprises whose needs are not met by microfinance institutions or commercial banks. It is important to address the financing needs of these firms given their employment potential, and hence this issue is on the policy agenda of the three countries studied in this paper: India, Bangladesh, and Pakistan.

Drawing on interviews with chief executives of lending organizations and desk research, this paper reviews the options currently available to such firms in each country, the lending models being used, and recent policy initiatives to promote them. Based on the country experiences, the features of successful lending models for this segment and the specific challenges that need to be addressed are summarized and conclusions drawn.