Investing in SME's in developing countries. Discuss different facets Essay

Investing in SME's in developing countries. Discuss different facets associated with these investments (from the perspective of - Essay Example There has been an upward trend in the acquisition of private equity funds due to a number of reasons. Apart from the high returns on investment, small and medium enterprises take up private equity because the markets have been liberalized to free market economies and there is proper disclosure and financial reforms that enable transparency to be experienced at the time of investment. PE funds also enable companies fill the gap in finance in the self-financing of the company and obtaining funds from other sources. Small and Medium Enterprises (SMEs) Small and medium enterprises (SMEs) have numerous definitions with each country having its own distinct definition depending on its own unique economic patterns. However, most countries base their definitions in the number of employees, value of assets or the annual turnover for a firm to qualify as a small and medium enterprise. For example, the European Union states the limits for the number of employees in SMEs to be between 200 -250, w hile Japan sets the limit as 300 employees. This starkly contrasts with the situation in USA whereby SMEs are those enterprises with about 500 employees in the firm (Murphy 7). According to the World Bank, small and medium projects are those businesses with workers not exceeding 300 in number with a yearly income turnover of $ 15 million, and resources that are valued at $ 15 million. Data made available by Organization for Economic Co-operation and Development (OECD) show that almost 100% of business entities or enterprises within the grouping are small and medium enterprises accounting for 60% of employment in the private sector thereby making a substantial contribution in the development of economies of most developing nations. Developing nations define SMEs as groups of businesses that is composed of a mixture of self-employed or enterprises that have less than 10 employees and they are often found in informal sectors of the economy. The SMEs are regulated through certain princi ples that allow them to thrive in any given market. These principles include the proportionality principle that establishes an appropriate comparison or balance between risks and costs and their impact on the regulation of the business. This ensures that there are no needless or unnecessary demands placed upon the business in its regulation. The policy objectives must be transparent, clearly defined and communicated to the SMEs so that they know their prime objectives and obligations and make them aware of the expectations from the regulatory authorities. There must be accountability in the preparation of proposals and consultation before the making or taking of decisions. SMEs do well in environments where the policies put in place are consistent in application. SMEs are important in the economies of developing nations in that they provide the important revenue that translates to more tax by specific nations. They also contribute to the creation of employment opportunities and reve nue generated from exports. They are however restricted in the acquisition of funds as often, they possess little information that may be required to access funds from example bank loans. This has made such kind of enterprises to resort to private equity funds that is fast gaining ground in the world’