Multinational companies (MNCs) have a significant role to play in private sector strategies aimed at benefiting markets at the base of the pyramid (BOP). From a development perspective however, the role of local actors, especially indigenous small and medium-sized enterprises (SMEs), may be equally or perhaps even more important. There is now a growing body of research on the value of local enterprise networks or market-oriented ecosystems that - in addition to SMEs - include micro-entrepreneurs and NGOs; that often include local communities, cooperatives, and microfinance organizations; and that sometimes include donors, government actors, and large corporations. This local enterprise network approach holds the promise of delivering a broad range of sustainable outcomes that benefit the world’s poor.

Professor David Wheeler of York University analyzed this new approach in his piece Creating Sustainable Local Enterprise Networks, recently published by MIT’s Sloan Management Review. I spoke with Prof. Wheeler about the model, and will be posting his responses to my inquiries over the next two weeks.

A.H.: Much of the discussion about private sector approaches to development and to serving the BOP has focused on large multinational companies. Your work focuses on the role of smaller indigenous companies in developing countries, so-called small and medium enterprises, and suggests that they have an equal or even greater role to play. Could you describe the unique role of SMEs—and of local networks--in building economies and in poverty reduction?

There have been many criticisms of microfinance as an ineffective way of reaching out to the poorest of the poor. The problems cited:

-MFIs deliberately avoid the poorest whom they believe can never repay loans
-loans that would help the poorest would be too small to be profitable even for small MFIs
-loans are intimidating to the poorest poor who have no experience with credit
-MFIs often require collateral to ensure repayment--which the poorest people simply do not have.