Private equity investment, Leveraging opportunities in SMEs

September 18, 2023

As India aspires to become a $5 trillion economy, the pivotal role played by SMEs and the investment opportunities they present cannot be underestimated. Globally, SMEs account for 90 per cent of all businesses and 50 per cent of employment.

The impact of SMEs becomes even more pronounced when informal SMEs are considered. In emerging economies like India, they contribute to 45 per cent of the total industrial production, 40 per cent of the total exports and a substantial 37.54 per cent of the country’s GDP.

Earlier this year, India defied global downward trends by topping the global stock exchange rankings in terms of the number of IPOs. Indian exchanges recorded an impressive 80 listings in the year-to-date 2023, marking a remarkable 33 per cent increase over the IPOs in the first half of 2022. The surge is largely attributed to SME IPOs.

Historically, private equity (PE) firms have homed in on larger and more established enterprises in developing economies. However, the World Economic Forum has identified a persistent financing gap for businesses requiring between $50,000 and $2 million in external capital. PE firms can step in to create lasting institutions and foster economic growth.

The rise of fintechs and the adoption of technology has enabled the lending value chain, improving financial access for underserved “credit-hungry” customers, which includes SMEs.