Sustainable Finance for Small and Medium-Sized Enterprises in an Emerging Market (2 Bridges for Economic Growth in Honduras)

There is a long history of expectations related to the financing of SMEs, some born out of a negative view of the economic development impact of micro finance, based on the conception that micro finance institutions were to “graduate” their clients to a level where their growth in revenue (and employees) would require that they seek commercial bank financing. There is also a growing literature on the “missing middle,” where the impact of addressing the lack of SME financing is expected to be job creation, the development of entrepreneurship, the building of a middle class, increases in the growth of GDP, and the promotion of innovation. Interest in the SME has been the foundation of many government and non-government organization training programs, but very little has been done in practical terms to create the link between these (hopefully) worthy small businesses and commercial bank financing. This case is, in effect, a challenge for building a bridge between banks and small businesses that may be a tool for the promotion of economic development in many countries of the world today. The teaching purpose of the case is to illuminate the problem of SME finance, and to both explain the solutions that 2 Bridges offers as well as to challenge the class participants to come up with new ideas for this purpose. The participants can focus on judging whether 2 Bridges has a sustainable model – which is the way the case is presented – or they could focus on coming up with a sustainable model whether it is one of the two presented here. We have found that it is easier to focus on the bank lending and venture fund bridges, and to try to judge whether they are sustainable. From that discussion, participants tend to come up with additional ideas about alternatives