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This is how small business reduces poverty in developing economies


Private Sector

The importance of private sector development in poverty alleviation is becoming increasingly apparent. The private sector, which includes small businesses, provides and supports the jobs that enable impoverished people to work and earn the money they need to buy products and services. In the field of small business development (SED), a consensus is forming on what is required to assist the establishment and expansion of businesses. 


Key areas include: a policy, regulatory, and legal environment that is simple, fast, inexpensive, and free of corruption; lowcost financing that does not require the poor to provide physical collateral; access to affordable business development services; workers who are trained in appropriate skills; basic health and education that strengthens human capital; and a policy, regulatory, and legal environment that is simple, fast, inexpensive, and free of corruption.

Small businesses

Nonetheless, a number of serious problems persist. First, it’s unclear how to transition the small business economy from micro and small businesses (MSEs) to small and medium businesses (SMBs) (MSEs). It’s critical to fill up the gaps in the middle, so that more of the new employment are based on sufficient pay and working conditions. Second, efforts to objectively quantify the impact of SED activities on poverty reduction are still lacking. This is necessary for determining what works and what doesn’t, as well as for creating effective practice. Finally, there is the crucial question of how much of SED should be supported and how much should be financially viable.



Poverty is defined by the world community as a combination of material and service deprivation (food, shelter, basic amenities, etc.) as well as issues of voice, representation, and power. At the same time, it employs more limited income measurements, such as those outlined in the Millennium Development Goals, which define poverty as the inability to survive on less than $1 per day. The International Labour Organization (ILO) does not have a particular definition of poverty. The broad concept and the characteristics of decent labor, however, are strikingly similar (rights, productive employment, social protection and social dialogue). Because the broad definition is so broad, any activity that promotes better working conditions, rights, and representation can be categorized as poverty alleviation.

Small business

Small business growth helps to alleviate poverty by creating jobs, whether via the start-up of new businesses or the expansion of current ones. Poor people benefit from job creation since it provides them with income. Poverty is lessened when working conditions and representation are better, according to the wide definition. SED can benefit five types of poor people: I poor owners of micro and small businesses; ii) the working poor who work in small businesses; iii) the dependents of such poor workers and owners; v) the unemployed who may find work in small businesses; and v) poor people who buy goods and services from small businesses.


If the ILO’s Small Enterprise Development Programme wants to evaluate if its operations genuinely contribute to poverty reduction, it must create far better impact assessment capabilities. Its recent efforts are commendable in this regard. The ILO’s overall impact evaluation is also lacking, and it must be addressed if the organization is to know whether or not its new poverty efforts will be successful.


SEED’s program should collaborate more closely with the ILO’s microfinance, vocational training, and cooperatives departments. Some work in these areas have already begun, such as examining efficient ways to integrate microfinance with management training. More work is also needed to assist the rising use of machinery by small businesses in order to boost their productivity.

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