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Enterprise Segmentation Report - The Missing Middles: Segmenting Enterprises to Better Understand Their Financial Needs

This post highlights a resource originally published from the Collaborative for Frontier Finance (Omidyar Network / Dutch Good Growth Fund [DGGF]) and was authored by Kusi Hornberger and Veronica Chau with support from Robert Colvin and Mackenzie Welch from Dalberg Advisors as well as Priti Rao, Michael Mori, Sanjukta Das, and Nishita Kavadia from Dalberg Design which led the human-centered design research in India. 

This resource examines the impact that small and growing business (SGBs) have on emerging and frontier markets. The impact includes job creation, supporting economic growth, and providing goods to communities. The full report explores causes for finance gaps with SGBS, potential solutions, dynamic enterprises, and more. The full report is available online on the Omidyar Network website

The Missing Middles
Segmenting Enterprises to Better Understand Their Financial Needs

Executive Summary 
Small and growing businesses (SGBs) have a significant and positive impact on emerging and frontier markets. They create jobs, contribute to inclusive economic growth, provide access to essential goods and services to underserved populations, and spark innovative technologies and business models. These enterprises span a diverse range of sectors and business models—from rural agricultural cooperatives to innovation-driven startups to well established, multigenerational small family businesses in sectors like retail, trading, and manufacturing—and are managed by an equally diverse range of entrepreneurs. 

SGBs seek external financing for a range of purposes—to support early-stage growth, expand operations, finance working capital, and acquire new assets—but struggle to access forms of capital that meet their needs. According to the International Finance Corporation (IFC), small and medium enterprises in low- and lower-middle-income countries face a $930 billion financing gap.1 Accessing financing is particularly challenging for certain types of SGBs, such as early-stage ventures and businesses with moderate growth prospects, that are stuck squarely in the “missing middle” of enterprise finance: They are too big for microfinance, too small or risky for traditional bank lending, and lack the growth, return, and exit potential sought by venture capitalists.

This report proposes a new segmentation framework to help financial service providers, enterprises, donors, limited partners (LPs), and field-building organizations2 understand and navigate the complex landscape of SGB investment in frontier and emerging markets. We focus on enterprises3 with five to 250 employees and financing needs ranging from $20,000 to $2 million. These enterprises must be operated by opportunity-driven (as opposed to necessity-driven) entrepreneurs, be commercially viable, have some potential for growth, and employ non-family members. We include both impact-oriented and traditional, “bread-and-butter” enterprises within the scope of this study. We do not include enterprises that are informal or are unlikely to embark on a path of formalization, due to their limited growth prospects and the major difficulties financial service providers face in serving them. However, we do include high-performance microenterprises and startups that are on the path to formalization and growth.