Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits. The abbreviation “SME” is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO). Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors.
Speaking of Iran, there is little unanimity regarding the definition of SMEs. Various ministries, institutions and organizations related to SMEs in one way or another have their own criteria to describe, categorize or define SMEs.
As defined by the Ministry of Industry and Mines and Trade and the Ministry of Agriculture, SMEs are (rural) industrial and service enterprises with less than 50 employees, whereas the Ministry of Cooperatives alternately uses the criteria either determined by the Ministry of Industry or Mines and Trade, or by the Statistical Center of Iran (SCI) in defining SMEs.
Following you can see the table list of these state-run entities and their differing criteria for such measures.
However, SCI labels the businesses with less than 10 employees as SMEs and categorizes those exceeding this number as large industrial firms. As it is clear from the table above, the Central Bank of Iran regards those with fewer than 100 employees as SMEs.
Industries constitute 82,810 small and about 7,707 medium-sized and large enterprises in Iran, according to Central Bank of Iran statistics at the end of the Persian calendar year 1392 (2013-14 ended 20th March). Small businesses’ contribution to the industry sector stands at 94%, but amounts of investment dedicated to the sector are not proportionate to the sector’s share of the economy in general, according to Ali Yazdani, CEO of Iran Small Industries and Industrial Parks Organization (ISIPO).
Indeed, 70% of job opportunities and 50% gross domestic product (GDP) across the economy depends on small businesses. However, not having enough access to bank loans and necessary facilities have impeded the development of these enterprises broadly and have hampered production in Iran. The average investment in small enterprises is meagerly around IRR 2 bn, approximately $580,000 at the market exchange rate.
In respect to value-added rate, this metric for SMEs’ in Iran has been as little as 16.8% in recent years. Despite the emphasis on expansion and growth of SMEs in the Fourth and Fifth Five-Year Development Plans (2006-16), these businesses seem to have not benefited from such policies due to wrong policies have taken in the previous administration and misallocation of scarce money to unjustified schemes such as fast return plans which never hit its intended target.
In the same vein, governmental and non-governmental companies are primarily considered to be controlling more than 80% of the economy. They have been monopolizing the business environment with strong financial structures, hindering small enterprises’ capability from competing with huge economic corporations according to a report published by Majlis (Parliament) Research Center of Iran. Worryingly, this deteriorated the awkward conditions of such economically-ill, low- populated enterprises all in all.
Meaningful information and statistics about the SME sector subdivided by size category, type of workers, age of companies, legal forms, technological and financial standing, production volumes, exports, level of certification, etc., is either absent or incomplete, reducing the scope for a thorough analysis of the sector and the ability to fine-tune the policy instruments needed to assist the sector effectively (UNIDO, 2003).
Unlike other countries, there is no well-defined clear mechanism for the growth of SMEs. This has recently been addressed by top government and private sector officials. The 3% economic growth in 2014/15, for instance, is largely because of the large enterprises’ contribution and not the SMEs to the economy, in Tayyebnia’s telling, the economy minister.
In sum, with the launch of SMEs’ market in Iran’s smaller exchange, Iran Fara Bourse, Rouhani administration is bent on developing the economic growth and help irradiate the widespread unemployment in the country. In this regard, the recent letter from the governor of the Central Bank of Iran to CEOs of banks and credit institutions asking them to allocate at least 10% of loans to SMEs is an important step forward. This would facilitate the kind of financing necessary to boost SMEs, thereby creating sustainable economic growth that can create jobs.