Given that micro, small and medium enterprises (MSME) are the biggest contributor to job creation in low income countries, it is crucial to study them systematically and gauge the challenges they face. A recent study by IFC and the McKinsey estimates that the unmet need for credit by MSMEs in emerging markets to be between 2.2 to 2.7 trillion US dollars in 2011. The “Two Trillion and Counting” report is the first detailed mapping exercise of the MSME finance gap by region, size, volume and value report and was compiled using data from the World Bank Enterprise Survey and National Statistics agencies. It emphasizes the need for more and consistent data on MSME numbers, their current use of financial services and their unmet demand.
To estimate the value of the credit gap, consistent data are indispensable. It is generally admitted that the lack of internationally agreed indicators, harmonized definitions and comparable data makes it difficult to accurately assess the situation for small businesses. 

Harmonizing Development Finance Indicators
In the framework of the G20, the Global Partnership for Financial Inclusion SME data working group is also making some efforts to assess and map the global gap in SME finance as well as estimating the development impact of further financing to this sector. Following a recommendation from the working group to Development Financial Institutions (DFIs) to collaborate and harmonize their reporting in support of SME finance, IFC is leading a project to harmonize the SME Finance indicators and the data collection process across DFIs worldwide. A report is currently being prepared and is expected to present a harmonized framework for SME indicators to measure the development impact of DFIs’ SME financing operations. It will also present an assessment of different collection methodologies and monitoring frameworks as well as a working plan to help participating DFIs implement the recommendations. A first draft of a work map towards data harmonization will be presented in July, 2012 and later submitted to the G20 SME Finance Data and Measurement sub-group for their review and endorsement.

Finding a Common Definition
Experts working on SME finance data face a number of data-driven limitations, such as the lack of harmonized SME definitions across countries and various reporting frameworks. This includes the use of loan sizes as a proxies for standardized official SME definitions, mostly commonly in relation to the volume, assets, and the number of employees of SMEs.
The complexities arise due to DFI’s use of different values for the loan proxies as well as different thresholds in the official definitions, based on employees or assets. The use of loan sizes as a proxy for the SME definition still needs to be validated and some DFIs - among which IFC - are currently trying to assess this relationship. IFC is administering a survey with a group of its financial market clients, with the purpose of collecting baseline data on a sample of the Financial Intermediaries’ SME portfolio. This data is being analyzed and will be used to cross validate the various loan exposures and determine how closely correlated the loan size proxies are to the IFC/WB SME definitions.

In spite of the latest global progress made towards better SME finance data collection and harmonization, many challenges remain. Development Finance Institutions which are involved in this process need to improve the way they measure SME Finance on the demand and supply side. They also have to agree on a harmonized framework to measure SME Finance and a common SME definition worldwide.