SMEs are important because on average, they comprise over 95 percent of the economy. As of July 2006, close to 140 million SMEs in 130 countries employed 65 percent of the total labor force1. Moreover, SMEs are the driver of economic growth and innovation. Figure 1 describes both reinforcing dynamics. The total number of SMEs in the economy depends on the rate of SME creation and rate of SME destruction. Profitable market opportunities increase the rate of SME creation. This increases the total number of SMEs in the country, which increases job creation and income per capita. As people become wealthier, they will increase their consumption, which in turn will open up new market opportunities that will entice the creation of more SMEs. Contrary to multinational corporations, the growth of SMEs directly benefits the country because most SMEs are domestic firms. This reinforcing dynamic generates economic growth.

The reinforcing loop of innovation also drives economic growth. As the number of SMEs increases, their knowledge of their product and industry increases. Their knowledge allows them to innovate on the product or process, which helps them form a competitive advantage to generate more profits. Again, market opportunity as captured by the profitability of SMEs will encourage more people to establish their own SMEs to capture the opportunity.

In addition, the development of SMEs can also help to achieve other development goals. SMEs can either provide goods and services in areas critical to development, such as health and education, or provide a source of income to disadvantaged people. For example, efforts to develop women entrepreneurs help increase gender equality by providing women with a source of income.