There are many micro and small companies ready to grow to the next level that are in need of greater financial services than they can access through existing MFIs or banks. MFIs themselves are generally not serving this niche for a variety of reasons, including lack of capital and lack of staff trained to analyze and service this different loan product.
Bank loans are options on paper, but remain distant in practical terms for various reasons (general culture of the bank and client does not encourage them to work together, lack of credit information on the client, many small businesses are still operating informally, banks’ primary focus is on larger loans, bribes, educational background or appearance of borrower, etc). Sources of debt capital are therefore still limited for small and medium businesses, though in some countries a limited number of larger MFIs have expanded or are expanding into this market and some banks are changing the ways they worked through the 1990s. There is tremendous demand for loans to SMEs in many developing countries and studies confirm the lack of lending to SMEs. This has given rise to the term the “Missing Middle”.
A 2008 article in the Colombian newspaper “Portafolio” states that there are 65,000 small and medium enterprises in the country today. Of these businesses, 51% complain of lack of financing, thus creating an enormous opportunity for an experienced lending company focused on that niche. The article goes on to state that the biggest problem for banks to lend to this niche is the informality in the sector and small entrepreneurs’ impression that the bank requirements are excessive. Venture South is almost alone in creating unique loan products and serving the Missing Middle. There are no other lenders in Colombia or the Philippines who are dedicated to this market or even satisfactorily partially serve it.