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Corporate governance to help build MSME resilience
December 23, 2017, 11:34 am
Carla Koffel, executive director of the Pearl Initiative

The micro, small and medium enterprises (MSME) community, which employs more than 17 million people in the GCC region, plays a crucial role in building the regional economy. The sector is projected to grow in the region by 156 percent over the next five years, representing a value of more than US$920 billion. With an increasing number of entrepreneurs taking the plunge and launching new ventures, the MSME sector certainly appears poised to continue its upward trend.

However, various industry reports have shown that only 30 percent of these enterprises are equipped to transition to the next stage of their growth, with the majority of such enterprises facing challenges to remaining resilient in the long-run.

From absence of cash and funding, to difficulties in attracting and retaining talent, MSMEs face challenges that more often than not limit their capabilities and thwart their efforts in building capacity.

While these issues do not have a one-size-fits-all solution, one common thread that appears to be integral to the success of all MSMEs is implementing strong corporate governance practices. Corporate governance serves as a vital tool in helping companies improve their readiness, resilience and reliability and also plays an important role when MSME’s want to expand geographical footprint, raise capital, and attract and retain talent.

Today, corporate governance is viewed as an essential building block of reputable companies and stable economies. It is considered crucial to achieving new benchmarks of competitive advantage and long-term profitability, which eventually leads to resilience and credibility.

In Kuwait, the concept of corporate governance gained momentum following the global financial crisis of 2008 and the resulting economic downturn. Major steps were taken to reform, integrate and codify governance practices across Kuwaiti businesses. Unfortunately, the same cannot be said about the MSME community, mainly due to its management structure and financial constraints that frequently prevent the implementation of a robust governance matrix.

However, MSMEs need to apply good governance practices not only to boost their reputation and agility, but more importantly, to secure trust and access to capital that can ensure the continuity of the business.

With securing capital and private equity emerging as top concerns for many MSMEs in the region, good corporate practices empower these enterprises with the much-needed legitimacy and reputation to step up their chances of securing funds.

While governance is not a one-step process, the sooner MSMEs begin to adopt good corporate practices, the faster they can hope to reap its benefits. There may be no easy fix for the challenges facing MSMEs, but adopting good corporate practices are a way to directly drive positive change that can boost an organisation's competitiveness and make it more attractive to investors, lenders and the right talent.

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